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HCA 208 / 2008
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 208 OF 2008
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BETWEEN
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YANG MING MARINE TRANSPORT CORPORATION |
1st Plaintiff |
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YANG MING LINE (HONG KONG) LIMITED |
2nd Plaintiff |
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and |
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SHING LEE ENGINEERING CONTAINER COMPANY LIMITED |
1st Defendant |
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STRONGER (H.K.) TRADE LIMITED |
2nd Defendant |
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and |
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STRONGER (H.K.) TRADE LIMITED |
Third Party |
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Coram: Before Deputy High Court Judge Au in Court
Dates of Trial: 16 & 17 July 2009
Date of Handing Down Judgment: 11 August 2009
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J U D G M E N T
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A. Introduction
1. This is the trial of the Plaintiffs’ claim against the 1st and 2nd Defendants for the sum of US$253,655.50 as their loss in relation to the release of 2 containers of goods (“the Cargoes”) in Hong Kong.
2. It is common ground that the Cargoes were released to the 1st Defendant without the production of the original bills of lading, but against 2 letters of indemnity signed by the 1st Defendant in favour of the 1st Plaintiff. The 1st Defendant then subsequently passed the Cargoes to the 2nd Defendant for further handling and disposal.
3. There is also no dispute that on the face the letters of indemnity, each of it was signed and stamped with the 1st Defendant’s company chop.
4. The Plaintiffs’ causes of action against the Defendants are premised on the letters of indemnity, and alternatively conversion.
5. The 1st Defendant’s pleaded defence is that it issued the letters of indemnity as an agent for and on behalf of the 2nd Defendant, and that the Plaintiffs were aware of the same. Thus, the 1st Defendant is not liable under the letters of indemnity. The 1st Defendant also denies that there was any conversion of the Cargoes.
6. The 2nd Defendant’s pleaded case is however that the 1st Defendant was not its agent in signing and issuing the letters of indemnity. It also denies any conversion of the Cargoes.
7. The issues at trial between the Plaintiffs and the Defendants are thus:
(1) Whether the letters of indemnity were issued by the 1st Defendant as an agent for and on behalf of the 2nd Defendant.
(2) If so, whether the Plaintiffs were aware of this agency relationship.
(3) Whether the 1st and/or the 2nd Defendant is liable under the letters of indemnity.
(4) Whether there was conversion of the Cargoes by the 1st and/or 2nd Defendants.
(5) The quantum of loss and damage suffered by the Plaintiffs.
8. The 1st and 2nd Defendants were previously separately legally represented. The 2nd Defendant has filed a witness statement while the 1st Defendant has not. Some time before the trial, their respective solicitors have ceased to act for them.
9. The 2nd Defendant attended the trial through its representative, one Ms Lung Ye Lei[1].
10. The 1st Defendant however did not attend the trial by any representative. I was satisfied that it should be aware of the trial[2], and ordered the trial to proceed in its absence.
11. There is also a Third Party proceedings issued by the 1st Defendant against the 2nd Defendant. By the order of Registrar Au-Yeung dated 16 July 2008, the Third Party claim was ordered to be tried at this trial of the Plaintiff’s action against the Defendants.
12. However, in the absence of the 1st Defendant at this trial, I will treat the Third Party’s claim as not pursued.
B. The facts as established
B1. The evidence adduced at trial
13. The Plaintiffs have called Mr Yung Shun Hei as their witness to give evidence at trial. Mr Yung is the sales manager of the 2nd Plaintiff’s Business Department and is familiar with the subject matter transaction.
14. The 2nd Defendant has called Ms Lung Ye Lei to give evidence at trial. She is the manageress of the 2nd Defendant and had handled the release of the Cargoes at the material time.
15. Both Mr Yung and Ms Lung have filed their respective witness statements and were adopted as their respective evidence in chief at trial.
16. Both of them also gave oral evidence and were subject to cross-examination. Their evidence was not seriously challenged under cross-examination.
