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HCA003242/1986
1986, No. A3242
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
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BETWEEN
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JAS FORWARDING (HK) LIMITED |
Plaintiff |
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UIC FACTORY LIMITED |
Defendant |
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Coram: Hon. Hooper, J. in Chambers
Date of Hearing: 5 September 1986
Date of Delivery of Judgment: 15 September 1986
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JUDGMENT
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1. This is an appeal from the decision of a Master on an Order 14 application granting the defendant unconditional leave to defend this action and costs.
2. On the 2nd of June 1986, the plaintiff, an air freight forwarding agent, issued a writ of summons against the defendant claiming "HK$78,985.75 being the balance value of services rendered by the plaintiff to the defendant at the request of the defendant on divers dates between 14th of October and 20th of October 1986".
3. Particulars in the Statement of Claim alleged that the amount is due or 10 invoices during this period totalling $88,985.75 but takes into account a sum of $10,000 paid "in partial settlement thereof", thus leaving the balance claimed.
4. On the 4th of July, 1986 a consent order was made granting the defendant leave to file a defence within 14 days notwithstanding that the time for so doing had expired.
5. 6 days later on the 10th of July, the plaintiff took out a summons under 0.14 with a supporting affidavit in the usual form by one Simon Mak Foo-cheung, who deposed to the fact that he is a director of the plaintiff, varifying the claim and that to his belief, there is no defence.
6. In reply, an affirmation was filed by the defendant by one of its directors, a Mr Lee Hin-chee, setting out its grounds for opposing the application. In a nutshell, they were that the defendant, whilst not disputing the amounts due on seven of the invoices particularised by the plaintiff, seeks to set off and counterclaim damages amounting to US$52,878.50 in respect of the alleged wrongful conversion by the plaintiff of the goods carried by the plaintiffs under six air waybills during the period - 11th of November to 18th of January, four of which air waybills relate to goods referred to in the remaining three invoices.
7. The basis for the defendant's counterclaim that the plaintiff converted the goods to its own use is that the plaintiff did not deliver the goods to the consignee in New York specified in the air waybills, namely an American bank, but that the plaintiff delivered the roods directly to the purchasers who used the opportunity arising from the delivery of the goods to refuse to accept the goods and to refuse to pay for them.
8. Mr Lee exhibited the air waybills and stated in tiara. 8 of his affirmation: -
"It will be noted that in each case the Airwaybills shows that the defendant was the shipper of the goods; the Consignee was named as the Republic National Bank of New York (hereinafter referred to as "the American Bank") and the party to be notified of the goods' arrival was MTC. "
9. MTC is a reference to Manhattan Trading Corporation of 500, Seventh Avenue, New York, who was the purchaser of the goods.
10. In para. 9 of his affirmation, Mr Lee stated that the contract between the defendant and Manhattan Trading Corporation:
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Contemplated that the goods would be paid for by letter of credit. In fact no letter of credit was arranged by MTC in respect of any of the goods referred to above. Instead the goods were to be paid for on presentation of the shipping documents against MTC's bills of exchange, to be negotiated by the defendant through its bankers in Hong Kong, the Hua Chiao Commercial Bank. ”
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In para. 10
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After the goods had arrived in New York, the plaintiff or its agents wrongfully delivered them to MTC, rather than to the consignee or to the consignee's order, despite the fact that the said American Bank had not given any authority to the plaintiff so to do. There is now produced and shown to me marked "LHC-4" a true copy of a. telex dated 13th March 1986 from the said American Bank to the defendant's said bankers in Hong Kong to that effect. Reference is made at the end of that telex message to a statement by Mr Harold Oh, the President of MTC, that payment was to be made by MTC directly to the defendant. No such payment has been made in respect of any of the aforesaid goods and the bills of exchange referred to above have not been honoured by MTC. "
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In para 11
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I am advised and verily believe that by reason of the aforesaid matters the property in the said goods remained with the defendant herein, and that by delivering the goods to MTC without authorisation from the consignee the plaintiff has converted the same to its own use and is liable to compensate the defendant for the value of the goods, namely US$52,872.50". |
11. There was a second affidavit from Simon Mak Foo-cheung dated the 19th of August, 1986 in which in para. 2, he deposed to the fact that he had read the affirmation of Mr Lee Hin-chee and setting out his observations in the following paras.
