JOYSPEED GLOBAL CARGO (CHINA) LTD v. MULITEX LTD

DCCJ 344/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 344 OF 2010

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J U D G M E N T

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Introduction

1.  The plaintiff (“P”), a freight forwarder, claims against the defendant (“D”) in the sum of US$28,855.00 being freight charges for transportation of ladies pants (“the goods”) from Shanghai to Paris via Inchon by sea-air, while D accuses P of breach of contract by releasing the goods to D’s buyer without production of any original bill of lading by the buyer or D’ authorisation.  D is not paid by its buyer and thus counterclaims against P for its loss of US$117,663.60 or US$122,302.80. 

Background

2.  On or around 15 May 2009, Force 13 purchased 19,056 pieces of ladies pants from D at US$6.3 each to be shipped to Paris on 16 July 2009. D sourced its supply from a Xiamen supplier called “Xiamen C and D” (“Xiamen”).

3.  It is the D’s case that the payment of the goods was settled by way of back-to-back credit arrangements. A letter of credit (the “Mulitex LC”) was issued on 27 May 2009 by Force 13’s bank (HSBC) in favour of D. Another letter of credit (the “Xiamen LC”) was issued on 3 June 2009 by D’s bank (SCB) in favour of Xiamen.      

4.  Force 13 then referred P as the freight forwarder to D for the delivery of the goods to Paris. In fact D has engaged P as a freight forwarder to transport their goods before.

5.  After various email exchanges and a shipping order was sent by D to P by an email dated 13 August 2009 in which D contracted with P for the shipment of the Goods by a combination of sea-air transport: from Shanghai to Paris via Inchon (“the contract”).  The contact details of Xiamen were provided to P in the same email so that the Goods could be delivered to P by Xiamen. 

6.  By another email on the following day, D’s invoice, packing list and certificate of origin were sent from D to P.

7.  On 16 August 2009, a Combined Transport Bill of Lading (“the August Combined B/L”) was issued for the transportation of the goods from Shanghai to Paris via Inchon by sea-air naming Xiamen as the shipper, consignee being “To Order” and D as the notify party.

8.  An invoice for freight charges was issued by P to D on 19 August 2009. On the same day, the air waybill (“the AWB”) was issued by Japan Airlines.

9.  On 24 August 2009, the goods were released to Moiroud and then to Force 13 without the production of a bill of lading. D refused to settle P’s invoice for the P’s alleged breach of contract by releasing the goods to D’s buyer or its agents without production of the bill of lading.

10.  The alleged P’s breach is based on the following:

(i) As the shipping order marks the consignee as “To Order”, P as carrier and/or freight forwarder would have to take instructions from D as to the identity of the consignee.

(ii) 2 bills of lading should have been prepared by P for the purpose of “switching bills of lading”: one for Xiamen (“Xiamen B/L”) so that Xiamen can present to SCB for payment under the Xiamen LC; the second one is for D (“Mulitex B/L”) so that the D can present to HSBC for payment under the Mulitex LC;

(iii) P should have provided D with the originals of all the transport documents, including but not limited to the Xiamen B/L and Mulitex B/L; and

(iv) P should only release the Goods to Force 13 or Moiroud, P’s agent, against the production of the original Mulitex B/L, or with express written authorisation from D.

11.  P denies any breach of contract or duties but relies on D’s two representations, parties’ previous dealings and D’s instructions to justify the release of the goods without production of the bill of lading.

12.  Besides, P also submits that the shipment of the goods was divided into 2 parts: the 1^st part from Shanghai to Inchon by sea shall be governed by the law applicable to carriage of goods by sea, whereas the 2^nd part from Inchon to Paris by air to be governed by the law applicable to the carriage of goods by air which does not require the production of any document for the release of the goods.

The Issues

13.  Parties have agreed the issues to be tried in the Revised Statement of Issues filed on 9 May 2013 which states as follows:

“1. Whether the Plaintiff was in breach of the Contract and/or its duties as bailee by releasing the Goods to Force 13 or Moiroud without production of the original Bill of Lading or authorization from the Defendant by virtue of the fact that:

(a) the shipment of the Goods was by sea-air;

(b) the 2^nd part of the journey was by air from Inchon Korea to CDG Paris,

and if so, what is the amount of damages to be awarded to the Defendant.

