CAREWINS DEVELOPMENT (CHINA) LTD v. BRIGHT FORTUNE SHIPPING LTD

HCCL 49/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NOS.49 & NO.50 OF 2004

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HCCL 50/2004

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INDEX TO JUDGMENT

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J U D G M E N T

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This action

1.  The claim in each of these related actions is for the alleged misdelivery of goods shipped under 'straight' bills of lading.

2. Within the context of litigation which, not unusually, is long on detail, three short and significant issues of legal principle arise : first, whether presentation of a 'straight' bill of lading (as opposed to an 'order' bill) is a requirement for delivery of the cargo specified therein; second, the ambit of the term 'discharge' within the meaning of Articles II and  III, rule 2 of the Hague-Visby Rules; and third, the extent to which it is permissible to 'read down' an exemption clause within a bill of lading so as not to defeat the main object of the contract of carriage.

3. In HCCL 49 of 2004 (formerly HCA 3590 of 2003) the plaintiff, ('Carewins'), a Hong Kong exporter, alleges that Bright Fortune Shipping Ltd ('Bright Fortune') was the carrier under the contracts of carriage evidenced by the bills of lading specified in the Statement of Claim in that action, whilst in HCCL 50 of 2004 (formerly HCA 3591 of 2003) the plaintiff alleges that Hecny Shipping Ltd ('Hecny') was the carrier under the bills relevant to that action.

4. In each action the plaintiff alleges that the defendant was subject to the contractual obligation to deliver the cargo in question only to the holder of the original bill of lading, and seeks damages in the amount of the invoice value of the goods, amounting to a total in both actions of US$873,028.00 (US$111,788.10 + $761,239.90), such sum representing the sound arrived value of the 23 containers allegedly misdelivered.

5. In turn, the defendant in each action brings a counterclaim in respect of freight in the amended sum of US$24,436.00, and in addition seeks declaratory relief that the plaintiff is liable to indemnify the defendant in such amount as the defendant is called upon to pay in respect of demurrage and storage charges occasioned in respect of the balance of 22 containers, out of the 45 in issue in this case, which remained unclaimed by the plaintiff.

The factual background

6. The claim and counterclaim in each action relate to the shipment of goods by the plaintiff from Hong Kong to Los Angeles, California.

7. In each case, the goods the subject of carriage by the defendants had been sold by the plaintiff, Carewins, to its buyer in Los Angeles, an entity known as Artist Fashion Inc ('Artist Fashion').

8. During the period between June 2001 and April 2003, Carewins entered into over 100 transactions pursuant to which goods were shipped to Los Angeles to Artist Fashion.

9. The way in which the trading sequence worked was thus : Artist Fashion would place with Carewins an order for the purchase of certain footwear products, and upon receipt of that order the plaintiff would arrange for the manufacture, in China, of these products.

10. After the completion of manufacture, Carewins would make arrangements for the transportation of the finished goods from the PRC factories to Hong Kong, a clerk within the plaintiff's PRC office being responsible for making the shipping arrangements for the shipment of goods from Hong Kong to Los Angeles. 

11. In this regard, a 'Shipping Order' would be completed by staff of the plaintiff according to the instructions of the buyer, Artist Fashion, which document then would be returned to the defendants, and original bills of lading thereafter would be issued by the carrier.

12. These bills of lading would name Artist Fashion as the consignee without the words 'To Order', and thus fell within that classification known as 'straight' bills of lading.

13. The goods the subject of these 'straight' bills then would be shipped to Los Angeles on board an ocean carrier – in this case Sinotrans Container Lines Ltd or Evergreen Marine Corporation – contracted with by the defendants, Bright Fortune or Hecny.

14. Upon arrival at the port of Los Angeles, the arrangements for the handling of the containers thus shipped would be undertaken by an entity known as the Trans-Union Group Inc ('TUG') pursuant to a sea freight non-exclusive agency agreement concluded with Bright Fortune in March 2002.

15. Thus it was that in March/April 2003 Carewins gave instructions in relation to the shipment from Hong Kong to Los Angeles of containers of footwear products; as was the case with the earlier shipments, the bills of lading issued were 'straight bills'.

16. Out of a total of 45 containers so shipped by Carewins to Artist Fashion, 23 containers form the subject of the plaintiff's claims in these actions.  These containers have been referred to throughout this trial as the 'Group A' containers.

17. These 23 containers were delivered to the warehouse of Artist Fashion, situated about an hour away by road from the port of Los Angeles, through the agency of TUG, and – and this is the nub of the present dispute between the parties – absent presentation by Artist Fashion, the consignee, of an original bill of lading relating to the containers thus delivered.

18. These cases may well not have seen the light of day had not then occurred the seizure of these 23 containers by United States officials.

19. It is now evident that on or around 22 April 2003, shortly after the arrival of these 'Group A' containers at the premises of Artist Fashion, Burberry Limited had commenced an action in the United States District Court of the Central District of California against Artist Fashion, wherein it was alleged by Burberry that Artist Fashion had infringed trade marks owned by Burberry, and pursuant to a court order made in this US District Court action on 23 April 2003, footwear products in the possession of Artist Fashion, including products in the 'Group A' containers, were seized.

20. This court has not been given a great deal of information about this legal action by Burberry in California; suffice it to say that this Californian action was compromised by Artist Fashion, on terms which are undisclosed, but which appears to have resulted in the seized footwear products not having been returned to Artist Fashion.

21. As a consequence Artist Fashion has not paid Carewins for the goods which were shipped in the 'Group A' containers, and Carewins, which alleges misdelivery, now seeks to recover the invoice price of these goods under the contracts of carriage represented by the 23 bills of lading as issued by Bright Fortune and Hecny.

22. As to the remaining 22 containers which also were shipped – referred to throughout this case as the 'Group B' containers – Artist Fashion refused to take delivery thereof since they had arrived at Los Angeles after the commencement of the Burberry action in the California District Court.

23. It is unclear on the evidence as to precisely what transpired with these 22 containers, which provide the subject matter of the defendants' counterclaim for freight and declaratory relief, and with which I deal later in this judgment.

24. That which seems to have occurred – as is usual in the United States when containers remain uncollected – is that after a requisite period of storage these containers and their contents were auctioned by the port authorities at public auction, although this court has been given no information as to the amount received therefor; no doubt such sum as was realized at auction was used to defray unpaid port storage and associated charges.

25. Moreover, as at the date of this trial no claim appears to have been made by any third party against the defendants herein, or against TUG, the Los Angeles port agent, with regard to costs accruing in relation to these 22 'Group B' containers.

26. There is no real factual dispute as to this broad train of events, and indeed, notwithstanding the considerable amount of detail in this case, the number of factual findings of fact which this court is required to make in order to determine this dispute is relatively small.

27. These cases have, however, spawned a vigorous legal debate, and Mr Wright, who appears for the defendants, has identified a number of issues requiring resolution.  Prior to addressing these matters, however, it may assist to outline the ambit of the oral evidence as was led in this case.

The evidence

28. Two witnesses gave viva voce evidence for the plaintiff and three for the defendants.

29. The first witness for the plaintiff was Miss Dorothy Tsang, who was and remains the Manager of Carewins.  She was the person responsible for the liaison with, and arrangement of shipment of the goods by Bright Fortune and Hecny.

30. Miss Tsang described how it was agreed from the outset of the course of dealing between Carewins and Artist Fashion that the contracts with Artist Fashion were to be on an FOB basis, and that all freight charges were to be borne by the buyer.  She further said that Artist Fashion specifically had appointed Hecny as the designated freight forwarder for these shipments, and that pursuant thereto she was in frequent contact with one 'Ms Quiny' of Hecny to make the relevant shipping arrangements.

31. She described the procedure for booking shipments, using a Shipping Order form which was sent from Hecny after confirmation of the relevant booking, and this form would be sent to the booker in China, who would have relevant information as to the shipments in question, and would prepare and file export and custom declarations in the PRC.  The mate's receipt received by the transportation company employed by Carewins in China would be sent directly to the defendant forwarder, and Carewins, as shipper, would provide all relevant supporting information, including container and seal number, actual quantity of goods and gross and net weights and measurements.  Once the containers were on board the relevant ocean vessel, the defendant forwarder would fax to Carewins a draft bill of lading, an original bill would be issued only if the information on the face of the draft was correct, and this original bill would be collected by the plaintiff from the defendant's office upon payment of their handling charges.

32. So far as Artist Fashion was concerned, Miss Tsang said that she would fax a copy of the unsigned bill of lading together with her company's invoice and packing list, and the advance notification of the shipment ('the interim footwear invoice') as required by the US Government; the purpose of this was to demonstrate that the goods were en route, and at the same time Carewins would ask Artist Fashion when the purchase price would be remitted.

33. The full set of original documents, including 3 copies of the bill of lading, invoice, packing list and interim footwear invoice, would be retained by Carewins, and only after receiving by TT the necessary remittance in payment for the goods, would these original documents be delivered by speed post to Artist Fashion, which had appointed its own delivery agent, TUG; on receipt thereof the consignee would fill in the name of the delivery agent on the bill of lading.

34. Miss Tsang was emphatic that she retained the original bill until she received from her bank notice of the relevant TT payment.  She was strongly challenged on this, but I accept her evidence.

35. It was put to her on a number of occasions that she did not care whether the goods were delivered to Artist Fashion without the bills of lading being produced, but she maintained, and I accept, that so far as she was concerned at all times she had acted on the belief and understanding that the shipped goods would not be delivered until the bill of lading for those goods was presented.

36. She said that when she learned of a problem at Artist Fashion in terms of a seizure of goods she had contacted Quiny at the defendant to find out what was happening, and also had sent a fax inquiry.  She said that she had received no information by 4 May 2003, and began to suspect that information was being withheld by the defendant; nor did queries raised with Artist Fashion yield any information.

37. Miss Tsang was cross-examined on the documents, in particular as to a document in which it was suggested that all along the plaintiff in fact knew that the containers were being released at Los Angeles without production of the bills of lading.  This document, dated 10 May 2003, was subject to translation queries, but I am satisfied that it bore the meaning ascribed to it by Miss Tsang, who said that she had written it in a sarcastic fashion after a telephone call in which she had discovered that her goods had been obtained by Artist Fashion on 6 May without the bills of lading, and not the exculpatory meaning sought to be placed thereon by the defendants.

38. Further queries by the plaintiff throughout June 2003 also had failed to elicit any relevant additional information, and on 17 June Carewins had instructed lawyers in the US to make inquiries of Artist Fashion, and thus obtained a list of containers collected by Artist Fashion, a list of containers cleared through US Customs but not yet collected, and a list of containers not yet cleared through Customs.

39. On verifying this list with her records, Miss Tsang noted that there were 23 containers which already had been collected by Artist Fashion, which had caused her to be “astonished” she said, because the original bills of lading for all the 23 containers were still with her, and the contractual carriers never had been instructed to release these containers without presentation of the original bills; of these 23 containers, Bright Fortune was the carrier for 3, and Hecny the carrier for the remaining 20.

40. Since that date, she said, neither Bright Fortune nor Hecny had contacted her, and indeed had refused to take any remedial action with regard to this situation; hence the plaintiff had had no alternative but to take these legal proceedings.

41. The second witness for the plaintiff was its Managing Director, Mr Li Hon Hing.

42. He was unequivocal in his evidence, which I also accept, that never had he authorized release of his shipments absent production of the bills of lading : “In order to protect our company's interest, we would only release cargoes to the consignee upon the production of original bills of lading…”  He said that he had been in business for 20 years, and that a sea carrier who had received an order from him “must have sight of the bill of lading before they release the goods.”

43. Mr Li denied that there was any form of agreement between Artist Fashion, TUG and his company that the goods could be released without production of the bill of lading, as had been suggested in the witness statement of Jeff Lien of Artist Fashion (who in fact was not called to give evidence), or that the plaintiff had agreed to mail original bills to Artist Fashion by international express mail within one week after containers were loaded on board.

44. Mr Li was emphatic that it was nonsense to suggest, as was put to him in cross-examination, that the bills of lading simply were sent to Artist Fashion for 'record keeping purposes'.  Nor did he profess to know the difference between different types of bills of lading : “for all I know the bill of lading is equal to the goods – the one who has the bill of lading is entitled, without it no delivery of the goods.”