17. Mr Ko (counsel for the Plaintiffs) confirmed in his closing submissions that he was not generally challenging Ms Lung’s evidence, except the assertion that the 1st Defendant was not the 2nd Defendant’s agent in issuing the letter of indemnity.
18. Given the above, and having seen the witnesses in Court, and having had regard to the unchallenged documentary evidence, I accept the following evidence of the parties as the relevant facts established at trial.
B2. The proved facts
B2.1 The parties
19. The 1st Plaintiff is a shipping line established in Taiwan. The 2nd Plaintiff is the 1st Plaintiff’s local agency office in Hong Kong, responsible for handling cargoes arrived in Hong Kong and arranging for their delivery locally.
20. The Plaintiffs’ businesses are to provide carriage and transportation services to their customers, mainly by sea.
21. The 1st Defendant is apparently a forwarding agent in Hong Kong, while the 2nd Defendant is a trading company.
22. The 2nd Defendant was incorporated on 11 May 2007, and its “boss” is one Mr Zhang Wei.
23. Prior to the 2nd Defendant’s incorporation, Mr Zhang had entered into an oral agreement with Ms Siu Po Chu of the 1st Defendant to engage the 1st Defendant to handle the cargoes imported to Hong Kong by Mr Zhang and to be delivered at his instruction.
24. Under the above oral agreement (“the Oral Agreement”), the 1st Defendant would provide the following services:
(1) The 1st Defendant would deal with and handle all relevant procedures, including customs clearance procedures, required to enable the 1st Defendant to take delivery of those cargoes.
(2) The 1st Defendant would deal with and handle all documents necessary for and relevant to taking delivery of the cargoes and the related clearance matters.
(3) Mr Zhang would reimburse the 1st Defendant of any fees, charges and expenses incurred in discharging its services.
(4) Mr Zhang would also further pay a handling charge of HK$200 for the 1st Defendant’s services in respect of each delivery of imported cargoes in Hong Kong.
25. Before the incorporation of the 2nd Defendant, in relation to the cargoes imported to Hong Kong to be dealt with by Mr Zhang’s business, he would use the 1st Defendant’s name as the consignee under the relevant bills of lading.
26. After the incorporation of the 2nd Defendant, it would use its own name as the consignee for cargoes to be imported and dealt with by its business. However, for those cargoes that were traded by Mr Zhang before the 2nd Defendant’s incorporation, the 2nd Defendant would for convenience continue to use the 1st Defendant as the consignee in those bills of lading, and would continue to engage the 1st Defendant to take delivery of those cargoes for it.
B2.2 The transactions involving the Cargoes and their release
27. The Cargoes were 2 containers of copper scrap bars and metal scrap shipped on board the vessel “YM Hiroshima” from Haifa, Israel to Hong Kong on 28 May 2007. The undisputed value of the Cargoes was US$253,655.50.
28. The seller of the Cargoes was Jack Engle & Co (“Jack Engle”) in the United States, and the buyer was System Solding (USA) Inc. System Solding apparently had further sub-sold the Cargoes.
29. Mr Zhang was the in between trader whereby the Cargoes were sold to an ultimate purchaser in the Mainland, and the Cargoes were to be shipped to the port of “三水” in the Mainland after they had arrived in Hong Kong.
30. However, it is the 2nd Defendant’s own case and evidence (which I accept) that after its incorporation, it had assumed the trading responsibility and obligations in relation to the Cargoes. In other words, it is the 2nd Defendant’s case that it was the trading entity to with the Cargoes and to ship them to “三水” for the ultimate purchaser there.
31. On the other hand, as the Cargoes were traded just before the 2nd Defendant’s incorporation, the 1st Defendant was initially engaged pursuant to the Oral Agreement to take delivery of the Cargoes when they arrived in Hong Kong, and the 1st Defendant was thus named as the consignee under the relevant 2 bills of lading (“the B/Ls”) relating to the Cargoes.