2. Whether the Defendant had by making the 1^st and 2^nd Representation (as pleaded in paragraph 4C(g) and (i) of the Amended Reply and Defence to Counterclaim) instructed the Plaintiff to release the Goods to Moiroud and /or Force 13 without the original Bill of Lading.

3. Whether the carriage of Goods was governed by the Airway Bill.

4. Whether the Plaintiff was entitled to rely on clause 4 of the Bill of Lading as pleaded in paragraph 11 of the Amended Reply and Defence to Counterclaim.

5. Whether the Plaintiff was entitled to receive the sum of USD 28,855 as pleaded in the Statement of Claim.”

14.  Miss Kung, defence counsel, considers the above first issue as the primary issue and submits the following sub-issues for deciding the primary issue:

(i) Whether D was entitled to rely on the implied terms of the contract;

(ii) Whether P knew there was a back-to-back credit arrangement in place;

(iii) Whether P was entitled to rely on the Certificate of Origin as D’s instruction to release the Goods to either Force 13 or Moiroud;

(iv) Whether P was acting as bailee of the goods;

(v) Whether P was entitled to rely on previous dealings to release the goods without the original Bill of Lading; and

(vi) If P is found to be in breach, what is the amount of damages to be awarded to D.

15.  The above issues may be summarised as follows:

(i) What are the implied terms of the contract of carriage if any;

(ii) Whether D has expressly instructed P to release the goods to the D’s buyer or its agent without presentation of bill of lading;

(iii) Whether the presentation rule is not applicable in a multimodal transport scenario;

(iv) Whether P is in breach of the contract or the duties as a bailee of goods; and

(v) If P is liable to D, whether P can rely on the exemption clause of the August Combined B/L to limit the damages payable to D.

Implied Terms of the Contract

16.  D pleads in paragraph 4A of the Defence and Counterclaim that the “switching bills” arrangement is an implied term based on the information given to P for preparation of the transport documents and custom clearance documents and P’s knowledge of the back-to-back credit arrangement between Force 13 and D and Xiamen as pleaded in paragraph 3E.

17.  The following facts regarding P’s knowledge are not in dispute:

(i) Xiamen is the supplier of D and Force 13 is the buyer;

(ii) In respect of credit arrangement between D and Xiamen, Ivy Tao of P knew about the Xiamen LC;

(iii) She was also aware that letters of credit were used in the past to settle payment between D and Force 13 but she added that they were all sea shipments;

(iv) The Xiamen LC was recorded in the August Combined B/L;

(v) She knew that the Xiamen B/L would not be sent to Force 13, as D did not want to reveal to Force 13 the identity of its supplier, ie Xiamen.

18.  However, the following evidence is also given by Ivy of P:

(i) Back-to-back LC was not used in the previous shipment in April 2009;

(ii) Should D require switch of B/L, instruction letter would be issued; and

(iii) There was no duty on P to switch bills in the absence of instructions.

19.  Even though Ivy knew about the issue of Xiamen LC for D’s payment to Xiamen, there is no evidence to prove that she also knew about the Mulitex LC for payment to D by Force 13.  Besides, Ivy denied back-to-back LC arrangement at least for the previous April shipment in 2009.

20.  Therefore, I do not think it is obvious or reasonable to imply that Ivy should have known the Mulitex LC and the back-to-back credit arrangement in the present case.

21.  P relies on the previous April 2009 shipment as the 1^st Representation, ie an express instruction from Emely Chung of D to Ivy via email on 4 May 2009 at 9:49 am to release the cargo to D’s buyer without the original bill of lading.  Emely denied that it was an express instruction and explained she actually intended to ask a question but inadvertently typed a full stop instead of a question mark. 

22.  Emely wrote, “Please advise your agent will release the cargo to our buyer without your original hbl (house bill of lading).”This only clause in the subject email starting with the words “please advise” clearly denotes a request or an instruction rather than an enquiry. I thus reject Emely’s explanation.