45. He also confirmed that his company had used Hecny as its forwarder at the request of Artist Fashion, and that, as soon as he had heard of the misdelivery/seizure of the 23 containers, he had gone to Los Angeles in order to try to resolve the situation by negotiating with Artist Fashion, but to no avail.

46. As to those containers comprising that which have been termed the 'Group B' containers, Mr Li said that Quiny of Hecny had advised them that all goods must clear customs in the US, and that only after delivery to the consignee could the goods be returned to the shipper; as a result, he had pursued Artist Fashion in an attempt to negotiate a settlement, but this was not possible.

47. Three witnesses were called on behalf of the defendants.  In my view their evidence was both unimpressive and non-probative.

48. The first was Mr Robert Wu, a director of TUG, the delivery agent in Los Angeles who had been responsible for collecting the goods in question from the dock and transporting them by road to the warehouse of Artist Fashion.

49. It was clear that Mr Wu had little, if any, direct knowledge of the matters the subject of this case, and I am unable to accord any weight to his evidence, which primarily consisted of a second-hand assertion that in September 2001 TUG, via its Sales Manager, one Calvin Cheng, had entered into an oral agreement with Artist Fashion and Carewins (he had no idea whatever with whom within the latter company : “Don't know”) wherein freight and storage for shipments from Carewins to Artist Fashion would be paid by the latter to TUG, and that “in addition” there was a verbal agreement by which the plaintiff had agreed to mail the original bills to the consignee, Artist Fashion, within one week after the containers were placed on board the carrying vessel.

50. This was no more than a rehash of the allegation to be found in the unused witness statement of Jeff Lien of Artist Fashion (I have little doubt that it was drawn by the same lawyer), and for the avoidance of doubt I find as a fact that no such agreement ever took place, and that this is no more than a self-serving and wholly incorrect assertion.

51. Mr Wu also referred to delivering the so-called 'Group A' containers to Artist Fashion, and also made reference to the 'Burberry action' against that entity.

52. He further said that TUG had instructed Hecny to notify the plaintiff about the non-collection of the 'Group B' containers, and asserted that since these containers had remained uncollected, TUG became liable for freight charges, storage charges and demurrage in connection therewith.  He also made reference to a lawsuit launched by TUG against Artist Fashion in California, although the relevance of that piece of information within the context of the present case was unclear.

53. Mr Wu purported to inform the court of the legal position in the United States in terms of offences for counterfeit goods and trademark infringements, but he accepted in cross-examination that he had no knowledge of intellectual property laws in the United States.  Nor, somewhat oddly, given that he was a director of TUG, did he profess to know of the outcome/progress of the suit allegedly filed by his company against Artist Fashion.

54. The second witness for the defendants was Quiny Choi, the 'Quiny' to whom Miss Tsang and Mr Li had referred throughout their evidence, and who had been the plaintiff's contact person within Hecny/Bright Fortune.

55. Miss Choi, the Customer Services Manager of Hecny, was the only person from either of the defendants to give evidence.

56. Miss Choi described her office routines, in terms of arrangement of shipments for customers of Bright Fortune and Hecny, of which Carewins, the present plaintiff, was one such.

57. She noted the existence of an agreement of 13 March 2002 between Bright Fortune and TUG, and confirmed also that TUG had an arrangement with Artist Fashion and the plaintiff pursuant to which TUG agreed to arrange delivery to Artist Fashion of the plaintiff's containers, Artist Fashion agreeing to pay for freight and storage charges.

58. She also stated that the ocean carriers used by Bright Fortune and/or Hecny to effect the actual sea carriage were Evergreen Marine Corporation and Sinotrans Container Lines Ltd; in this regard she confirmed that it was the ocean carrier in each instance which issued Master Bills of Lading, Bright Fortune and Hecny in turn issuing 'house' bills to Carewins.

59. She recounted her modus operandi in terms of the shipment of the plaintiff's containers, and her normal dealings with Miss Dorothy Tsang of the plaintiff, and said that from December 1999 to April 2003 she had arranged on behalf of Bright Fortune the carriage of more than 100 containers to be transported from Artist Fashion to Hong Kong without any problem.

60. She said that in respect of all shipments she was acting “solely on behalf of Bright Fortune and not on behalf of Hecny”, and said that she understood “that on each occasion there was no need for the goods to be delivered to Artist Fashion Inc against production of the original bills of lading”, although no authority for this understanding was vouchsafed.  I do not accept this element of her evidence, which in the circumstances I regarded as little more than parroting the 'party line'.

61. Miss Choi also went on to describe her recollection of that which occurred when Dorothy Tsang of Carewins was making inquiries about the whereabouts of the containers that had been shipped when information had been known about the seizure of containers from Artist Fashion in connection with the Burberry legal action in California; she said that she had told Miss Tsang that Artist Fashion would contact the plaintiff directly.

62. She said also that when Miss Tsang had made queries about containers then en route to Los Angeles, the 'Group B' containers, her understanding, as told to Miss Tsang, was that such containers needed to clear US Customs before they could be shipped back to Hong Kong, and that on arrival of the 'Group B' containers in Los Angeles TUG had informed Bright Fortune that these containers had not been collected by Artist Fashion.

63. I did not find Miss Choi's evidence satisfactory, nor indeed helpful, and in so far as her version of events contradicts that of Miss Tsang, I prefer the evidence of the latter.  In particular, when it came to dealing with Miss Tsang's account of the evasiveness and lack of information about the situation from the defendants, I have no hesitation in accepting Miss Tsang's account; in this regard, I do not think that Mr Kerr, on behalf of the plaintiff, put it too high when he submitted that Miss Choi's evidence was “a mass of contradictions”, not least with her curious, and internally conflicting account of her computer crashing and how she came to have deleted all relevant emails.

64. The third and final witness called on behalf of the defendants was a Miss Rachel Fung, the General Manager of Artist Fashion.

65. I view Miss Fung's evidence with considerable reservation, and I place no weight upon it. 

66. She appears to have been pressed into last-minute service as a witness in lieu of evidence which was anticipated to be given by Mr Jeff Lien of Artist Fashion, who did not come to Hong Kong to attend this trial, and on her own case she readily accepted that she had had no personal contact whatever with the plaintiff, and had had little or nothing to do with the transactions in question or with this dispute.

67. The basis of her knowledge was said to have been derived from that which she had been informed by Jeff and Cynthia Lien of Artist Fashion, and from her reading of the documents.  Initially she maintained that she had drafted her own witness statement – which, as counsel pointed out, was in identical terms to the statement of Mr Lien, including the grammatical errors – although she later accepted that this had been drawn by lawyers, and she said that she was “representing our company to testify in this court”.

68. I do not accept her evidence, wherein she asserted, inter alia, that the plaintiff acted as agent of Artist Fashion in relation to the footwear goods the subject of these proceedings, that there was an oral agreement – the existence of which earlier I have rejected – between TUG, Artist Fashion and the plaintiff whereby there was no need to produce original bills, which would be sent by express mail within a week of loading on board in order to obtain delivery of the containers, that the goods which were shipped by the plaintiff generally would be received by Artist Fashion a few days after arrival and that Artist Fashion would wire the money to Carewins “a couple of weeks after the goods were received”, and that after the plaintiff received the money, the original bills of lading would be mailed to Artist Fashion, which Artist Fashion then would send to the forwarder “for record keeping purposes”.

69. I reject this version of events.  It is possible, I suppose, that Carewins in fact may have received monies after the goods referable thereto had been received by Artist Fashion, but I very much doubt (and do not so find) that Carewins realized, when it received such monies, that Artist Fashion already was in possession of the relevant goods.

70. Miss Fung also said that after the seizure of the footwear from Artist Fashion by Burberry, these goods were later disposed of, and that the court proceedings leading to such seizure were finally settled out of court between Artist Fashion and Burberry “by private and confidential arrangement.”

71. This may be so, but the fact remains that this court has been given no information whatever about this particular aspect, which impacts upon legal issues raised in submission on behalf of the defendants in this case.

72. Having thus described the broad ambit of the evidence, it is to these issues that I now turn.

The plaintiff's case : issues for determination

73. On behalf of the defendants in these actions, Mr Wright developed detailed legal argument involving that which he suggested were six distinct issues arising from the plaintiff's case.  No differentiation was made between the two cases, given the commonality of the argument, and for the purpose of this judgment I am content to adopt this classification. 

(i) Nature of the carrier's delivery obligation under a 'straight' bill of lading

74. In many ways this forms the crux of the present case, and given the manner in which the trial was conducted this represented the central legal argument.

75. The question posed by Mr Wright in his extensive written submission is whether the plaintiff had established that the carrier under the respective contracts of carriage evidenced by these 'straight' bills of lading was subject to a contractual obligation to deliver the goods only to the holder of the original bills of lading.

76. Mr Wright's thesis is that the answer to this question is a resounding 'No'.

77. Thus in these cases he says that the plaintiff has no cause for contractual complaint; the carrier had delivered the goods to the consignee under the bills of lading, Artist Fashion, which was precisely the entity to whom they should have been delivered, and the fact that such delivery occurred otherwise than against production of an original bill of lading is nothing to the point within the specific context of a 'straight' as opposed to an 'order' bill.

78. Mr Wright argued that the plaintiff's case is premised upon the argument that all contracts of carriage evidenced by 'straight' bills of lading are subject to an invariable rule that the carrier may release the goods to the named consignee only against presentation of an original bill of lading – that is, the so-called 'presentation rule'.

79. However this, he said, fundamentally is to misunderstand the true situation, and the suggestion that the obligation in the terms alleged by the plaintiff is to be implied into all contracts evidenced by 'straight' bills is contrary to established principles of contract law, where the implication of a term in a contract is necessary to give business efficacy to the contract.

80. In this connection, Mr Wright drew a clear distinction between 'order' bills and 'straight' bills.

81. In the case of an order bill, he argued, without seeing the original bill a carrier cannot tell to whom the goods the subject of the bill are to be delivered, and therefore requires to inspect the original bill to see what indorsements, if any, it contains. 

82. This explains, he suggested, the implication into a contract of carriage evidenced by an order bill that the original bill must be produced in order to obtain delivery, so that once an order bill is produced, the carrier is entitled to accept the bill of lading as the shipper's order to deliver to the holder of the original bill.  This, he said, conforms with the long-standing, and unquestioned practice, for there to be delivery to the holder of an original 'order' bill of lading.

83. However, 'straight' bills by their very nature are different, Mr Wright argued.  A straight bill does not have the transferable character of an order bill in the sense that any holder thereof is capable of claiming possession of the goods shipped under the bill.  A straight bill is 'transferable' only in a very limited sense that it may be transferred from the shipper to the named consignee.  In effect, therefore, the bill itself contains the shipper's order in relation to the delivery of the goods : by naming the consignee, the shipper orders the carrier to deliver the goods to that consignee and to no other person, and the carrier's obligation to deliver the goods to the person designated by the shipper stems solely from the shipper's instruction.

84. In this connection, Mr Wright drew my attention to a passage in Carver on Bills of Lading (2^nd ed., 2004), in which the learned editors state, at pp 282-283 :

“The question then arises whether, granted that the carrier does not need to see a straight bill in order to determine who is entitled to the delivery of the goods, delivery of goods shipped under a straight bill can be claimed, and must be made, only on production of the bill.  The starting point for a discussion of that question is that there is no general principle in the law of carriage that the consignee named in the contract of carriage can claim delivery only on the production of the carriage document, or any other document.  Prima facie, a contract by which a bailee (A) of goods promises the bailor (B) to deliver the goods to a third party (C) is performed by such delivery without the need for C to produce any document containing or evidencing the contract of bailment; this is true whether A is a carrier or some other kind of bailee.  The requirement of the production of an order bill by C is best regarded as an exception to this general rule.”

85. Following upon this, Mr Wright argued that a contract by which a carrier (A) promises a shipper (B) to deliver goods to the named consignee (C) identified in a straight bill of lading has perfect efficacy without any requirement on the part of the consignee to produce the contract document; accordingly a contract evidenced by a straight bill of lading does not need any term to be implied in relation to the production of the bill of lading on delivery in order to be operative and to have business efficacy.