32. In light of the above, although (as accepted by Ms Lung) it was the 2nd Defendant which should be named as the consignee under the B/Ls, as it would be too troublesome and costly (according to Ms Lung) to cause the change of the name of the consignee under the B/Ls to the 2nd Defendant, the 2nd Defendant decided to retain the 1st Defendant as the consignee under the B/Ls for convenience.
33. The Cargoes arrived in the Hong Kong port in the end of June 2007.
34. In around the middle of July 2007, under a mistaken belief[3] by Mr Yung that the original B/Ls had been surrendered to the 1st Plaintiff, he notified a Ms So of the 1st Defendant (as the named consignee) of the arrival of the Cargoes, and asked her to complete the necessary documentary procedures for their collection.
35. Ms So then contacted Ms Lung, notifying her about the arrival of the Cargoes, and asked Ms Lung to go to the 2nd Plaintiff’s office to complete the documentary procedures to facilitate the collection of the Cargoes.
36. Ms Lung went accordingly. She brought with her the company chops of both the 1st and 2nd Defendants.
37. When Ms Lung arrived at the 2nd Plaintiff’s office, she was asked to sign, amongst others, the letters of indemnity (which were standard documents prepared by the Plaintiffs) to facilitate the release of the Cargoes.
38. She did so, first with the company chop of the 2nd Defendant, because she understood that the Cargoes were the 2nd Defendant’s.
39. However, she was then told by the 2nd Plaintiff’s staff that, as the consignee under the B/Ls was in the name of the 1st Defendant, the Cargoes could only be released to the 1st Defendant and the letters of indemnity had to be signed by the 1st Defendant.
40. Ms Lung then called Ms So and asked whether she could also sign for the 1st Defendant with the 1st Defendant’s company chop. Ms So confirmed that Ms Lung could do so.
41. Ms Lung thereafter crossed out the 2nd Defendant’s company chop mark and her signature on the 2 letters of indemnity, and initialled on the amendments. She then further stamped the 1st Defendant’s company chop on the letters of indemnity and signed.
42. After the completion of the documentary procedures, on around 16 July 2007, the Cargoes were first collected by the 1st Defendant’s staff at the container terminal, and later delivered to the 2nd Defendant by the 1st Defendant’s staff. The 2nd Defendant took control of the Cargoes, and as the shipper, eventually arranged them to be shipped to the port in “三水” in the Mainland in early August 2007.
43. Ms Lung also confirmed that it was the 2nd Defendant which had settled the extended storage fees of the containers charged by the 2nd Plaintiff.
44. Later, Jack Engle informed the 1st Plaintiff that it had not received payment for the Cargoes and threatened to sue the 1st Plaintiff for the Cargoes’ full value plus other fees and expenses.
45. Mr Yung then contacted Ms Siu of the 1st Defendant to investigate the matter and to enquire the whereabouts of the Cargoes. Ms Siu orally informed Mr Yung that the 1st Defendant only collected the Cargoes on behalf of the 2nd Defendant and had passed them to the 2nd Defendant.
46. In February 2008, the Plaintiffs brought the present action against the Defendants under the letters of indemnity and for conversion.
47. On 8 July 2008, the 1st and 2nd Plaintiffs entered into a settlement agreement with Jack Engle, agreeing on a without admission of liability basis to pay Jack Engle US$253,655.50 (i.e., the full value of the Cargoes) as full and final settlement of all of Jack Engle’s claim as shipper for damages, compensation and costs it may have against the Plaintiffs arising out of or connected with the delivery of the Cargoes.
C. The determination of the issues
C1. Whether the letters of indemnity were issued by the 1st Defendant as an agent for and on behalf of the 2nd Defendant
48. The 2 letters of indemnity were made on the face of them in favour of the 1st Plaintiff and were identical in their terms. The relevant terms are as follows:
“We hereby request you [i.e., the 1st Plaintiff] to deliver such good to [the 1st Defendant] without presentation of the original Bill of Lading.
