XCHRX SIMPLE SYMBOL LTD v. MCS LTD

HCA 2882/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2882 OF 2000

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R E A S O N S   F O R    J U D G M E N T

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1. This is an appeal by the defendant from the order of Master C.B. Chan on 7 August 2001 in which she ordered that the defendant's summons for determination of various issues under O.14A of the Rules of the High Court and for striking out of the Statement of Claim be dismissed. After hearing submissions of counsel, I have dismissed the appeal from the Master's decision and these are the reasons for my decision.

2. The plaintiff sold various quantities of candle holders ("the goods") to a buyer in the United States known as Davco Silver Limited ("Davco") in mid 1999. The goods were sold on the term of "FOB Xingang". Xingang is a port in Tianjin in China. The defendant is a freight forwarder and it had issued two Forwarder's Cargo Receipts No. BA657 dated 5 October 1999 and No. BA676 dated 2 November 1999 ("the cargo receipts") to the plaintiff, acknowledging that the goods were received by the defendant in apparent good order and condition and that the goods were to be shipped by the vessel as stated in the cargo receipts and on the terms and conditions set out therein. The plaintiff failed to obtain payment for the goods from Davco under the two letters of credit provided by Davco. Notwithstanding this, the goods were released to Davco without production of any of the cargo receipts. The plaintiff claims against the defendant for the loss and damage suffered being the value of the goods that Davco had failed to pay in the sum of US$84,240.00. It is alleged by the plaintiff that it had a contract of carriage with the defendant as contained in or evidenced by the cargo receipts and that the defendant had acted in breach of contract in releasing the goods to Davco without the authorisation or consent of the plaintiff or of the consignee in the cargo receipts. It was stated in the cargo receipts that the goods were consigned to the order of European American Bank, which was the issuing bank of the letters of credit for the goods. Further, it is alleged by the plaintiff that the defendant had acted in breach of its duty as a bailee for reward. Further or in the alternative, the plaintiff claims against the defendant in conversion.

3. The issues that the defendant has sought to ask the court to determine in the O.14A procedure are designed to establish two matters:

(1) the plaintiff was not the owner and had no proprietary interest in the goods when the goods were released to Davco in the United States; and

(2) there was no contract of carriage between the plaintiff and the defendant as alleged.

4. The issues to be determined, as framed by the defendant in its summons, are as follows:

"(a) whether pursuant to the contracts evidenced or referred to in Buying Confirmation Note No. 99305085 and Buying Confirmation Note No. 99306107 made between the plaintiff on the one part and their buyer called Davco Silver Limited ("Davco Silver") of the USA on the other part, the goods, namely, the chrome plated candle holders ("the goods") referred to in the said Buying Confirmation Notes were sold on "FOB Xingang" term;

(b) whether the plaintiff by causing the goods to be placed on board of the vessels at Xingang, the property of the goods had already passed to the buyer Davco Silver and thereafter the plaintiff accordingly had ceased to have any proprietary interest in the goods;

(c) further or alternatively, whether the two forwarder cargo receipts, namely, Cargo Receipt No. BA657 and Cargo Receipt No. BA676 ("the two forwarder cargo receipts"), did not constitute any contract of carriage as alleged by the plaintiff;

alternatively, even if the two forwarder cargo receipts did constitute contracts of carriage, whether the plaintiff was making the contracts as the agent of the consignee, namely, Davco Silver, with the defendant; and

(d) whether the two forwarder cargo receipts issued by the defendant to the plaintiff are not documents of title at law."

 

Whether the plaintiff was the owner of the goods

5. It is the defendant's contention, as pleaded in the Defence, that as the goods were sold on the term of "FOB Xingang", Davco was the owner of the goods at all material times because upon the delivery of the goods on board the vessels in Xingang, the property of the goods had already passed to Davco. That being the case, the plaintiff would have no title to sue the defendant in tort.

6. The plaintiff did not file any Reply to the Defence which was filed and served in April 2000. It was only in the opposition to the defendant's summons for determination of issues under O.14A and for striking out of the Statement of Claim issued in February 2001 that the plaintiff filed evidence setting out its contention that the plaintiff was the owner of the goods at all material times as pleaded in the Statement of Claim. According to the plaintiff's affirmation, an agreement was reached between the plaintiff and Davco as follows:

(1) The plaintiff would sell goods to Davco and Davco would pay for the goods by an irrevocable letter of credit.

(2) The letter of credit would be opened in favour of and payable to the plaintiff upon presentation of, among other documents, the original bill of lading or cargo receipt.

(3) The property in the goods would not pass to Davco until the plaintiff had presented the documents and obtained full payment from the European American Bank, which was the issuing bank.

(4) Davco would be responsible for the freight charges and insurance.

(5) Davco would nominate the carrier or freight forwarder and the plaintiff would enter into a contract of carriage with the nominated carrier or freight forwarder for the account of Davco.

(6) Davco could only take delivery of the goods upon presenting the original bill of lading or the cargo receipt it had obtained from the European American Bank.