86. He further submitted that the plaintiff receives no support from the practice of issuing bills of lading in sets of three, and that it would be wrong to assume that any intention of the parties to a contract of carriage can be inferred on the basis of a market practice described as “inveterate” in a case decided more than a century ago : in Sanders Brothers v. MacLean & Co. (1883) 11 QBD 327, at 341-342, Bowen LJ observed as follows :

“By inveterate practice among most of the commercial nations of Europe, bills of lading have long been drawn by the shipper in sets of three or more.  Sometimes one of the set is retained by the captain, the others being transferred by the captain to the shipper.  Sometimes the whole of the set are handed, upon shipment, to the merchant, the captain retaining a copy only.  This practice of drawing bills of lading in triplicate may be at the present day, and under the altered conditions of communications between one part of the world and another, less valuable than it was when originally introduced.  But it certainly had its distinct uses in the early stages of European commerce, and it still survives.  If it survives it is probably that the commercial world still finds it more convenient or less troublesome to preserve it than to change it.”

87. The fact also remains, said Mr Wright, that problems associated with the stringency of the 'presentation rule' recently have been discussed in leading textbooks and academic literature : see, for example, Wilson, The Presentation Rule Revisited, [1995] LMCLQ 289, Goode, Commercial Law (3^rd ed. 2004), at pp 895-896, 907, and Wilson, Carriage of Goods By Sea (5^th ed. 2004) at pp 158-173, in which latter work Professor Wilson notes, at 158, that “In recent years, the unique characteristic of the bill of lading, which requires delivery of the goods only against presentation of the document, has been causing serious practical problems.”

88. Mr Wright asserted that the court should not accept the invitation to impose the so-called 'presentation rule' to parties to a contract of carriage evidenced by a straight bill in the absence of a clearly-expressed contractual intention to impose an obligation upon the carrier only to deliver against production of the original bill.

89. He asked the court to follow the decision of Mr Justice Waung in “The Brij” [2001] 1 Lloyd's LR 431, in which the learned judge (at p 434) had relied upon an extract from Benjamin on Sale of Goods, 5^th ed. at p 900, and had held that “the essence of straight bills is that they are not negotiable and the contractual mandate is to deliver to the named consignee without production of the original document.”

90. Notwithstanding the persuasiveness of Mr Wright's submission, I regret that I find it difficult to agree with its main thrust.

91. A problem he faced in mounting his present argument, an obstacle which he readily appreciated, is that there lies in his path substantial authority against the proposition he now seeks to develop.

92. In this connection two cases in particular stand out as immediate and, if I may say so, authoritative reference points.

93. The first is the decision of the Singaporean Court in Voss v. APL Co. Pte. Ltd [2002] 2 Lloyd's LR 707.

94. In that case Mr Voss, a German dealer, sold a Mercedes Benz to a Korean company in Seoul.  He arranged with the carrier, APL, to ship the car from Hamburg to Korea; the bill of lading bore the name of the buyer in the box entitled 'Consignee', but without the words 'To Order'.  The bill also provided for a set of three originals issued by the carrier and upon surrender of any one negotiable bill of lading properly endorsed all others stood void.

95. Upon arrival of the vessel in Korea, APL released the car to the buyer without production of any of the three sets of the bill of lading.  Mr Voss was not paid for his car by the buyer, and as a consequence he demanded payment from APL, which denied liability on the ground that they were not wrong to deliver the motor car to the buyer without production of the bill of lading.

96. The case came before the Singapore court on an Order 14 application, for determination of a preliminary question of law whether in relation to a straight bill of lading making goods deliverable to a specific person as consignee, without words importing transferability, the shipowner may deliver the same to the consignee without production of the bill of lading.

97. At first instance Judith Prakash J held that APL was not entitled to deliver the cargo to the named consignee without production of the bill of lading, and held APL liable in conversion and damages.

98. In a wide-ranging judgment the learned judge conducted a survey of the relevant English case law, and touched also upon Malaysian authority and academic texts; she also considered the Hong Kong decision of Waung J in The Brij, op cit, noting that in this case the learned judge had founded his decision on a passage in Benjamin, 5^th ed., which text had cited no authority for the proposition that under a straight bill the carrier is bound to deliver to the named consignee without production of the bill.

99. Prakash J concluded (op cit at 715, at paragraph 33) that it appeared to her that the weight of authority was with Mr Voss :

“The position that he took had been one taken by many judges over a substantial period of time and, even though in most of the cases the views expressed were obiter, this did not detract from their weight as they reflected the common understanding of the legal position.  This position has also been endorsed by academics and writers of popular texts.  It was in my view also consistent with commercial sense as stated by Mr Justice Clarke [in The Sormovskiy 3068 [1994] 2 Lloyd's LR 266].  The straight bill of lading and the consequent delivery obligation it imposes on a carrier has been well known for decades.  A shipper who, like Mr Voss in this case, asks for the issue of a straight bill of lading even though the alternative of a sea waybill is open to him, wants to retain some degree of control over the delivery of the goods.  The shipowner is aware of this.  If he is not prepared to accept the restriction on delivery rights that a bill of lading imposes he can insist on issuing a waybill instead.  Once he issues a bill of lading instead, however, whether it is an order bill or a straight bill, he must not deliver the cargo except against its production.  The contrary view had much less support and most of it was recent and cursory…”

100. The Singapore Court of Appeal affirmed the decision of the High Court, and dismissed APL's appeal.  Chao Hick Tin JA opened his judgment by observing that this case raised “a straightforward but not an easy question relating to the carriage of goods by sea”, and in delivering the judgment of the court he also embarked on a review of the authorities, in terms both of case law and academic texts.

101. The conclusion of the Singapore Court of Appeal is expressed in the judgment (op cit, at 721, at paragraphs 48, 49 and 50) thus :

“At the end of the day, it seems to us that the issue must be resolved on the basis of contract law and the intention of the parties.  The entire argument of the appellants is that a straight BL is the same as a sea waybill.  While it is true that a BL, devoid of the characteristic of negotiability, is substantially similar in effect to that of a sea waybill, that is not to say that they are the same.  If the parties had intended to create a sea waybill they would have done so.  Ordinarily the main characteristics of a BL are twofold.  First, it is negotiable (ie. transferable).  Second, it is a document of title, requiring its presentation to obtain delivery of the cargo.  In the case of a straight bill, while the characteristic of transferability is absent, there is no reason why one should therefore infer that the parties had intended to do away with the other main characteristic, ie., delivery upon presentation.  As the Judge below noted, while one cannot indorse a straight bill to transfer constructive possession of the cargo, it does not necessarily follow that the straight bill does not impose a contractual term obligating the carrier to require its production to obtain delivery.

It seems to us that clear words must be present to imply that the parties intended the instrument to be treated, in all respects, as if it were a sea waybill and that its presentation by the named consignee is not necessary.  Indeed, if the parties had wanted to have a sea waybill they could have quite easily adopted that format.  They would not have issued a BL with three originals.  By issuing the instrument as a BL, it must mean that they wished to retain all the other features of a BL, other than the characteristic of transferability…And if they nevertheless choose to adopt the format of a BL, the court should not be astute to convert their arrangement into something they do not want to have in the first place…”

102. The court also added, “looking at the matter from the perspective of the market place”, that the rule requiring presentation of a straight bill as a prerequisite of obtaining delivery had the advantage of simplicity of application and certainty, and would prevent confusion and avoid shipowners and their agents having to decide whether a bill is a straight bill or an order bill.  The court further declined to envisage “two broad categories of documents which could be used by shippers”, namely the negotiable BL, whereby delivery could be made only against presentation, and the non-negotiable straight BL or sea waybill, which need not be produced in order to gain delivery, and expressed the view that to distinguish a straight bill from a sea waybill had the advantage of providing a seller, or in the case of a documentary credit, the bank, with some security against default by the buyer, and the buyer of some assurance that the seller has shipped the cargo before he is required to make payment.

103. One of the cases cited by the Singapore Court of Appeal was J.I. Macwilliam Co. Inc. v. Mediterranean Shipping Co. SA, The “Rafaela S”, [2002] 2 Lloyd's LR 403, which at that time was but a first instance decision of Langley J, although thereafter this case would go all the way to the House of Lords – indeed dicta of their Lordships both in the Court of Appeal and in the House of Lords has been extensively cited in this case by Mr Kerr on behalf of the plaintiffs.

104. In fact, in The “Rafaela S” the point with which the present case is concerned, namely, whether in a straight bill of lading situation the shipowner could deliver the cargo to the specified consignee without production of the bill of lading, was not directly in issue; the particular question for resolution in that case, which took the form of an appeal from an arbitral decision, was whether the shipowner could rely upon the limitation prescribed under the US Carriage of Goods by Sea Act, 1936 or the more generous regime of the Hague or the Hague-Visby Rules, which had been enacted in the UK Carriage of Goods by Sea Act, 1971. 

105. To determine this question, it was necessary to decide whether the straight bill of lading issued by the shipowner was a bill of lading within the meaning of the term “document of title” within section 1(4) of the 1971 Act. 

106. Langley J held that a straight bill of lading was not negotiable and was not a “document of title”, and thus that a straight bill did not fall within the terms of the 1971 Act, although he went further to express the view, obiter, that while the point was of some nicety, it was not necessary in respect of a straight bill of lading that delivery must be against the bill of lading – and it is this latter point which also was extensively considered both in the Court of Appeal and in the House of Lords.

107. In the Court of Appeal – reported at [2003] 2 Lloyd's LR 113 – the leading judgment of the court was delivered by Rix LJ, in a seminal judgment which has been described by one eminent academic as replete with learning and as “a text which will provide food for thought for many months or years” : see Treitel, The Legal Status of Straight Bills of Lading, 119 LQR 608.

108. Whilst the only point actually decided was the status of the straight bill in terms of whether the straight bill fell within section 1(4) of COGSA, 1971, nevertheless the appellate judgments take the opportunity to discuss the question whether straight bills must be presented to obtain delivery of the goods and whether they are in principle documents of title; they also examine the distinction between straight bills and sea waybills.

109. After his comprehensive historical and analytical survey of the authorities and academic texts, including extensive reference to Voss, op cit, Rix LJ (with whom Jacob J and Peter Gibson LJ concurred) concluded that a straight bill of lading, “for all that it is non-negotiable”, should be viewed as a bill of lading within the meaning of the Hague Rules, for the reasons, inter alia, that the authorities demonstrate that in practice a straight bill is used, “just like a classic bill”, as a document against which payment is required and the transfer of which thus marks the intended transfer of property; and that whatever may be the position as a matter of principle and in the absence of express agreement, “the practice appears to be that a straight bill of lading, unlike a mere sea waybill, is written on the form of an otherwise classic bill and requires production of the bill on delivery, and therefore transfer to a consignee to enable him to obtain delivery.”

110. Rix LJ further decided that the attestation clause in the bill of lading in the form in the case before him was applicable not only to the use of a bill in negotiable form, but survives also to control its use as a straight bill – “if it had been intended that it should not apply when the bill was used in non-negotiable form, then it could very easily have said so” – and that such a straight bill of lading, which has to be produced to obtain delivery, is in principle a document of title, even in the absence of an express provision requiring its production to obtain delivery.

111. Accordingly the appeal was allowed, and The “Rafaela S” proceeded to the House of Lords – reported at [2005] 1 Lloyd's LR 347 – wherein their Lordships (Lord Bingham, Lord Nicholls, Lord Steyn, Lord Rodger and Lord Brown) upheld the conclusions of the Court of Appeal and dismissed the appeal, holding that the straight bill of lading covering the carriage of the goods in that case, namely four containers of printing machinery which were damaged in the course of their carriage by sea from Felixstowe to Boston, was “a bill of lading or any similar document of title” within the meaning of section 1(4) of COGSA 1971 and Article I(b) of the Hague-Visby Rules, which were given the force of law in the UK by section 1(2) of the 1971 legislation.