In para. 3, he stated: -
"In reply to paragraph 10, the plaintiff company denies that itself' or its agents had wrongfully delivered the subject goods to MTC (Manhattan Trading Corporation) rather than to the consignee or to the consignee's order, despite the fact that the American Bank had not given any authority to he plaintiff company so to do. "
12. In paras. 4 and 5 of his affidavit, he states that the plaintiff company has never received any payment from MTC and in fact has received communication from its handling broker in U. S. A., one Messrs Port Brokers, Inc., that the subject goods are still in its possession. He exhibits that communication together with correspondence between the plaintiff company and the defendant and its solicitors and states: -
"It can be seen from these correspondences that the plaintiff company has informed the defendant that the subject goods are still in the possession of the said Messrs Port Brokers Inc. and has repeatedly requested for specific instructions to deal with the same but in vain. "
13. A further affirmation by Lee Hin-chee was filed on the 28th of August 1986, in which he produced a bundle consisting of true copies of two telexes from Harold Oh of Manhattan Trading Corporation. He affirmed that each telex is dated the 17th of March 1986 and each beers a chop showing the date of receipt as the 20th of March 1986. He maintains "It is evident from those telexes that the number of pieces of fur garments at Messrs Port Brokers was no more than 1910, and that the balance of the shipment of 2,862 pieces referred to at paragraph 4 of my first affirmation had been received and retained by MTC". In para. 4, he deposes to the fact that "the value of the remaining 952 pieces which MTC had retained is about US$17,500, or the equivalent of HK$137,000. "
14. Mr Chong for the plaintiff submits that the Master was wrong to grant unconditional leave to defend. He argues that on the evidence, the defendant had no proprietory interest in the goods allegedly converted to the plaintiff's use and therefore could not succeed in an action based on conversion. For this contention, he relies on the Sale of Goods Ordinance, S. 20.
"Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer ........................................
Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description, and in a deliverable state, are unconditionally appropriated to the contract, either by the teller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a. carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not. reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract."
15. Mr Chong also relies on the following passage in Benjamin on Sale of Goods 1981 edition: -
"1820 In General. An f.o.b. contract may be for the sale of specific goods; though more commonly the goods will be unascertained. Where the goods are specific, property may in theory pass as soon as the contract is made; but such a conclusion is in practice unlitely as the parties will hardly ever in end ... (illegible). Where the goods are unascertained, Property will pass when they are unconditionally appropriated to the contract. The question whether goods are unconditionally appropriated to the contract depends on the intention of the parties, and "appropriation" is used in several senses. In the case of an f.o.b. contract goods are "appropriated" to a contract in the sense that the contract is irrevocably attached to them on shipment at the latest; and the property will pass at that time if the appropriation is unconditional. But he goods may not be "unconditionally" appropriated on shipment, as the seller may, by the manner in which he deals with the shipping documents, indicate his intention to retain a right of disposal. Thus there are two matters to be considered in relation to the passing of property under an f.o.b. contract: shipment and dealings with documents. "
16. Mr Chong argues that the plaintiff did not reserve any right of disposal. He also relies on passages in para. 378 and 381 of the same textbook.
17. Mr Smith for the defendant argues that it is the obligation of the plaintiff as air carriers to deliver the goods to the consignee, referred to in the air waybill, and not the party to be notified. He refers, in this connection, to Article 13 of the amended Warsaw Convention enacted in Hong Kong in the Carriage by Air (Overseas Territories) Order 1967:-
"(1) Except in the circumstances set out in the preceding Article, the consignee is entitled, on arrival of the cargo at the place of destination, to require the carrier to hand over to him the air waybill and to deliver the cargo to him, on payment of the charges due and on complying with the conditions of carriage set out in the air waybill.