In consideration of your complying with our above request we hereby agree as follows:
1. To indemnify [the 1st Plaintiff] and hold [the 1st Plaintiff] harmless in respect of any liability loss or damage of whatsoever nature, which [the 1st Plaintiff] may sustain by reason of delivering the Cargoes to [the 1st Defendant] in accordance with our request.
2. To pay [the 1st Plaintiff] on demand the amount of any loss or damage which the Master and/ or Agents of the Vessel or any other of [the 1st Plaintiff’s] servant or agent may incur as a result of delivering the Cargoes as aforesaid.
3. In the event of any proceedings being commenced against [the 1st Plaintiff] or any of [the 1st Plaintiff’s] servants or agents in connection with the delivery of the Cargoes as aforesaid, in provide [the 1st Plaintiff] or them from time to time on demand with sufficient funds to defend the same.
…”
49. Given the background of the Oral Agreement, the fact that it was the 2nd Defendant which had imported the Cargoes to Hong Kong as the trader, the way in which the letters of indemnity were signed by Ms Lung albeit using the company chop of the 1st Defendant, I am satisfied that it is proved on the balance of probabilities that the letters of indemnity were signed by the 1st Defendant as an agent of the 2nd Defendant.
50. This is so because, in my judgment, it is more likely than not that the 1st Defendant was only (and would have only agreed to) signing the letters of indemnity for and on behalf of the 2nd Defendant. My reasons are as follows.
51. First, the Cargoes in fact belonged to the 2nd Defendant. In the premises, I could not see any good reasons why the 1st Defendant would have agreed to sign the letters of indemnity on its own, thereby assuming potentially significant liability, simply to enable the Cargoes to be released. This is particularly so as the 1st Defendant was only to be paid a small sum (as per the Oral Agreement) for its service to take delivery of the Cargoes.
52. Secondly, Ms Lung in fact signed the letters of indemnity initially with the 2nd Defendant’s company chop, as the Cargoes belonged to it. It was only because the consignee on the B/Ls was (for historic reasons and convenience) in the name of the 1st Defendant that the letters of indemnity had to be amended to appear to be signed by the 1st Defendant to enable the Cargoes to be released. Thus, the 2nd Defendant intended to sign the letters of indemnity on its own in the first place.
53. I therefore find as a matter of fact that the letters of indemnity were signed by the 1st Defendant for and on behalf of the 2nd Defendant.
C2. If so, whether the Plaintiffs were aware of this agency relationship
54. The allegation that the Plaintiffs were aware of the agency relationship between the 1st Defendant and the 2nd Defendant, in particular in signing the letters of indemnity, was made by the 1st Defendant in its pleading. The Plaintiffs deny this.
55. The burden is on the 1st Defendant to prove the Plaintiffs’ alleged knowledge of the said agency relationship.
56. There is however no evidence from the 1st Defendant (as it has not filed any witness statement nor attended the trial) to prove this allegation. On this basis alone, the 1st Defendant has failed to prove the said knowledge on the part of the Plaintiffs.
57. Further and in any event, I accept Mr Lung’s evidence (for the Plaintiffs) that the Plaintiffs were not aware of the alleged agency relationship between the 1st Defendant and 2nd Defendant.
58. In the premises, I find that the Plaintiffs were not aware of the fact that the 1st Defendant signed the letters of indemnity as an agent for and on behalf of the 2nd Defendant.
59. In other words, I further find that, insofar as the Plaintiffs were concerned, the 1st Defendant signed the letters of indemnity for an undisclosed principal.