112. In terms of the issue raised directly in the present case, that is, whether the 'presentation rule' is applicable to straight bills of lading, their Lordships were of the opinion that the function of a straight bill of lading could not be equated with that of a sea waybill, which never was a document of title, and that except for the fact that a straight bill of lading was only transferable to a named consignee and not generally, a straight bill shared all the principal characteristics of a bill of lading; accordingly their Lordships took the view, albeit obiter, that presentation of a straight bill of lading was a requirement for the delivery of the cargo even where there was no express provision to that effect.

113. In this connection Lord Bingham observed (op cit, at 351) that the requirement that an original bill be surrendered in exchange for the goods :

“…does not lack a commercial rationale in the case of a straight bill: the shipper will not wish to part with an original bill to the consignee or buyer until that party has paid, and requiring production of the bill to obtain delivery is the most effective way of ensuring that a consignee or buyer who has not paid cannot obtain delivery.  In this case, therefore, as in the case of an order bill, the bill is “a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be” (Sanders v Maclean, (1883) 11 QBD 327, at 341, per Lord Justice Bowen)…”

whilst (op cit, at 354, paragraph 20) Lord Bingham further stated that he had no difficulty in regarding the document issued in the case before him as a document of title, given that on its express terms it must be presented to obtain delivery of the goods,

“…But like Lord Justice Rix (par. 145) I would, if it were necessary to do so, hold that production of the bill is a necessary pre-condition of requiring delivery even where there is no express provision to that effect.”

114. For his part Lord Steyn expressed the position thus (op cit, at 359, paragraphs 45-46) :

“The attestation clause expressly provides that 'One of the bills of lading must be surrendered duly endorsed in exchange for the goods or delivery order'.  The carrier argued that the words 'duly endorsed' signify that this provision is inapplicable to a straight bill of lading.  I would reject this argument.  The words 'duly endorsed' merely indicate that the bill of lading must be endorsed if appropriate or as may be necessary to perform the right of the presenting party to claim delivery.  In any event, the issue of a set of three bills of lading, with the provision “one of which being accomplished, the others to stand void” necessarily implies that delivery will only be made against presentation of the bill of lading.  In my view the decision of the Court of Appeal of Singapore in Voss v APL Co. Pte. Ltd., [2002] 2 Lloyd's Rep 707 at 722 that presentation of a straight bill of lading is a requirement for the delivery of the cargo is right.  A connected point is that the logic of the carrier's position is that some standard terms on the reverse side of the bill of lading must be deemed to be inapplicable.  That too is not how traders, bankers and insurers would understand a straight bill of lading.

The carrier tried to equate the function of a straight bill of lading with that of a sea waybill…The suggested comparison is plainly unrealistic.  In the hands of the named consignee the straight bill of lading is his document of title.  No trader, insurer or banker would assimilate the two.  The differences between the documents include the fact that a straight bill of lading contains the standard terms of the carrier on the reverse side of the document but a sea waybill is blank and straight bills of lading are invariably issued in sets of three and waybills are not.  Except for the fact that a straight bill of lading is only transferable to a named consignee and not generally, a straight bill of lading shares all the characteristics of a bill of lading as already described…”

115. In the course of his submissions Mr Wright strenuously attacked the reasoning in Voss and The “Rafaela S”.  He suggested that the reasons advanced by Rix LJ fail to explain why the presentation rule in terms of a straight bill is necessary to give business efficacy to the contracts evidenced by the bill, and further argued that in any event the facts in those cases can be distinguished from the facts of the present matter.  He maintained that since order bills and straight bills are different in kind, it is “inevitable” that different rules would and should apply, and the shipper has a choice whether he wishes to use an order bill or a straight bill.  Moreover, he submitted, the decision in Voss does not stand for the proposition that the presentation rule applies to all straight bills; as the Singapore Court of Appeal had noted, at the end of the day “the issue must be resolved on the basis of contract law and the intention of the parties.”

116. I mean no disrespect in not condescending to greater detail in terms of Mr Wright's argument.  Suffice it to say that I do not accept his contentions, and his invitation not to follow the reasoning in Voss and The “Rafaela S”.

117. For my part I accept these cases as representing applicable legal principle in this area, and I reject as firmly as I may the proposition that the 'presentation rule' does not apply to straight bills of lading.  I fail to see why there should, in effect, be one rule for 'order' bills and one rule for 'straight' bills.  In this jurisdiction this issue usefully could admit of appellate consideration, not least because there now are conflicting first instance decisions on the point; as far as the Commercial Court is concerned, however, the proposition that, without more, straight bills should be considered as akin to sea waybills is not one with which I can agree.

118. In this connection I would add that, with respect, I would be inclined also to agree with the observation of Lord Bingham in The “Rafaela S” (op cit, at 354, paragraph 20) that were it necessary to do so, he would hold that production of the bill is a necessary pre-condition of requiring delivery even where there is no express provision to that effect.

119. For the purpose of the present actions, however, I do not need to go this far.  I have rejected earlier in this judgment the defendants' factual assertion that there was a collateral agreement in place between the plaintiff, TUG and Artist Fashion to the effect that there could be delivery of the goods to Artist Fashion absent production of the bill of lading, nor can it be said in this case that the straight bills of lading are silent on the point.

120. True it is that, unlike the position in the Rafaela S, the bills of lading contain only the first sentence in the time-honoured language used within the attestation clause, namely, “In Witness Whereof, the carrier by its agents has signed three (3) original Bills of Lading all of this tenor and date, one of which being accomplished the others to stand void” and not the usual following sentence, namely, “One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order.”

121. However, I do not accept the defendants' contention that in light of the omission of this second sentence, this clause cannot have the contractual effect of imposing the presentation rule upon the carriers, Bright Fortune and Hecny, under the relevant contracts of carriage.

122. In The “Sormovskiy 3068” [1994] 2 Lloyd's LR 266, Mr Justice Clarke (as he then was) was considering, albeit within the context of an 'order' bill, the import of the 'standard' attestation clause containing only the first sentence couched in almost identical terms to that in the present case.  After reviewing relevant case law under the heading of 'Delivery without production of bill of lading', the learned judge observed (at 272) :

“None of those cases is in my judgment inconsistent with the plaintiffs' case, namely that subject to the terms of the particular contract and save in exceptional circumstances a shipowner must not deliver the goods otherwise than against presentation of an original bill of lading.  That seems to me to be implicit in the express provision quoted above that any one of the bills of lading being accomplished the others to stand void.  In my judgment it is implicit in that provision that, save perhaps in exceptional circumstances, one would expect one of the bills of lading to be “accomplished” by being presented to the master or shipowner…”

123. It is difficult to grasp why a like phrase in a 'straight' bill of lading should be ascribed a meaning different from that which it is accepted should be ascribed to such a phrase in an 'order' bill, which in this context must represent the defendants' implicit contention. 

124. In this connection Mr Kerr also has pointed out that in arriving at his view Mr Justice Clarke considered the position to be clear under English law, and that he had placed reliance upon the early case of The “Stettin”, (1889) 14 P.D. 142, a decision of Butt J dealing with a bill containing an almost identical provision, wherein the judge held that a shipowner was not entitled to deliver goods to the consignee named in the bill of lading without production of the bill; however, although the distinction between an order bill and a straight bill was raised in argument, Butt J did not refer to it in his judgment. 

125. Although The “Stettin”, op cit., was not, as Mr Kerr submitted, a case which involved a straight bill of lading (the bill in that instance being to the named consignee or his assigns), The “Stettin” was cited both in Voss – wherein Chao Hick Tin JA observed that it was “arguable” that Butt J had not thought the distinction was relevant so far as the delivery obligation of the carrier was concerned – and also in The “Rafaela S”, in which in the course of coming to the view he took Rix LJ made specific reference (op cit, at 124) to the doubt expressed by Lord Justice Scrutton (in Thrige v. United Shipping Co. Ltd, (1924) 18 Ll.L.Rep. 6) to the effect that if the Stettin case did decide that when a bill is made out to the consignee and the shipowner delivers to the consignee without production of the bill of lading he is guilty of breach of contract “then the Stettin case may require consideration”.  It is also noteworthy that Prakash J in Voss, (op cit, at 711) observed that so far as she was aware Lord Justice Scrutton's comment in Thrige “is the only instance in which the correctness of The Stettin has been judicially doubted.”

126. At the end of the day, therefore, in terms of the first issue developed by Mr Wright, I have concluded that his fundamental proposition is incorrect, and that on the facts of this case the obligation of the carrier was to deliver the goods to Artist Fashion only against production of the bill of lading. 

127. It follows, therefore, that subject to the other defences herein raised, in my view the defendants were prima facie in contractual breach in failing so to do.

128. I now move to consider the remaining issues thrown up by this case.

(ii) Identity of the carrier in HCCL 50 of 2004

129. There is no dispute that in HCCL 49 of 2004 it is accepted by Bright Fortune, the defendant therein, that if the plaintiff establishes that the contracts evidenced by the bills of lading were contracts of carriage – and I have no doubt but that this was the case, and so hold – then Bright Fortune indeed was the contractual carrier.

130. However, in the case involving Hecny, namely HCCL 50 of 2004, unhappily the situation is not as clear.  Mr Wright says that Hecny's pleaded denial that it had entered any contracts of carriage with the plaintiff gives rise to the question whether the entity which had entered into the contracts of carriage evidenced by the relevant bills of lading – as set out in the pleaded schedule of the 20 relevant bills – in fact was Hecny or Bright Fortune.

131. After reviewing the situation, Mr Wright has submitted that “the better view is that…the plaintiff intended to deal with Bright Fortune and not with Hecny in respect of the contracts of carriage under consideration.”  There perhaps is no need to dwell upon the commercial rationale for the willingness, other things being equal, to attribute liability to Bright Fortune rather than to Hecny.

132. The bills in question appear on a 'Bright Fortune' form, and are signed by Bright Fortune Shipping Ltd. “As Agents Only”.

133. On the reverse of the bills, which were issued on a 'Freight Collect' basis, Clause 1 of the Terms and Conditions of Contract, the 'Definitions' clause, contains the following sub-clause :

“The term 'Carrier' means Hecny Shipping Ltd.”

134. Shorn of elaboration, Mr Wright's submission is that in this regard the court simply can, and indeed should, ignore this express contractual provision.  He says that in the case of bills of lading, the approach is to give predominant effect to the face of the bill; he also says that it was clear from the evidence that the parties intended the entity to be responsible for the shipments to be Bright Fortune and not Hecny.

135. I do not think that this latter proposition is correct.

136. The evidence from Miss Tsang, which I have accepted, was that her company dealt with Hecny upon the specific instructions of Artist Fashion, and within this context she invariably would deal with Quiny Choi, who worked for Hecny.  She said that she did not pay attention to the shipping documents which Quiny sent her, whether were under the name of Bright Fortune or Hecny, “because we were of the view that it was their company internal affairs.”

137. Against this backdrop, I fail to grasp why the court now simply should overlook the terms of the actual documents as were issued, merely because Hecny would prefer liability, if otherwise established, to enure to Bright Fortune and not to itself.

138. No claim for rectification was made, and I decline to ignore the clear terms of the relevant documents.  I note, also, that a Mr Fred Yao, a director of Hecny, whose witness statement was in the bundle placed before the court, was not called to give evidence, although Mr Kerr observed that Mr Yao was present in court during the plaintiff's evidence and that of Mr Wu.

139. It follows from the foregoing that I find that there is nothing in the 'identity of carrier' point, and I dismiss this argument.  It seems to me that when a bill is signed 'As Agent', if and in so far as it becomes relevant the other contracting party inevitably will refer to the definition of 'Carrier' on the reverse of the bill, and I do not understand the contention that he should not take, and should not be in a position to take, that definition at face value.

(iii)    Ownership of the goods

140. Mr Wright's next point is that for the purpose of this action the plaintiff alleges that it was the owner of the goods, but that this is not established by documentary evidence in relation to the contracts of sale between the plaintiff and Artist Fashion.

141. I do not think that he had his heart in this submission, which in my view has little merit.

142. Quite apart from Mr Kerr's argument that a bailee is estopped from denying the title of its bailor, from the tenor and content of the plaintiff's evidence it strikes me as plain and obvious (and I so find) that property was not intended to pass until payment by Artist Fashion, and that upon such payment the buyer would be sent, by express mail, the original bill representing that particular tranche of goods.