(2) Unless it is otherwise agreed, it is the duty of the carrier to give notice to the consignee as soon as the cargo arrives. "
18. This is referred to in Chitty on Contracts, 25th edition in the volume relating to specific contracts at para. 2776: -
"Delivery to the consignee. On arrival of the cargo, the carrier must give notice of the fact to the named consignee, unless the contract provides to the contrary. The consignee is then entitled to require delivery of the air waybill end of the cargo on payment of outstanding charges and compliance with any relevant conditions of carriage set out in the waybill. "
19. He argues that delivery of the goods to anybody else other than the consignee is an act of conversion.
20. In this context, he refers to Clerk & Lindsell on Torts, 15th edition, para. 21-19: -
"Misdelivery by carrier or warehouseman. It is the duty of a carrier or warehousemen to deliver the goods with which he is entrusted to the person designated by his employer and, as a general rule, a misdelivery is a conversion. The duty, however, is not absolute; it is enough if a reasonable and usual course of business is followed, and where there is no breach of duty there can be no conversion. Therefore if bills of lading in more than one cart have been given for goods shipped on board a vessel and the first part is indorsed over for value, the master may nevertheless deliver the goods to the holder of ore of the other parts who first presents himself, provided he has no notice of the right of the indorsee for value. A consignor who elects to real the misdelivery as valid and sues the parson to whom the goods are misdelivered for the price cannot afterwards sue the carrier for conversion. "
21. Mr Smith relies on the telex from the consignee "LHC-4" dated the 13th of March 1986, indicating that the goods had not at any time been delivered to them.
22. Mr Smith argues that the number of goods wrongfully delivered were 2,862 (valued at US$52,872.50) and that by so doing, the plaintiff had converted all these to their own use and that it does not really matter if the plaintiff subsequently re-acquires possession of the goods and claim to have them at the disposal of the defendant; the wrongful conversion occurred when they were wrongfully delivered to MTC.
23. It appears to me that the plaintiff's contention that the subject matter goods were all held by its agents in New York, cannot be correct because the communication upon which they rely, namely a Telefacts Transmitall MFC-1 refers only to the shipments of five of the air waybills as being with its New York agents. Furthermore, the second affirmation of Mr Lee Hin-chee, exhibits what purports to be true copies of the two telexes from MTC to the defendant for the attention of Mr Lee indicating that only 1910 pieces had been returned to the Port Brokers because MTC could not sell them and that the rest had been accepted by them.
24. However, Mr Smith says that it makes no difference because the conversion was in respect of the 2862 pieces. Even if one accepts that only 952 pieces were wrongfully delivered to MTC, the value of them is US$17,500 or the equivalent of HK$137,000 which is more than the plaintiff's claim.
25. Mr Smith accepts that to succeed on a claim based on conversion he will have to show a proprietory interest in his client, but he argues that the time when the property in the goods in these transactions was to pass depends on the intention of the parties and is a question of fact which has to be determined according to the circumstances of each individual case. Where payment in to be effected through a bank, then there is a reasonably strong inference that it was the intention of the parties that the property should not pass until payment had been made.
26. There is no evidence to contradict the assertion of Mr Lee is para. 9 of his first affirmation, showing a variation of the original terms of contract.
27. Mr Smith refers to Benjaman's Sale of Goods, papa. 1825, 1827 and 1830: -
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Form of and dealings with shippinq documents. In determining whether a seller has reserved a right of disposal the court haw regard to the terms of the contract, the terms of the appropriation, the way in which the shipping documents are made out, and the way in which the documents are dealt with. It is impossible to lay down any hard and fast rules as to reservation of rights of disposal; so much so that the question whether a right of disposal has been reserved has been described as one of "fact". There are, nevertheless, certain prima facie assumptions as to reservations of rights of disposal under f.o.b. contracts. "
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1827 "
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Bill of landing to seller's order. By section 19(2) of the Sale of Goods Act 1979, a seller is prima facie taken to reserve a right of disposal "where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent". This subsection is based on a number of nineteenth century cases, some of which were concerned with f.o.b. contract, in which the taking of a bill of lading in this form was regarded as evidence of intention on the part of the seller to reserve a right of disposal. The suggestion that section 19(2) does not apply to an f.o.b. contract would therefore seem to he historically unsound. It appears to be based on the view that a seller who reserves a right of disposal acts "contrary to the contract" and not "in performance of his contract to place them [the goods] 'free on board'. But if this view is (as he has been submitted) incorrect, there is no good reason why section 19(2) should not be capable of applying to an f.o.b. contract. Under such a contract the seller is not bound to pass the property in the goods at any particular time. It is submitted that he can perfectly well ship the goods 'in performance of his contract' without simultaneously making an unconditional appropriation so as to pass the property. If this were not the case, considerable difficulties would arise in financing f.o.b. sales. "