23.  Leaving aside for the moment as to whether P could rely on this email of the previous shipment to justify releasing goods without bill of lading in the present case, such email is obviously against any implication of switching bills by past dealings as alleged by D.

24.  According to Ivy’s past experience, D would give express instructions to P by way of letters if switching bills required.  Moreover, there is lack of evidence to show any trade custom in support of switching bills happen in most of the resale of goods for profit-making.

25.  In the circumstances, I find on balance of probabilities that D has failed to establish any implied term requiring P to take instructions from D to prepare a second bill of lading (the Mulitex B/L) for switching bills without any prior express instructions from D.

The 2^nd Representation

26.  Even though I have found that D had previously consented to the release of any goods without presentation of the original bill of lading, I agree with Miss Kung’s submission that it does not follow that D must have consented to the subsequent deliveries without the original bills (Star Line Traders Ltd v Transpac Container System Ltd & Others, HCAJ 180/2008 at para.7).

27.  The key issues are whether the so-called “2^nd Representation” amounts to an express instruction from D to P to release the goods to D’s buyer or its agent without any bill of lading.

28.  The 2^nd Representation is found in the email dated 24 August 2009 at 14:51 hours, sent by Emely and its main body states as follows,

“We have the b/l for shipper – our factory only. We can’t send this copy to buyer. Can you send the copy of your airway bill to us, buyer will contact with your agent base on airway. ”

29.  It is the defence case that the 2^nd Representation was made for the purpose of ascertaining the status of the cargo.  Emely only wanted to know if the goods have arrived in Paris.

30.  Miss Kung submitted that there was nothing in the 2^nd Representation which contained the word “release” or the phrase “release without the b/l”. Thus, Ivy was not justified to assume that Emely had given a clear and unequivocal instruction or authorisation to release the goods without the original bill of lading. 

31.  P accepts that the 2^nd Representation does not use such expression as “releasing the goods without the original hbl”. However, in light of the circumstances, Mr Wong, counsel for P, submitted that it was a clear instruction by Emely to Ivy to release the Goods based on the AWB.

32.  When D initially asked P for the quotation in the email of the 2^nd defence witness, Vasu, dated 22 July 2009 at 3:22 pm, D asked for the quotation of the goods to be shipped to Paris by 5 August 2009 urgently, as it said, “Pls send ur quote urgently”.

33.  According to the paragraph 3A of the Amended Defence and Counterclaim, the goods were supposed to be shipped on 16 July 2009 to Paris.  No doubt D has been late in delivering the goods to D’s buyer when Vasu sent the above email postponing the date of delivery to 5 August.

34.  The D’s email to Sylvie of Force 13 dated 25 September 2009 at 1608 hours sent by Mathilde of D’s marketing department, responsible for dealing with letter of credits, reveals that D has abandoned the back-to-back payment method by letters of credits but has chosen to send the documents to Force 13 directly via P to catch up for the delay caused by problems in manufacturing.  The relevant part of the email states as follows,

“… Because of the fty [factory] problems, we even had to pay the extra money to use more workers and get the goods with not too much delay. The air freight killed us. Now, we really cannot take charge of 100% of this re-packing re-ironing invoice.

Sylvie, we trusted you.

Following your request, I pushed everybody in the office like crazy to send the documents consigned to Force 13, not to the bank as we usually do, so that you could clear the goods quickly.

Because we used your nominated forwarder, you were able to get the goods without the bank endorsement.

So you got the goods, you did not pay Mulitex, and now you impose this huge claim on us when you know there is nothing we can do. … ”

35.  The following facts also corroborate D’s change of payment method as per the above email:

(i) Both letters of credit expired when the Shipping Order was issued by D and there is no evidence in support of any extension of the 2 LCs;

(ii) When Emely received a copy of the August Combined B/L from Ivy’s email on 20 August 2009, she did not request for switching bills;

(iii) D has never instructed P to issue a second bill of lading while the copy the August Combined B/L could not be sent to Force 13; and

(iv) Instead Emely asked for a copy of AWB on 24 August 2009.

36.  In light of the express prohibition of sending the August Combined B/L to the buyer without any instruction to prepare a second bill of lading for switching bills, coupled with the request of sending the AWB to D, the only reasonable interpretation of “buyer will contact with your agent base on airway”, must be that Force 13 (buyer) would contact Moiroud (P’s agent) based on the AWB to collect the goods.