143. I fail to see that there is anything of substance in this point, which I reject also.

(iv) Exemption of liability

144. The defendants' next submission is more promising.  It is that if, which is denied, they acted in prima facie contractual breach, the defendants nevertheless are entitled to rely upon the exemption clause and the limitation provision contained within Clauses 2 and 3 of the Terms and Conditions on the reverse of the bills of lading.

145. In substance this raises two questions: first, to what extent are the contractual terms in these actions affected or restricted by the operation of the Hague-Visby Rules? ; and second, if recourse can be had to the contractual exemptions in question, to what extent is it permissible to 'read down' such exemption clauses so as not to defeat the main object of the contract?

146. The relevant clauses state as follows :

“2.(a)…The liability (if any) of the [Defendants] in respect of the Goods during the period commencing with their being loaded onto any sea going vessel and continuing up to and during discharge from that vessel or from another sea going vessel into which the Goods shall have been transshipped shall be determined in accordance with the provisions of the Carriage by Goods by Sea Act of the United States of America approved April 16, 1936 which shall be deemed to be incorporated herein…

(b) Save as provided in (a) hereof, the [Defendants] shall be under no liability in any capacity whatsoever for loss or misdelivery to the Goods however caused whether or not through the negligence of [the Defendants] [their] servants or agents or subcontractors or for any direct or indirect loss or damage caused by delay or for any indirect or consequential loss of damage…

3. LIMITATION OF LIABILITY – Insofar as loss of or damage to or in connection with the Goods is caused during the part of the carriage to which US COGSA applies (1) the [Defendants] shall not be liable for loss or damage in any amount exceeding the minimum allowable per package or unit (US$500) unless the value (and nature) of the Goods higher than this amount has been declared in writing by the [Plaintiff] before receipt of the Goods by the [Defendant] and inserted on the face of this bill of lading and extra freight has been paid as required…”

147. In light of the terms of Article III, rule 8 of the Hague-Visby Rules, which states :

“Any clause, covenant or agreement in a contract of carriage relieving the carrier from liability for loss or damage to, or in connection with, goods arising from negligence, fault or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be void and of no effect…”

the initial element of this debate inevitably focuses upon the ambit of the applicability of the Rules to the instant contracts of carriage, these Rules being made part of Hong Kong law by section 3 of the Carriage of Goods by Sea Ordinance, Cap. 462, the effect of which is thus to give statutory force to a mandatory contractual regime.

148. The scope of the disagreement under this head is straightforward.  The plaintiff argues that contractual Conditions 2 and 3 should be subject to the provisions of Article III, rule 8, and thus that the purported exemption and limitation clauses are out of play, whilst to the contrary the defendants contend that the Rules have no application after (as here) the goods in question have been discharged from the ship, and thus that the contractual clauses in question remain relevant.

149. In this connection Mr Wright points out that Article I(d) of the Hague-Visby Rules expressly provides that :

“Carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship”,

whilst Article II provides :

“Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”

and Article VII further states :

“Nothing herein contained shall prevent a carrier or shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to, or in connection with, the custody and care and handling of goods prior to the loading on, and subsequent to the discharge from, the ship on which the goods are carried by sea.”

150. At the end of the day, therefore, whether the contractual exemption and limitation of liability clauses can be said to apply in the present case is dependent upon whether this court concludes, on the instant facts, that at the time of the misdelivery in question the provisions of the Hague-Visby Rules no longer were applicable.

151. Or, to put the matter more specifically, as at the moment of misdelivery of these goods absent production of the bill of lading, can it properly be said that 'discharge' was complete, and thus that at that point the element of carriage of goods for the purpose of the Rules had ended, thereby permitting the carrier to place reliance upon the contractual provisions negating or limiting liability under the relevant contract of carriage?

152. Mr Wright strongly submits that this is precisely the situation; he says that in the present case the alleged loss did not arise until after the goods had been handed over to the land carrier, namely TUG or its sub-contractor, and had been hauled by road a considerable distance from the discharge port – the evidence is that the premises of Artist Fashion was about a one hour drive inland.  Accordingly, says Mr Wright, the misdelivery alleged occurred at the very end of the combined transport operation, and clearly was subsequent to the discharge of the goods from the ship upon which the goods had been carried to Los Angeles.

153. Therefore, he continued, Clauses 2 and 3 remain relevant and operational, and in terms of their construction entirely clear, and that in circumstances such as these the court undoubtedly should give effect to the expressed intention of the parties.

154. This is a difficult area.  The point at which the mandatory regime of the Rules ceases, and private contractual obligations resume sway, is not one always susceptible to easy answer, not least because, as Bingham LJ (as he then was) remarked in The “Captain Gregos” [1990] 1 Lloyd's LR 310, at 312, the whole scheme and effect of the Rules “represent a negotiated bargain between shipowners whose interest lies in maximum immunity and cargo-owners, whose interest lies in maximum redress”.  In this context I bear in mind, also, the observation of Devlin J (as he then was) in Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 1 Lloyd's Rep. 321, at 329, that the rights and liabilities of the Hague Rules attach to a contract or part of a contract, and that the only part of the contract that falls within the rules is that which relates to the carriage of goods by sea; and finally, and not least, I bear in mind the absence of any settled view on the point on the authorities.

155. At the outset, however, it is worth returning to the factual evidence in this case, in which connection I am bound to say that I do not share Mr Wright's view that the misdelivery complained of by the plaintiff occurred at the Artist Fashion warehouse.  

156. In my opinion the correct analysis is that the misdelivery took place at the point when the goods initially were delivered, absent production of the bill of lading, into the hands of the agents of Artist Fashion, TUG (or its subcontractor), pursuant to the sea freight non-exclusive agency agreement concluded with Bright Fortune in March 2002.  The fact that thereafter the goods were transported to the actual premises of Artist Fashion about an hour's drive inland strikes me as nothing to the immediate point, although I accept that if Mr Wright were to be correct in this characterization, the answer would be clear, in that on any view there could and would be no question of extending the applicability of the Hague-Visby Rules to cover such misdelivery occurring after overland transport ex the discharge port.

157. If the view I have taken as to point of misdelivery be correct, then the present debate reverts to the difficult issue of whether such misdelivery at the port (and clearly, although the evidence is less than satisfactory, after passing through US Customs), falls within the operational ambit of the Hague-Visby Rules – and hence the preclusionary effect of Article III, rule 8 in relation to the contractual exemption and limitation clauses within the bills of lading.

158. As to this, Mr Wright's position (although it did not represent the way in which he argued the point) logically must be that notwithstanding that rejection of his classification as to the time and place of such misdelivery (that is, inland at the Artist Fashion warehouse), nevertheless even if the misdelivery occurred at the discharge port (as now I have held to be the case), 'discharge' finally had been completed when the goods – or, more precisely the container containing the goods – safely had been deposited on the wharf, or, at the latest, within the relevant storage area.

159. To the contrary, Mr Kerr puts his case expressly on the basis that on the facts of this case the misdelivery took place when the “care and custody element of the Hague Rules was still in force”, citing in this connection Article II of the Hague-Visby Rules, which, to repeat, provides :

“Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”

160. This approach has its echo, and Mr Kerr finds support, in an obiter dictum of Kirby P in PS Chellaram & Co. Ltd v. China Ocean Shipping Co., The “Zhi Jiang Kou”, [1991] 1 Lloyd's Rep 493, a time-bar case before the Court of Appeal of New South Wales, wherein the learned President of the Court observed, at 516 :

“I … agree that the Courts must be on their guard against the reintroduction of the discredited doctrine of fundamental breach 'by the side door'…That doctrine is not the law of Australia.  Our law simply requires that provisions in contracts or international conventions limiting or excluding the liability of those concerned must be given their ordinary and natural meaning.  They are not to be distorted by reference to a supposed preconception about liability for fundamental breaches…

But is such an inconvenient and unexpected argument required by the language of the Rule [Article II] itself?  Looking at the rule, in its context, I think not.  Contrary to the opinion of Mr Justice Hirst in The Captain Gregos, art. II of the Hague Rules does not in my opinion establish a category of events arising from loading to discharge, strictly so confined.  It also includes custody and care, loading and handling as well as the carriage and discharge of the goods.  'Custody and care' are apt to cover events after discharge and until delivery of the goods.  Any other construction would artificially narrow the operation of the Hague Rules…If there is an ambiguity, I should prefer to adopt the construction which gives the Hague Rules a sensible operation which does not artificially terminate their effect at the ship's rail…”  (emphasis added).

161. This approach appears to have attracted approval, albeit obiter, in the Hong Kong Court of Appeal by Liu JA in Wily Products Co. Ltd v. Hecny Shipping Ltd, [1995] 3 HKC 47, a case which involved the loss of cargo after discharge in a Brazilian port and before the cargo was delivered to the land carrier.  The plaintiff as cargo owner obtained summary judgment against the defendant, Hecny, for the FOB value of the goods, and the defendant appealed, contending that the sum awarded was wrong and that damages should be assessed.

162. Litton VP and Patrick Chan J (as he then was) decided the case on the basis that in the absence of evidence to the contrary, the FOB value of the goods constituted good evidence of the market value at due delivery, and did not advert to the point presently at issue in this case.

163. However, Liu JA went on to consider Article I(e) of the Hague Rules – it seems contextually clear that this reference in fact should be to Article I(d) within the Schedule to the Hong Kong COGSA, namely that “'Carriage of goods' covers the period from the time when the goods are loaded on to the time they are discharged from the ship” – and, after citing with approval the dictum of Kirby P in The Zhi Jiang Kou, Liu JA observed (op cit, at p 52) :

“It is reasonably clear that for our purposes, art I(e) would not materially affect art II.  In other words, despite art I(e), the period of 'carriage of goods' by sea envisaged in art II should not be strictly construed, limiting it to 'events from loading to discharge'.  Article II would therefore extend the period beyond discharge.  In the situation the parties faced, art II is quite capable of standing on its own.  The sea carriage did not therefore terminate after discharge and the Hague-Visby Rules still applied at the time of the loss before the goods were handed over to the land carrier…”  (emphasis added).

164. Had this view constituted the judgment of the Court of Appeal in Wily Products, op cit, the task of this court would have been considerably the easier, in that it would have been bound to apply such principle.  However, the obiter observations of Liu JA in Wily, whilst naturally persuasive, do not bind this court on the point, and accordingly the court is free to consider case-law which espouses a contrary view.

165. In the course of his submissions Mr Wright has drawn my attention to several cases which he says support the proposition that the Hague-Visby Rules do not apply to events after the discharge from the ocean vessel.

166. In this connection Mr Wright initially cited the English Court of Appeal case of The “Captain Gregos” [1990] 1 Lloyd's LR 310, although I do not think that this case, or at least the final decision in its appellate form, assists him.  The “Captain Gregos” was a time-bar case in which the plaintiff carrier had issued an originating summons claiming a declaration that the cargo interests' claim for damages arising out of the theft of part of the cargo had been extinguished by Article III, rule 6 of the Hague-Visby Rules on the ground that suit was not brought within one year of the date when the cargo should have been delivered.

167. At first instance Mr Justice Hirst in the Commercial Court had rejected the plaintiff's claim for a declaration and held, inter alia, that Article II of the Rules described the various stages at which the carrier bore responsibilities and liabilities and was entitled to rights and immunities, and that this began with loading and ended with discharge with the intermediate stages of handling, stowage, carriage, custody and care in between; the learned judge thus concluded that the concept of 'delivery' fell outwith the scope of Article II, that the Rules therefore were inapplicable, and thus that one year time bar provision within Article III, rule 6 did not apply to the misdelivery complained of (in this case the theft of the goods).