C3. Whether the 1st and/or 2nd Defendants are liable to the Plaintiffs under the letters of indemnity
60. The law of agency in the situation of undisclosed principal is clear: both the agent and the principal are liable to the other contracting party. As commented by the learned authors of Bowstead & Reynolds on Agency (18th ed) at para 9-012:
“Undisclosed principal. Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and he is personally liable and entitled on it. The principal also may intervene to sue, and may be sued, but the latter only subject the general rule that nothing must prejudice the right of the third party to sue the agent if he so wishes. This therefore case where both agent and principal are liable and entitled.”
61. As I have already found that the letters of indemnity were signed without the 1st Defendant disclosing the 2nd Defendant as its principal, they are therefore both liable under the letters of indemnity.
62. However, I am of the view that the Defendants are liable to indemnify only the 1st Plaintiff under the letters of indemnity. This is so because:
(1) The letters of indemnity were issued in favour only of the 1st Plaintiff.
(2) Even in relation to the 2nd Plaintiff’s loss as an agent of the 1st Plaintiff, clause 2 of the letters of indemnity provides expressly that the indemnity is only to pay the 1st Plaintiff for such a loss.
63. I therefore find that the 1st and 2nd Defendants are jointly and severally liable to the 1st Plaintiff (but not the 2nd Plaintiff) under clauses 1 and 2 of the letters of indemnity for their loss and damage in relation to the release of the Cargoes.
C4. Whether there was conversion of the Cargoes by the 1st and/or 2nd Defendants
64. Conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it. The principal ways in which a conversion may take place can be set out as follows:
(1) When property is wrongfully taken or received by someone not entitled to do so;
(2) When it is wrongfully parted with;
(3) When it is lost by a bailee in breach of his duty to the bailor;
(4) When it is wrongfully sold, even without delivery, so as to pass good title to the buyer;
(5) When it is wrongfully retained;
(6) When it is wrongfully misused or destroyed; and
(7) When the defendant, without physically interfering with it, wrongfully denied access to it to the claimant.
See: Clerk & Lindsell on Torts (19th ed), paras17-07 – 17-08.
65. “Wrongfully” for these purposes means without the actual permission of the owner. When the owner intends to transfer dominion to the defendant or otherwise to sanction the defendant’s action, there is no conversion, and this remains so even though the defendant or some party is guilty of fraud. Thus, it has been said that obtaining deception is not conversion, where the victim’s proper course is an action in deceit: Clerk & Lindsell on Torts (19th ed), para 17-08.
66. Applying the above principles, I am not satisfied it is proved that the Cargoes had been converted by either the 1st or the 2nd Defendant. My reasons are as follows.
67. The Cargoes were in fact released to the 1st Defendant with the Plaintiffs’ consent, albeit subject to the letters of indemnity. The Plaintiffs thus intended to transfer the possession of the Cargoes to the 1st Defendant for its dealing. There is therefore in my judgment no question of the 1st Defendant obtaining the Cargoes without the permission of the Plaintiffs.
68. In the circumstances, I am also not satisfied that it is shown that the 1st Defendant had deliberately dealt with the Cargoes with an act inconsistent with the Plaintiffs’ right over them:
(1) There is no evidence to show that the 1st Defendant knew or ought to have known that the purchase price of the Cargoes had not been paid.
(2) Further, as I said, the 1st Defendant obtained the possession of the Cargoes with the permission of the Plaintiffs, and the Plaintiffs consented to the 1st Defendant’s unrestricted dealing with the Cargoes as the consignee.
69. There is thus no conversion of the Cargoes by the 1st Defendant.
70. The same applies to the 2nd Defendant.
71. It had obtained possession of the Cargoes from the 1st Defendant knowing that they were released with the permission and consent of the Plaintiffs. There was no restriction on the release that the 1st Defendant could not part possession of the Cargoes to another party. In fact, the reverse was more likely to be correct, since the Cargoes were released to the 1st Defendant as the consignee and it must be intended in the release that the 1st Defendant could deal with them freely.
72. As such, in my view, the 2nd Defendant must be seen to have obtained possession of the Cargoes also with the consent and permission of the Plaintiffs.