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......... As Lord Wright has said in a case involving a c.i.f. contract which called for payment against documents: "In this course of business, the general property in the goods remains in the seller until he transfers the bill of lading ..... The general property in the goods must be in the seller if he is to be able to pledge them. The whole system of commercial credits depends on the seller's ability to give a charge on the goods and the policies of insurance. A mere unpaid seller's lien would for obvious reasons be inadequate and unsatisfactory. " In another Prize case lord Summer said that The Parchim had been "decided on very special facts" and did not "purport to lay down any general rule, that a particular rode of dealing with a bill of lading must, whenever it occurs and in whatever circumstances, always prove a particular intention". It is submitted that, in the absence of special circumstances, an f.o.b. seller who sends bills of lading to his own bank with instructions not to hand them to the buyer except against payment will be taken to have reserved a right of disposal so as to prevent the passing of property. Indeed, this much was admitted by Lord Parker in The Parchim; for he said that, where the seller dealt with the bill of lading so as to “secure the contract price," then "The prima facie presumption .......appears to be that the property is to pass only on the performance by the buyer of his part of the contract and not forthwith subject to the seller's lien. " But he added: "inasmuch, however, as the object to be attained, namely, securing the contract price, may be attained by the seller merely reserving a lien, the inference that the property is to pass on the performance of a condition only is necessarily somewhat weak, and may be rebutted by the other circumstances of the case". It is submitted that (for the reasons given by Lord Wright) the inference would no longer be regarded as "somewhat weak"; and that it would be particularly hard to displace where the contract envisaged a pledge of the documents to a third party, such as a bank. " |
28. Thus Mr Smith argues where the consignee is a bank, the bank is, in effect, the seller's agent for the purpose of collecting the purchase price. If the title to the goods Passed with shipment, there would be no point in giving the shipping documents to the bank, as security because the goods would already be the property of the purchaser. He therefore argues that the defendant has an arguable case based on conversion.
29. I agree that the question as to when the property in the goods was intended to pass is a question of fact which has to be decided on the individual facts of each case. It is my view that the facts in this case are sufficient to raise an arguable case for the defendant on its counterclaim that the plaintiffs by delivering the goods to somebody other than the consignee, had wrongfully converted the goods to its own use to a total value of US$ 52,872.50.
30. Mr Chong argues that even if 1 hold that there is an arguable case in respect of the counterclaim, then the defendants should not be allowed to set off their claim against all the amounts claimed in the 10 invoices upon which the plaintiff's claim is based, but only on the 3 invoices involving the same subject matter. He refers to note 14/3-4/13 of the 1985 White Book and a passage in Civil Procedure by Langan and Lawrence, 2nd edition at page 67 under the heading "set-off and counterclaim". He argues that in these circumstances, the correct order should be judgment for the plaintiff, stay of execution, defendant allowed to counterclaim etc.
31. I agree with Mr Smith that since the plaintiff's claim is for a sum representing a balance of account due to the plaintiff in respect of services rendered and takes into account payments which are not referable to any particular individual invoice, the defendant should be allowed to set off it's claim against the whole of the claim of the plaintiff.
32. Finally, Mr Chong argues that should the defendants be granted leave to defend, it should be made conditional upon payment into court because the defence is shadowy. This is based on a contention that an examination of the affirmations of Mr Lee, reveals that the defence case has shamed on a number of points. With respect, I can see no merit in this argument at all.
33. Since it appears from the letter of the 1st of May 1986 from the defendant's solicitors to the plaintiffs exhibited to the second affidavit of Simon Mak Foo-cheung, "MFC-2", that the plaintiff had been informed of the defendant's claim even before their suit was filed, I consider that the appropriate order to be made is that the plaintiff's summons should be dismissed with costs and that I should also make an order that the plaintiff should pay the costs both before the Master and before this court and that the costs should be tanud and paid forthwith.
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(N. D. Hooper)
Judge of the High Court
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Representation:
Mr K.M. Chong (Lung, Ng, Lie & Lai) for plaintiff
Mr Clifford Smith (Victor Chu &: Co.) for defendant
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