168. The Court of Appeal took a different view and upheld the appeal of the plaintiff carrier.  Their Lordships unanimously decided the case on the ground that the words of Article III, rule 6, whereby the carrier is to be discharged from “all liability whatsoever in respect of the goods” meant exactly what they said, Bingham LJ (as he then was) observing (op cit, at 315) that the draftsman could hardly have used “more emphatic language”, and that it seemed to him that the acts of which the cargo owners complained “are the most obviously imaginable breaches of art. III, r. 2”, whilst Slade LJ noted (at 319) that the failures of the carrier in that case “fall within art. III, r. 2, and claims in respect thereof are correspondingly subject to the time limit imposed by art. III, r. 6”.  The court also noted that to characterize the theft which had occurred as 'misdelivery' neither was apt nor helpful, and that the words in Article III, rule 6, which was meant to achieve finality, did not serve to deprive the shipowner of his right to rely on the time bar, even when guilty of wilful or reckless misconduct.

169. With great respect, I am unconvinced that the decision of Hirst J in The “Captain Gregos” was incorrect.  I note also that in the course of his judgment in the Court of Appeal (with which Stocker and Slade LJJ agreed), Bingham LJ acknowledged that :

“The definition in art. I(e) does, I accept, assign a temporal term to the “carriage of goods” under the rules, supporting an argument that the rules do not apply to events occurring before loading or after discharge…I read art. II as defining the scope of the operations to which the responsibilities, rights and immunities in the rules apply…”

and it is this observation, I apprehend, that Mr Wright prays in aid support of his argument, notwithstanding the ultimate result in that case.  I note, further, that the reference to “after discharge” substantially mirrors an earlier observation of Bingham J (as he then was) in Mayhew Foods v. Overseas Containers Limited [1984] 1 Lloyd's Rep 317, at 320. 

170. In this context two Australian cases in particular are of assistance, in neither of which was the approach of Kirby P in The “Zhi Jiang Kou”, op cit, adopted; to the contrary, it was specifically rejected.

171. In Kamil Export (Aust.) Pty Ltd v. N.P.L. (Australia) Pty Ltd, [1996] 1 V.R. 538, the Appeal Division of the Supreme Court of Victoria was faced with a case in which a shipper shipped goods from Melbourne to Guam and also to Nauru, only for the goods to be released by the carrier's agent to the consignee without production of the bill of lading, whereby the shipper sued the carrier for damages for loss of the goods, and for the carrier to invoke exemption clauses in the bill of lading.  The carrier also relied on Article III, rule 6 of the Hague Rules which imposes a 12 month limitation period on claims for such loss, which period had expired before the proceedings were instituted.

172. The magistrate gave judgment for the shipper, and this was overturned on appeal to a single judge.  On further appeal, the appeal was allowed in terms of the Guam goods, in which the court ruled that the Hague Rules applied only to the contract of carriage by sea during the time between which the goods pass from ship's rail to ship's rail, and thus that an obligation to deliver goods after discharge was not covered by the part of the contract to which the Hague Rules applied; accordingly, the time bar in Article III, rule 6 did not apply to the proceedings in this case.

173. In the course of his judgment Marks J said (op cit,at 554-555) :

“Chellaram was a time bar case.  Kirby P was of the opinion that the time bar in the Hague Rules applied to a loss of goods after discharge.  Gleeson CJ, with whom Samuels A.J. agreed, rested his decision on the operation of cl. 10(2) being independent of the Hague Rules and it was this opinion that was followed by the court.  Gleeson CJ found it unnecessary to decide the reach of Art. III, rule 6.

The Hague Rules are expressed to apply only to the sea-carriage of the goods, that is, to the period after the goods pass the ship's rail on loading to the time they pass it on unloading.  Thus the expression 'from ship's rail to ship's rail'…

The weight of authority favours the Hague Rules being confined in their application to the contract of carriage by sea, that is, during the time between which the goods pass from 'ship's rail to ship's rail'…

In the present case, it can fairly be said that the bill of lading does no more than incorporate the Hague Rules and the Sea Carriage of Goods Act, the latter relevantly doing no more than give statutory force to the former.  The bill of lading in this case evidences not only the contract to which the Hague Rules apply but also an obligation on the part of the respondent to deliver 'after discharge'.  The latter obligation is accordingly not covered by the carriage contract to which the Hague Rules apply.  As I have mentioned, Kirby P in Chellaram expressed a contrary opinion.  As presently advised, his view stands alone among other judicial pronouncements…”

174. A substantially similar approach is found in the subsequent case of Nikolay Malakhov Shipping Co. Ltd v. Seas Sapfor Ltd (1998) 44 N.S.W.L.R 371, another time bar case in which goods under a bill of lading incorporating the Hague Rules and making the law of Malaysia the proper law of the contract of affreightment were shipped from Malaysia and, in a deviation caused by an industrial dispute, were unloaded at a different New South Wales port from that nominated in the bill.  The carrier arranged for bond storage and for road transport of the goods to their contractual destination, and the goods were damaged by rain while being held in open storage before transport by road.  An error was made in drawing the Statement of Claim, and by the time leave to amend was granted, more than a year had expired since the delivery of the goods.

175. The court permitted the correction of the Statement of Claim under the relevant rules of procedure, and thus a defence grounded on the time bar provision within Article III, rule 6 was rejected.

176. For present purposes, however, the interest in this case lies in the observations of the court as to the ambit and extent of the duty of a carrier under Article III, rule 2 of the Hague Rules, which provides :

“Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”

177. The judgments in this case are learned and of some length.  Nor do they wholly agree on the point, although in the context of the present case perhaps not a great deal turns upon the extent of such lack of agreement.

178. Sheller JA disagreed with the conclusion of the judge below that discharge of the goods into open bond storage was a serious breach of the obligation 'properly' or 'carefully' to discharge the cargo.  He said (op cit, at 389-390) :

“With the greatest respect I disagree with his Honour's conclusion.  In my opinion, the last operation for which the carrier was responsible by force of the Hague Rules was the discharge of the goods from the ship.  That operation was complete either when the goods crossed the ship's rail or when they were delivered from the ship's tackle, if the ship's tackle was used.  From that moment any operations undertaken were not subject to the Hague Rules and the obligation of the carrier in respect of them must be found elsewhere.

If the carrier had by its own employees, rather than by an independent contractor, removed the goods to store from the place where they left the unloading tackle, and had done so negligently, the terms of the contract evidenced by the bill of lading would have exempted it from liability…

In my opinion, the responsibilities placed upon the carrier by application to the contract of the Hague Rules cease, in the circumstances of this case, when the goods crossed the ship's rail or were delivered from the ship's tackle.  At that point within the meaning of the expression 'carriage of goods' and art II and art III, r 2, and art VII the goods had been discharged from the ship in due fulfillment of the contract.  The parties had agreed that subsequent to the discharge from the ship, goods in the custody of the carrier or his servants should be at the sole risk of the merchant and the carrier should not be liable for loss or damage arising or resulting from any cause whatsoever (cl 3)…”  (emphasis added)

179. Cole JA approached this specific issue by asking rhetorically (op cit, at 411) “When was discharge complete?” and observing that “…at that time of functional performance…the limits of operation of the Hague Rules was reached, leaving the carrier free to rely upon any contractual provisions negating or restricting liability in respect of any remaining obligations under the contract of carriage.”

180. In answering his own question, Cole JA embarked upon a survey of various authoritative maritime texts (Tetley, Scrutton, Carver, Cook), which he noted “speak with one voice”, and concluded (op cit, at 414-415) that these texts, which each refer to the decision of Devlin J in Pyrene v. Scindia Navigation, support the proposition that :

“… the Hague Rules apply to operations from tackle to tackle, unless the parties to the contract of carriage have varied that arrangement to impose different obligations on the shipper, owner, or consignee in relation to loading or discharge.  One looks to the particular contract to see if that has occurred.  If it has, the Hague Rules have application to the operations encompassed by that variation, but not beyond that which can properly be regarded as either loading or discharge, those terms expressing the outside functional boundaries of application of the Hague Rules because that is the scope of 'carriage of goods' within the definition and meaning of the Hague Rules…

The bill of lading constituting the contract of carriage in this instance does not purport to extend the responsibility of the carrier beyond tackle to tackle…”  (emphasis added)

181. Handley JA dissented.  He thought (op cit, at 380) that in principle it was not possible to conclude, as had Shelley and Cole JJA, that the carrier's responsibility under the relevant bill of lading for the continued safety of the goods had ceased when they were safely discharged on to the wharf, and concluded (at 382) that :

“The carrier's responsibility for the careful and proper discharge of the cargo must, in my judgment, include the making of proper arrangements for the reception and care of the goods on shore.  The discharge of cargo by the use of the ship's gear onto a wharf in good condition, without proper arrangements for the cargo to be stored and looked after until collected by the consignee, would not fulfil the carrier's obligation under art III, r 2…”

182. Given that on the facts of the cases presently before the court no question arises of discharge in inappropriate circumstances, such as, for example, discharge onto an unsafe wharf resulting in damage to the goods, for present purposes there is no necessity to come to a decided view as to the merits of the majority or minority view in Nikolay Malakhov Shipping; whilst I recognise that the majority opinion possesses the advantage of certainty, in my view there also is a good deal to be said for imposing responsibility on a carrier, under Article III, rule 2, to carefully and properly discharge, and thus to impose liability for damage done to the goods referable to the actual process of discharge.

183. The present case, however, is a misdelivery case pure and simple, and unlike the position, for example, under the US Harter Act, which expressly extends the obligation of the carrier beyond discharge to delivery, the ambit of the obligations imposed by the Hague-Visby Rules ceases upon 'discharge' – which on the facts presently before this court in my judgment must be regarded as having been concluded prior to the misdelivery now in question. 

184. Admittedly the available evidence is imprecise, but it is a strong inference from the known facts that the cargo was fully discharged before clearance by US Customs, at which point TUG, or its agents, appeared and took possession of the goods without production of a bill of lading – which, as I have earlier held, is necessary even in the instance of a 'straight' bill.

185. In such circumstances, in terms of the operational scope of the Rules, for my part I respectfully agree with the approach which was taken at first instance by Hirst J in the Commercial Court in The “Captain Gregos”, [1989] 2 Lloyd's LR 63 – which approach resonates, perhaps more vigorously, in the subsequent Australian cases of Kamil Export and Nikolay Malakhov Shipping,although there is no necessity, for present purposes, to decide whether the 'ship's rail' or the potentially broader 'final unloading' formulation is to be preferred. 

186. In The “Captain Gregos” Hirst J expressed the matter thus (op cit,at 69) :

“The first question which I have to decide is whether delivery is in any way within the scope of the art. II “package”.  Article II describes the various stages at which the carrier bears responsibilities and liabilities, and is entitled to rights and immunities; this begins with loading and ends with discharge of goods, with the intermediate stages of handling, stowage, carriage, custody, and care in between.  All these are functions of transportation beginning at the moment when the goods start to be put on board, and ending with the moment when they are finally unloaded.  The “package” so described thus seems to me to be inherently inapt to embrace delivery, which imports concepts of possessory or proprietary rights, alien in my judgment to these carefully listed transportational stages.  This view seems to me to be reinforced by the definition of “Carriage of goods” in art. I(e).  Once the conclusion is reached that delivery is outside the scope of art. II, which is of course the key article, it must inexorably follow that misdelivery of whatever kind is outside the scope of Article III, r.6, since the carrier is under no “liability” in that respect.  There is, moreover, in consequence no need for any saving clause comparable to art. IV rule 5(e).

In reaching this conclusion as to the correct construction of the relevant articles I have fully borne in mind the need to adopt a broad and purposive approach in construing a convention of this kind.

This view is, in my judgment, strongly supported by Mr Mustill's article, with which I respectfully agree, and by the footnote in Scrutton (op. cit.).  Mr Diamond's very hesitant and tentative comments to the contrary do not in my judgment carry similar weight.  Nor do I think that the Hourani case gives Mr Teare any assistance, since the point was never argued.

Once this conclusion is reached it seems to me that the discussions at the Stockholm Conference cannot possibly be invoked to support a contrary view, having regard to the cautions criteria laid down by Lord Wilberforce and Lord Scarman in the Gatoil case…” (emphasis added) 

187. In my view there is in principle no justification for extending the concept of 'discharge' beyond final unloading to embrace every act up to and including delivery of the goods, which would be tantamount to regarding the carrier both as carrier and warehouseman, and which not only would extend the Rules to the entire contract of carriage, including a period of storage ashore, but also possibly may serve to confuse the proper ambit of the Hague-Visby Rules with, for example, particular contractual provisions often found within contracts of carriage by sea entitling the carrier to warehouse the goods, usually at the merchant's risk and expense, if the consignee does not take delivery. 