73. Further, there is similarly no suggestion that the 2nd Defendant knew that the purchase price of the Cargoes had not been paid.
74. In the circumstances, it is not proved that the 2nd Defendant had obtained the Cargoes without the permission of the Plaintiffs or that it had deliberately dealt with the Cargoes in a manner inconsistent with the Plaintiffs’ rights.
75. There is also no conversion of the Cargoes by the 2nd Defendant.
C5. Quantum
76. The undisputed value of the Cargoes is US$253,655.50.
77. The Plaintiffs settled with Jack Engle in relation to the latter’s claim in relation to the misdelivery of the Cargoes. The settlement sum was US$253,655.50. The settlement was evidenced by a written Receipt and Release/Settlement Agreement dated 8 July 2008, prepared by the Plaintiffs’ solicitors and signed by the Plaintiffs and Jack Engle.
78. None of the Defendants have challenged the above, and I accept them to be proved.
79. In my view, it was reasonable for the Plaintiffs to settle the claim by Jack Engle in the said settlement sum. This is so because the Plaintiffs, in delivering the Cargoes without the production of the original B/Ls albeit subject to the letter of indemnity, does not appear to have a good defence to Jack Engle’s claim as shipper. See: “The Stone Gemini” [1999] 2 Lloyd’s Rep 255, paras 27, 33, 51-56 per His Honour Justice Tamberline; Sze Hia Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 at 586 per Lord Denning; The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266 at 274 perClarke J.
80. The settlement sum therefore represents the 1st and 2nd Plaintiffs’ loss and damage in releasing the Cargoes against the letters of indemnity.
81. The 1st and 2nd Defendants should therefore be jointly and severally liable to indemnify the 1st Plaintiff the sum of US$253,655.50.
D. Conclusion
82. For the above reasons:
(1) The 1st Plaintiff succeeds in its claim against the Defendants, and there should be a judgment that the 1st and 2nd Defendants be jointly and severally liable to pay the 1st Plaintiffs the sum of US$253,655.50, with interest on the sum at 1% above the prime rate as from time to time quoted by the Hongkong and Shanghai Bank from 8 July 2008[4] until today, and thereafter at judgment rate until payment.
(2) I dismiss the 2nd Plaintiff’s claim.
83. As I have mentioned in the beginning of this judgment, I treat the Third Party’s proceedings as not pursued by the 1st Defendant, and dismiss the same.
84. There is no reason why costs should not follow the event. I further make an Order nisi that:
(1) The 1st Plaintiff’s costs in the action are to be paid by the 1st and 2nd Defendants, to be taxed if not agreed.
(2) Half of the 1st and 2nd Defendants’ costs[5] in the action are to be paid by the 2nd Plaintiff, to be taxed if not agreed.
(3) The costs of the Third Party’s proceedings be paid by the 1st Defendant to the 2nd Defendant as the Third Party.
85. Unless any of the parties applies to vary the same by Summons, this nisi Order shall be made absolute 14 days from today.
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(Thomas Au) |
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Deputy High Court Judge |
Mr. Tony T.L. KO, instructed by Messrs Holman Fenwick Willan, for 1st & 2nd Plaintiffs.
1st Defendant, acting in person, absent.
2nd Defendant (and the Third Party), acting in person, represented by Ms Lung Ye Lei, present.
[1] Ms Lung did not object to this judgment to be written in English.
[2] The 1st Defendant was sent the notice of hearing, and the Court clerk managed to call its representative by phone the day before the trial and inform her again of the time and place of the trial.
[3] The basis of the mistaken belief, although canvassed at trial, is in my view irrelevant to my decision. If necessary, however, I would accept that part of the evidence of Mr Yung to explain the mistaken belief.
[4] This being the date of the settlement when the Plaintiffs suffered their loss.
[5] As the 1st and 2nd Defendants’ defence against the 2nd Plaintiff is the same as that against the 1st Plaintiff.
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