7. It is alleged by the plaintiff in its opposing affirmation that the aforesaid terms as agreed applied to the sale and purchase of the goods in question as evidenced by Buying Confirmation Notes No. 99305085 and 99306107. It is further alleged that before the shipments in question, the defendant was well aware of the above terms as agreed as the plaintiff had specifically instructed the defendant that the consignee was to be named as "to the order of European American Bank", whether the document was to be the cargo receipt or the bill of lading. The staff of the plaintiff who had allegedly given such instructions to the defendant was one Ms Rebecca Lo of the shipping department of the plaintiff. It would appear from the cargo receipts that the consignee as stated was in compliance with the alleged instructions. However, in the bill of lading, which was not supplied to the plaintiff prior to the commencement of these proceedings, the consignee was stated to be Davco. It is alleged by the plaintiff in its affirmation that this was not in compliance with the plaintiff's instructions. Thus, it would appear from that affirmation that the defendant was in breach of its obligations not only in releasing the goods to Davco without production of the cargo receipts, but the defendant had also failed to provide proper details in the two bills of lading in that Davco was wrongly named in the bills of lading as the consignee, contrary to the plaintiff's instructions. It was because Davco was named as the consignee in the bills of lading and the defendant had released the bills of lading to Davco that Davco was able to obtain release of the goods without effecting payment.

8. In the case of a contract for the sale of unascertained or future goods by description on FOB terms, there is a prima facie rule that the property passes to the buyer on shipment in that the goods would have been unconditionally appropriated to the contract at that point in time (see Rule 5(1) of section 20 of the Sale of Goods Ordinance, Cap. 26; Vol. 41 Halsbury's Laws of England (4th ed., Reissue), para. 351). The prima facie rule may be rebutted where the seller takes or deals with the shipping documents in such a form or manner as to show that he did not intend to appropriate the goods to the contract or that he has reserved a right of disposal (see Rule 5(2) of section 20, Cap. 26). Section 21 of Cap. 6 deals with reservation of the right of disposal by the seller and the relevant provisions are as follows:

"(1) Where there is a contract for the sale of specific goods, or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.

(2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal."

9. On the plaintiff's case, as appears from its affirmation in opposition, the plaintiff had reserved the right of disposal by the terms of the agreement reached with Davco in that the property in the goods was not to pass to Davco until the plaintiff had obtained payment under the letter of credit from the issuing bank, that Davco was only to take delivery of the goods upon presenting the bill of lading or the cargo receipt to the issuing bank, and that the plaintiff had specifically instructed the defendant that the consignee named in the shipping document, whether this be the cargo receipt or the bill of lading, should be to the order of the issuing bank.

10. If the plaintiff could establish the matters alleged in its affirmation, it seems to me that the plaintiff would have reserved the right of disposal of the goods and as the condition imposed by the plaintiff had not been fulfilled by Davco, the property in the goods would still have remained with the plaintiff at the material time. I do not think it is material to my decision in this appeal whether the plaintiff can successfully establish the right of disposal with the benefit of the presumption in section 21(2) of Cap. 26 or without the benefit of that presumption in section 21(1).

11. It was argued by Mr Andy Hung for the defendant that I should disregard the allegation in the plaintiff's affirmation for two reasons. Firstly, the alleged agreement between the plaintiff and Davco regarding the reservation of a right of disposal has not been pleaded in the Statement of Claim and the plaintiff has not filed a Reply. Secondly, the alleged agreement was not borne out by any of the documents disclosed by the plaintiff and they are merely bare assertions. I was referred to paragraph 18/19/13 of the Hong Kong Civil Procedure 2001 for the proposition that in a very strong case the court may still order pleadings to be struck out notwithstanding that the facts are in dispute. I am unable to accept Mr Hung's submissions. I am not persuaded that it would be appropriate to disregard the plaintiff's assertion on affirmation of its arrangement with Davco that would have the effect of reserving the right of disposal. There is a dispute as to fact in this matter and this dispute should be resolved in a trial.

12. Issue (a) as framed in the defendant's summons, i.e. whether the goods were sold on the term of "FOB Xingang", does not appear to me to be an appropriate issue to be determined under the O.14A procedure because the determination of this issue will not finally determine the issue herein, namely, whether the plaintiff was the owner of the goods at the material time. As I have stated above, the prima facie rule that the property in the goods has passed on shipment when the goods were sold on FOB terms may be rebutted where the seller has reserved to himself a right of disposal. Issue (b) as framed in the defendant's summons, i.e. whether the property of the goods had passed to Davco when the plaintiff caused the goods to be placed on board the vessels at the loading port, is also not appropriate to be determined under the O.14A procedure because this question is not suitable for determination without a full trial of the action. For the above reasons, the defendant's summons for determination of the issues in (a) and (b) must be dismissed.