188. It seems to me that Article II, which states the scope and purpose of the succeeding articles, and Article III, rule 6 require to be read consistently and together, and I have concluded, therefore, that Mr Kerr's primary submission that in this case the misdelivery took place when the “care and custody element” of the Rules was still in force is plainly wrong.

189. If this analysis be correct – and once again this is an issue which would reward appellate consideration – the operational ambit/reach of the Rules does not extend to the misdelivery on the present facts, and thus the attention of the court now must switch to the provisions of the particular exemption clause, quoted above, which presently is invoked by the defendants and which, it follows from the foregoing, remains unaffected and unrestricted by the terms of Article III, rule 8.

190. Mr Kerr's short response to the issue of the purported contractual exemption was that even if the court were to be against him in terms of the applicability of Rules, and in particular Article III, rule 8, in any event and in accordance with the principles set out in The “Ines” [1995] 2 Lloyd's LR 144 and Motis Exports Ltd v. Dampskibsselskabet & ors, [2000] 1 Lloyd's LR 211, this exemption clause did not assist the defendants, given that the fundamental requirement to deliver the cargo only against an original bill supports the further proposition that it is permissible as a matter of construction to limit the ambit of a particular clause in light of that fact. 

191. This latter formulation has its origin in the judgment of Mr Justice Clarke in The “Ines”, (op cit, at 154), wherein the learned judge was outlining the propositions that he discerned could be derived from the decision of the Judicial Committee of the Privy Council in Sze Hai Tong Bank v. Rambler Cycle Co. Ltd [1959] 2 Lloyd's Rep. 114.  This was a decision in which Lord Denning delivered the advice of the Privy Council, and is a judgment which in my view requires to be approached with some caution in light of the rejection of the doctrine of fundamental breach by the House of Lords in the series of cases beginning with Photo Production Ltd v. Securicor Ltd [1980] AC 827, in which case Lord Diplock observed (at 851) :

“In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of implied and secondary obligations.”

192. It is now clear that contracting parties may agree to conditions of carriage which protect the carrier against liability for loss which may defeat the main object of the contract of carriage, the proviso being only that such an agreement must be made manifest in clear and unambiguous terms.  Accordingly, whilst Mr Kerr's argument on this issue is well and good as far as it goes, the danger, it seems to me, is that there lies within it the propensity to put the point too high, and to purport to apply it irrespective of the particular terminology of the clause in question.  In my judgment it is not the case, and there is no wider principle to the effect that the terms of an exemption clause otherwise clear and unambiguous on its face necessarily will be 'read down' by reason of the fact that it purports to exclude liability for misdelivery, which in effect is what Mr Kerr came very close to submitting.

193. There is no doubt but that with the demise of the doctrine of fundamental breach, in 'misdelivery cases' there has been a judicial inclination in particular cases to limit the reach of exemption clauses purporting to exempt liability for such misdelivery when the wording (and perceived ambiguity) of the clause in question so permits. 

194. Thus, in The “Ines” (op cit), Clarke J (as he then was) took the view that none of the words in the clauses relied upon in that case were sufficient to excuse misdelivery of the goods after discharge, holding in that case that the term “whatsoever” within clause 3 of that particular bill – viz., “the carrier has nor responsibility whatsoever for the goods prior to the loading on and subsequent to the discharge from the vessel” – was not apt to cover misdelivery, whilst in Motis Exports Ltd (op cit), the English Court of Appeal upheld the decision of Rix J (as he then was) that a clause which stated that there should be no liability whatever after discharge for “any loss or damage to the goods while in its actual or constructive possession” should not be read as including the misdelivery of the goods by the defendants against a forged bill of lading, and stated that a restrictive construction was not to be lightly adopted against the background of the fundamental importance of the shipowner's promise to deliver up only against an original bill; in this connection Mance LJ observed (op cit, at 216) that in his judgment the clause there in issue, clause 5(3)(b), was “not apt on its natural meaning to cover delivery by the carrier or his agent, albeit the delivery was obtained by fraud”, and that as a matter of construction the courts would “lean against such a result if adequate content can be given to the clause.” 

195. In this jurisdiction, also, in certain instances the Commercial Court has been willing to proceed similarly, and Mr Kerr naturally places emphasis on these decisions: see, for example, Vastfame Camera Ltd v. Birkart Globalistics Ltd & ors, HCCL 63 of 2002, unrep., Judgment dated 5 October 2005, wherein the court accepted the contention on the part of the plaintiff that the terms of the particular exemption clause in the bill of lading, and the ambiguity within the term “mis-delivery to a wrong party” within clause 24(i)(a) of that bill was insufficient to make it clear to users of the carrier's services that the carrier specifically was seeking to exclude liability for the release of goods absent production of a bill of lading.  See also Centre Optical (Hong Kong) Ltd v. Jardine Transport Services (China) Ltd and Pronto Cargo Corporation (Third Party), [2001] 2 Lloyd's Rep 678, at 687, where this court declined to hold that the wording of the particular clause in that case (clause 14) “was sufficiently clear to impinge upon the cardinal principle requiring delivery by the owner or his agent only against production of an original bill of lading”.

196. In truth, however, these cases represent but examples of the wider (and wholly unexceptional) proposition that in terms of the construction of exemption clauses very clear wording is necessary to avoid liability for breach of an obligation considered to be of fundamental importance to the contract, Lord Hobhouse expressing the position in The “Starsin” [2003] 2 WLR 711 (HL), at para. 144, in the terms following :

“Before examining the decided cases and the principles which they disclose, it is as well to bear in mind a basic rule of construction of contracts of carriage.  If a party, otherwise liable, is to exclude or limit his liability or to rely on an exemption, he must do so in clear words.  Unclear words do not suffice: see, eg Pera Shipping Corpn v Petroship SA (The “Pera”), [1985] 2 Lloyd's Rep 103.  Any ambiguity or lack of clarity must be resolved against that party…”

197. That said, the exercise of such judicial limitation upon the reach of particular exemption clauses in instances wherein such clauses seek to defeat the main object of the contract, namely, to deliver only against an original bill, does not represent the invariable rule, and in my opinion the highest that it can be put is that the exemption argument in each case must depend upon the wording of the particular clause when construed within the factual matrix of the particular case; as Clarke J remarked in The “Ines”, (op cit, at 153) :

“I do not see how it could properly be held that the decision of the Judicial Committee [in Chartered Bank Ltd v British India Steam Navigation Co Ltd [1909] AC 369] as to the true construction of a different clause on different facts can be of any assistance in construing the bill of lading in the instant case.  Every clause must be construed in its context.  In the context in which the word “whatsoever” is used in cl 3 it does not seem to me to be apt to cover misdelivery…”

198. In my view there is no power to 'read down' such clauses in instances wherein the contracting parties expressly have stated in clear and unambiguous language that on the occurrence of the events specified therein that there will be no consequential liability for loss of the goods, and it follows that I am unable to agree with the application of that which sometimes has been referred to as the 'main object principle of construction'.  As Marks J neatly expressed the position in Kamil Export (Aust.) Pty Ltd, (op cit, at 552) – a case in which this issue is discussed at length by the court – “It is accepted that an exemption clause may operate to defeat the main object of a contract.  It does so if it is to be so understood.  The question is whether it says so.”

199. Does it say so in this particular case?  In my view it does, and I find that there is no room, within the clause as drafted, to hold otherwise.  Clause 2(b), which is the clause in question, seems to me to permit of little doubt or ambiguity : viz.,

“the [Defendants] shall be under no liability in any capacity whatsoever for loss or misdelivery of the Goods howsoever caused whether or not through the negligence of [the Defendants] [their] servants or agents or sub contractors…”

In my judgment this is not a case wherein the words used in the clause leave it open to the court to move to limit its ambit in light of the fundamental obligation within contracts of carriage by sea to deliver only against presentation of an original bill of lading, and thus to exclude from the operation of the clause the delivery by the defendants or their agents to the consignee absent production thereof.

200. To the contrary.  This clause is couched in clear terms, with express reference to misdelivery “howsoever caused”, and whether in the result such clause operates so as to defeat the main object of the contract strikes me as nothing to the point if that is the construction required to be given to the words in question and where that is the logical operation which may be ascribed to the clause.  Were this court to ignore that which these words clearly and unambiguously say this would, it seems to me, effectively be to introduce by the back door the now discredited doctrine of fundamental breach. 

201. In Nissho Iwai Australia Ltd v. Malaysian International Shipping Corporation Berhad (1989) 167 C.L.R. 219 before the High Court of Australia – a case in which a container of prawns carried from Malaysia to Sydney was stolen after it had been discharged from a ship and placed in a stack at a terminal in Sydney, and wherein an exemption clause in the bill of lading provided that under no circumstances should the carrier be liable for or responsible in any capacity for or in respect of any loss or damage after delivery or after the goods were made available at the place of delivery or from any such loss from specified events which the carrier could not avoid or prevent by the exercise of reasonable diligence – the trial judge held that the carrier could not have avoided the theft and dismissed the claim, and on appeal the High Court held that the exemption clause in question gave protection according to its plain meaning, the court observing (op cit, at 227) :

“In determining whether an exemption clause should be construed so as to apply to an event which had defeated the main object of the contract, much must depend upon the nature of the events which the clause identifies as giving rise to the exemption from liability.  If the happening of a stipulated event will always result in the defeat of the main object of the contract, there will be no scope for holding that that object requires the conclusion that the exempting clause is not applicable to that event.  But even in cases where the occurrence of the events stipulated in the exemption clause will not always defeat the main object of the contract, the nature of those events may nevertheless give rise to the inference that the clause was intended to apply to those events even when they occur in circumstances which defeat the main object of the contract…

The context in which cl. 8(2) [the exemption clause there in issue] has to be construed includes… the carrier's agreement to deliver the goods to the owner at Sydney.  But, relevant as that object is in the construction of cl. 8(2), the meaning of that provision ultimately depends on its language, read in context, and not on any a priori notion that the non-delivery of goods was not intended to be protected.” (emphasis added)

202. I respectfully agree with this view.  Whilst each case must depend upon its own facts and each exemption clause its particular terminology, in the present instance this court is driven to the conclusion – which in light of the merits as I perceive them I confess I do not find an attractive result – that in this instance this exemption clause, properly construed, indeed is applicable and 'bites', and thus that the defendants must succeed on the argument in terms of the exclusion of liability by virtue of the operation of the exemption contained within clause 2 of the Terms and Conditions.  In this context it is difficult to disagree with Mr Wright's parting shot that if the present clause is found to be applicable in the circumstances and were not to be upheld, it is not easy to conceive of any clause which could exclude liability for misdelivery.

203. It follows that in light of this view, which has not been arrived without a degree of hesitation – not least because this issue perhaps was not argued as fully as it merited – there is no necessity separately to consider the limitation clause which was raised by the defendants in the alternative.

204. In itself, therefore, this conclusion as to the interpretation and applicability of the relevant exemption clause is sufficient in itself to resolve this case.  However, should this matter go further, and should I be held to be wrong in the views that I have expressed, I now turn, albeit more briefly, to the remaining arguments mounted on behalf of the defendants.

(v)     Liberty to discharge

205. The defendants further rely upon Clause 15 of the bills of lading, which reads as follows :

“DANGEROUS GOODS AND CONTRABAND..

If any Goods tendered for carriage without previous written declaration are or at any time…become contraband or prohibited by any law or regulations of any port or place of loading or discharge or call or any place during transit whether the [plaintiff] is aware thereof or not such Goods upon discovery or at any time may be…discharged at any port or place or otherwise disposed of at [the defendants'] or sub contractor's discretion without any liability attaching thereto and without prejudice to the [defendants'] right to freight and any other charges payable hereunder…  The [plaintiff] shall be liable to indemnify the [defendants] against all loss damage expenses and liabilities (including taxes, penalties, and fines) suffered or incurred by the [defendants] as a result of the carriage of such Goods.”

206. This line of argument is referable to the seizure of goods in Artist Fashion's possession at the behest of Burberry, which had alleged infringement of its mark – hence the Californian litigation which, the court has been told, was settled on confidential terms.

207. Against this rather unsatisfactory evidential backdrop, Mr Wright argues that the goods in question, as shipped by the plaintiff, were prohibited by law and that, by reason of the operation of clause 15, the defendants were at liberty to discharge the goods without any liability attaching thereto.

208. I do not accede to this line of argument, which seems to me unjustifiably to have coloured this case from inception.

209. Although the matter has not been the subject of other than relatively brief argument, I entertain doubt as to whether the terms and ambit of this clause are applicable at all to the question of trademark infringement, which I apprehend underpinned the Californian litigation invoked by Burberry – indeed, the thrust of Clause 15 seems to me to go to a different issue, and to provide for the position of a carrier which unwittingly finds itself in the possession of 'contraband' in the true sense or otherwise goods the possession of which attracts public criminal sanction, as opposed to alleged breach of a purely civil obligation.

210. If this be wrong, however, I fail to see why, on the basis of very little evidence comprising little more than black and white copies of some photographs, in effect this court should be asked to function as if it was seized with an action for trademark infringement – if indeed such infringement can be established, because it is accepted that the case was not tried, and, as I have earlier noted, this court pointedly has not been informed of the settlement terms of the Californian action (which terms may well have involved a specific non-admission of liability).

211. Whilst under this head, I should record that an eleventh hour interlocutory application by the defendants to put in expert evidence of Californian law was refused, this court taking the view that the proposed introduction of expert evidence as to foreign law so shortly before trial was unfair.  Undaunted by this ruling, Mr Wright now says that since there has been no evidence in relation to the law of the USA, in the absence of such, the court simply should apply Hong Kong law; accordingly he invoked the provisions of the Trade Descriptions Ordinance.

212. This approach struck me both as ambitious and fundamentally wrong.  Against this procedural background why this court now should apply specific Hong Kong legislation to an alleged American breach is unclear, and I decline in principle to do so, nor for that matter am I aware of any authority permitting the Hong Kong courts to adjudicate upon foreign intellectual property rights, which in itself is hardly surprising since public policy must firmly set its face against any such approach; further and in any event, there is an obvious paucity of appropriate evidence upon which any court properly could act upon this alleged 'infringement issue'.

213. In my judgment, therefore, this defence fails also.

(vi)    Proof of loss

214. Mr Wright took the point that even if liability were to be established, the plaintiff had failed to prove its loss by reference to the invoice value of the goods.  In his written closing submissions he pointed out, correctly, that none of the relevant invoices containing any statement in relation to the invoice value of the goods were within the court bundles.

215. This turned out to have been a clerical mistake by those preparing the documents for this trial, and at the end of the case Mr Kerr sought to rectify this oversight which but lately had been recognized by those representing the plaintiff.  After some debate, the court permitted the correct commercial invoices (which Mr Kerr noted already had been produced to the defendants on discovery) to be produced, and to his credit Mr Wright did not seek to exploit this obvious procedural error.

216. However, Mr Wright had an additional axe to grind.  Although he accepted that in many cases the invoice value will provide a starting point for determination of the sound arrived value, in the present case, he said, reliance upon the invoice value would not be appropriate because the goods in the 'Group A' containers were counterfeit “and therefore unlawful goods under the Trade Descriptions Ordinance”, and thus to request the court to give a value to such goods would be to ask the court to enforce those parts of the relevant contracts of carriage which were tainted by illegality.

217. This argument is no more than a rehash, in different guise, of the 'Clause 15 argument' which previously has been rejected.  Nor do I think that an assessment of the sound arrived value by reference to the invoice value of the containers is inconsistent with the behaviour of the parties at the material times, which was a sub-set within Mr Wright's argument, either in terms of that which happened to the 'Group A' containers or in terms of the lack of collection, by Artist Fashion, of the 'Group B' containers.

218. Finally, I have little sympathy with the argument that, in effect, the plaintiff only had itself to blame for its loss by reason of its decision not to intervene in the Californian litigation brought by Burberry against Artist Fashion.  I wholly fail to see why it should be thought necessary or appropriate for a shipper whose goods have been misdelivered to seek to become embroiled within foreign litigation mounted by a third party against its consignee: the shipment of goods by sea does not in itself import any obligation to participate in litigation abroad, however so arising.  This is not the first occasion on which this line of argument specifically has been rejected by this court : in Center Optical v. JTSC, (op cit, at 689, at para 63), the court observed that :

“…the plaintiff was and is entitled to stand upon its cause of action for the admitted misdelivery, and the fact that his efforts to secure redress from [the defaulting consignee] failed so markedly, or that upon becoming aware of this situation he did not embark upon expensive legal action in the United States, in my judgment is nothing to the point.  The standard required from a plaintiff in these circumstances [as to the allegation of failure to mitigate] is not high, and does not include an obligation to litigate against a third party…”

219. Nor do I grasp why, in all the circumstances of this case, the court should take account of the 'Burberry action' on the basis that “no sensible trader would be prepared to buy the 'Group A' containers unless a significant discount was offered to reflect the troubles he might face”, which was how Mr Wright put the point.

220. This court has no idea whether the Burberry litigation was, or was not, well founded, and has no intention of speculating.  Perhaps more to the point, it seems to me to be irrelevant to the issue of sound arrived value at the time of the misdelivery – which, as I earlier have decided, took place at the port when, absent production of the bill of lading, the containers were handed over to TUG, or its agents – and in this instance I do not consider that matters which took place subsequently should have anything to do with it.

221. In my view there is no basis in this case for departing from the established practice of this court in such cases, which is that as a matter of general principle the plaintiff is permitted to rely upon the commercial invoice value of the goods as evidence of the sound arrived value – see, for example, Vastfame Camera Ltd v. Birkhart Globistics Ltd & ors, op cit, at para 68, and Hecny Transportation Ltd v. Chang Li Wen, [1967] HKLR 70, at 72.

Conclusion

222. On the basis of the foregoing the plaintiff has succeeded on every issue raised by the defendant, save for that relating to the applicability and effect of the exemption clause in the bills of lading.

223. Resolution of this issue, however, in itself compels the court to hold that the defendants have been successful in defending the plaintiffs' claims in these actions, which accordingly must be dismissed.

The defendants' counterclaims

224. Mr Wright submitted that the defendants' counterclaims in these actions consist of two components :

(i)      freight in respect of 11 of the 'Group B' containers; and

(ii)      a declaration that the plaintiff is liable for demurrage charges in respect of all of the 'Group B' containers, and for storage costs in respect of 16 of them.

225. As a matter of factual background, he said, following on from the shipment of the 'Group A' containers, the plaintiff further had shipped the 'Group B' containers from Hong Kong to Los Angeles; of the 22 containers within this 'Group B' tranche, 6 were shipped on board ocean vessels operated by Sinotrans and 16 were shipped on board ocean vessels operated by Evergreen.

226. It is common ground that the 'Group B' containers had arrived at Los Angeles after commencement of the Burberry litigation against Artist Fashion.  TUG apparently had notified Artist Fashion of the arrival of the 'Group B' containers, but the consignee had refused to accept delivery thereof.  Mr Wright also submitted that Bright Fortune also had notified the plaintiff of the arrival at Los Angeles of the 'Group B' containers and that Artist Fashion had declined to take delivery, but that the plaintiff had failed to do anything about them.

227. I am told that it is the case that out of the 22 'Group B' containers, 16 subsequently were seized by US Customs, and the remaining 6, although in fact released from Customs, remained uncollected by Artist Fashion, and thereafter also had been placed in storage.

228. I am further informed that subsequently all these 22 uncollected containers were seized by the US authorities, and were auctioned to defray storage charges; however, no information has been vouchsafed as to the sum so realized, and notwithstanding the ambit of this generic counterclaim the defendants appear to have made no effort to ascertain the position.

229. Mr Wright says that freight was paid by Artist Fashion with regard to the 6 uncollected containers which were released from US Customs, and that as no claim has been received by Sinotrans in respect of their 6 shipments, the defendants' counterclaim is limited to 11 of the 'Group B' containers.

230. In addition, he submitted, as a consequence of the refusal of the plaintiff and/or Artist Fashion to collect the 'Group B' containers, TUG also became responsible for the demurrage charges and storage ('GO') charges in respect of the 16 'Group B' containers which had not cleared US Customs; as to this, TUG had not made any payment in respect of those demurrage and storage charges, as Evergreen and the relevant warehouses had not yet sought to enforce any claim in that respect, although by reason of the agency agreement between Bright Fortune and TUG, Bright Fortune potentially was liable to indemnify TUG in respect of storage and demurrage charges.

231. By amendment to his pleadings, such amendment being effected toward the end of this trial, the sum of US$242,166.42 as originally counterclaimed in respect of freight was amended to US$24,436.00 in respect of the freight payable to Evergreen Maritime Corporation, and in addition declaratory relief was sought to the effect that the plaintiff was liable to indemnify the defendants for any amount payable in respect of storage and demurrage charges in relation to the 'Group B' containers.

232. I do not consider that this submission, which is based on flimsy and wholly incomplete evidence, gets off the ground.  It was not until late in this trial that such counterclaim was articulated in any detail, and then only through the submissions/extrapolations of counsel, notwithstanding that in the interlocutory hearings leading up to this trial Mr Kerr consistently had made it clear that, absent particularity and sight of relevant documentation – as to which, he complained, there had been no discovery whatever – he was in no position to deal with this element of the case.

233. I have accepted the evidence of Miss Dorothy Tsang that when she contacted Ms Quiny Choi about the 'Group B' containers she had been told that once the cargo was on board the vessel, that the information about incoming cargo had been reported to US Customs, that the consignee must clear Customs, and that it was not possible for Hecny to stop the shipment or to permit the plaintiff to reclaim its cargo.  I also accept the evidence from Miss Tsang when she made it clear that Quiny was not forthcoming in her responses to the plaintiff's queries, and that although in late July 2003 Hecny had sent documents requesting payment of outstanding storage fees, absent which the cargo would be auctioned off, “it was already too late for us to do anything”.  Accordingly I reject the contention now but lately mounted on behalf of the defendants to the effect that it was the plaintiff which had failed to do anything about the 'Group B' containers.

234. In terms of the freight claim, as presently adumbrated, I note that the bills of lading in question are 'freight collect' bills, and thus it is clear that the defendants agreed to ship the cargo on the basis that the consignee, not the plaintiff shipper, which would pay the freight.  I accept the contention of Mr Kerr that in normal circumstances if a consignee, for whatever reason, fails to take delivery of a cargo, a carrier would permit a shipper to take possession of the cargo subject to a lien for unpaid freight, but that in the present instance the defendants did nothing to assist the plaintiff to recover the cargo, which thereafter was auctioned.

235. I repeat that I have no information whatever as to what sum was yielded from such auction – the counterclaiming defendants have declined to find out and/or to inform the court – and thus I have no idea if and to what extent all or any outstanding freight charges have been defrayed.

236. The like point may be made with equal force in the context of demurrage and storage charges for which declaratory relief now is sought and but lately formulated; the hard fact is that the events the subject of this case took place fully three years ago, and that no claim whatever has been received in this regard by either the defendants or by TUG.

237. In the circumstances, therefore – and putting to one side Mr Kerr's ancillary argument, which I also accept, that such demurrage and storage charges as may have accrued should not now be placed at the plaintiff's door in light of the defendants' clear failure to inform the plaintiff of the situation as it was occurring – I am not prepared to (and do not) hold that liability enures to the defendants under the counterclaims, nor in my view would there be any question of granting declaratory relief in the terms sought when very obviously the court is not in possession of all relevant information, and when the counterclaiming defendants appear to have made no effort to assist or to inform in this regard.

238. Accordingly, I dismiss the defendants' counterclaims, which have the indisputable 'feel' of a tactical plea, and which in my view, on the facts as found, possess no merit.

Order

239. On the basis of the foregoing judgment, therefore, the plaintiff's claims in these actions are dismissed, as are the defendants' counterclaims in each action.  I so order.

240. I will hear counsel as to costs.