13. As for issue (d) in the defendant's summons, i.e. whether the cargo receipts are documents of title, it is also not appropriate for determination under this procedure. The relevance of this issue, as I understand from Mr Hung's argument, would appear to be two-fold. Firstly, it would appear to be his contention that if the cargo receipt was not a document of title, the fact that the plaintiff had retained the cargo receipts throughout would not establish the plaintiff's case that the property in the goods had not passed to Davco. Secondly, Mr Hung would appear to contend that as the cargo receipts were not documents of title, they were not required to be produced by Davco to obtain a release of the goods and the defendant had not acted wrongfully in releasing the goods to Davco without the cargo receipts. I am not persuaded that the issue whether the plaintiff had reserved a right of disposal should be resolved by characterizing the cargo receipt as a document of title or otherwise. In my view, one should look at the substance of the condition imposed by the seller to ascertain whether the seller has indicated his intention to retain a right of disposal and the form and manner that the seller takes or deals with a shipping document. Further, even if the cargo receipts were not documents of title, it does not mean that the defendant would be justified in releasing the goods to Davco without the cargo receipts if the plaintiff had specifically instructed the defendant that the consignee to be named in the shipping document, whether this be the cargo receipt or the bill of lading, should be to the order of the issuing bank and the defendant had failed to comply with the specific instructions. I am unable to see how the determination of issue (d) will finally determine the entire cause or a relevant issue in this action. For that reason, I also reject the defendant's application to determine issue (d) under the O.14A procedure.

Whether there was a contract of carriage between the plainitff and the defendant

14. It is alleged in the Statement of Claim that the plaintiff had made two contracts of carriage with the defendant as contained in or evidenced by the cargo receipts. This is denied in the Defence. It is the defendant's pleaded case that it had acted for Davco as the latter's freight forwarder; alternatively, the plaintiff had acted as the agent of Davco in giving instructions to the defendant to act as the forwarder for the goods. These are the matters that the defendant sought to be determined in the summons in issue (c). The defendant relied on the fact that the defendant had agreed standard terms with Davco in the goods consolidation procedures and that the cargo receipts were all marked "freight collect". It was argued that the plaintiff had provided no consideration to support any contract of carriage made between the plaintiff and the defendant. Lastly, the defendant also relied on a rebuttable presumption of law that the consignor would have entered into a contract of carriage with a carrier as agent for the consignee, in the absence of evidence that the consignor had made a special contract with the carrier by which the carrier agreed to take the goods from the consignor and to deliver them to any particular person at any particular place.

15. Again, issue (c) does not seem to me appropriate for determination under this procedure because there are issues of fact interwoven with the legal issues raised and unless and until the factual disputes are resolved, the court cannot make a determination on the legal issue. The plaintiff has alleged on affirmation that the plaintiff had given specific instructions to the defendant regarding shipment and the preparation of documents by the defendant, and that the name of the consignee on the cargo receipts had conformed with the plaintiff's instructions but not that in the bills of lading. Mr Patrick Chong, who appeared for the plaintiff, referred me to The El Amria [1982] 2 Lloyd's Rep 28 at 32 in which Donaldson L. J. approved the statement of Devlin J. in Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 QB 402 at 424 in which he set out three types of FOB contract. In the first, or classic type, the buyer nominates the ship and the seller puts the goods on board for the account of the buyer, procuring a bill of lading. The seller is then a party to the contract of carriage and if he has taken the bill of lading to his order, he transfers it to the buyer. The second type is a variant of the first in that the shipping and insurance arrangements are made by the seller for the account of the buyer. As in the first type, the seller enters into a contract with the carrier and transfers the bill of lading to the buyer. The third type is where the buyer engages his own forwarding agent at the port of loading and to procure the bill of lading and the seller simply puts the goods on board, takes a mate's receipt and gives this to the buyer or his agent who then takes a bill of lading. In this instance, the buyer is a party to the contract of carriage ab initio.

16. It is the plaintiff's contention that it would come within the first type of FOB contract whereas it would appear from the defendant's contention that the present case would fall within the third type. It would simply be inappropriate for me to determine the issue at this stage when the available evidence is neither clear nor adequate for the factual dispute to be resolved, so that the court would not be giving a legal ruling in vacuo. For this reason, I also reject the application for determining issue (d) in the defendant's summons.

The striking out application

17. The defendant's application to strike out the Statement of Claim is made on the premise that the issues in (a) to (d) would be resolved in the defendant's favour. As I have indicated above, it would not be appropriate to give a summary ruling on these issues at this stage. It follows that the application to strike out must also be dismissed.

Orders

18. The learned Master has clearly reached the correct decision in dismissing the defendant's application for determination under O.14A and for striking out of the Statement of Claim. I dismiss the defendant's appeal. The plaintiff has sought an order that the defendant should pay its costs forthwith as the defendant's application is misconceived. In the exercise of my discretion, I have ordered that the costs of the appeal should be paid by the defendant to the plaintiff in any event. I take the view that the plaintiff has not pleaded its case properly, that it may be necessary for the plaintiff to amend the Statement of Claim and/or to file a Reply and the inadequacy of the plaintiff's pleading might have caused the defendant to form certain views of the plaintiff's case and to seek the reliefs in the defendant's summons.