37.  In the circumstances, I find that Emely’s email dated 24 August 2009 amounts to an express instruction from D to allow delivery of the goods to a party without production of any original bill of lading.

The Alleged Admission by Ivy & Anthony of P

38.  D relies on the following 4 emails in an attempt to establishing admission on the part of P:

(i) An email dated 21 October 2009 at 12 pm sent by Anthony to Stella of Moiroud;

(ii) An email dated 29 October 2009 at 4 pm from Ivy to Stella;

(iii) An email dated 30 October 2009 at 4:16 pm from Ivy to Stella; and

(iv) An email dated 4 November 2009 at 4:47 pm sent by Anthony to Stella.

39.  It is clear from the evidence that Anthony was not involved in the present shipment or the previous one in April 2009. Anthony only came into the picture for putting pressure on Moiroud to chase Force 13 to pay D as per Ivy’s evidence. Therefore I do not put weight on Anthony’s two emails.

40.  As explained by Ivy during cross-examination, the purpose of sending her two emails to Stella, was to put pressure on Moiroud so that Moiroud would in turn press Force 13 to pay D. Ivy further stated that she exaggerated the matter on purpose so that Moiroud would press Force 13.  In other words, Ivy was merely helping D to obtain payment.

41.  I accept that P’s true stance is that P could not hold onto the goods, as it was an air shipment as per Ivy’s email to Stella dated 21 October 2009 at 10:52 am, sent before the 4 emails.

42.  I agree with Mr Wong that there are incentives for Ivy and Anthony to exaggerate the seriousness of the matter by laying the blame onto Moiroud.

43.  In the premises, I find that the four emails relied upon by D cannot be seen as admissions of fault on the part of P, but are merely attempts to obtain freight charges from D via Moiroud. 

P as a Bailee of the Goods

44.  It is the D’s case that P was in breach of its duties as bailee of the goods by wrongful conversion of the goods. D submits that bailment exists when the possession of the goods is handed over to P (the bailee)who must deal with the goods in the manner authorized by D (the bailor).  If P delivers the goods to a person not authorized by D to receive it, P is liable for conversion by misdelivery.

45.  D argues that the certificate of origin and other shipping documents such as the factory invoices and packing lists of the goods are for the purpose of the shipment only.D has never instructed P to release the goods based on the consignee’s name stated in the certificate.

46.  D also emphasizes the consignee’s name in the shipping order andthe subsequent the August Combined B/L are marked as “To Order” instead.

47.  As I have ruled that Emely’s email dated 24 August 2009 is an express instruction from D to allow delivery of the goods to a party without production of any original bill of lading.  Such email allows P to release the goods to P’s agent (Moiroud) based on the AWB, and the D’s buyer would then contact Moiroud to collect the goods. 

48.  There is no dispute as to the identity of D’s buyer, ie Force 13 which has already been disclosed to P by the packing list of the goods and the certificate of origin. Furthermore, there is no dispute that the goods were eventually delivered to the true buyer of the D, Force 13.

49.  Therefore, I do not find that P is in breach of any duties as a bailee of the goods.

The Law of Carriage of Goods By Air

50.  Parties ask the Court to decide whether the contract was divided into 2 parts and if so, whether the AWB and the law applicable to carriage of goods by air govern the 2^nd part of the shipment.

51.  D submits that the AWB was issued by Japan Airlines to P and not to D. It is a contract between Japan Airlines as a carrier and P as its customer.  The AWB is not a document of title as such and plays no part in the contractual relationship between the parties.

52.  In any event, D’s case is that P needs to take instructions from D for the preparation of a second bill of lading (the Mulitex B/L) and not the AWB. The preparation and issuance of the Mulitex B/L was required in order for the contract to work.  Accordingly, the law applicable to carriage of goods by air has no application in the contract. It follows that the international conventions have no application to the present case either.

53.  On the other hand, P submits that as the August Combined B/L covers both the 1^st part by sea and the 2^nd part by air, it is therefore a multimodal transport document. Hence the 2^nd part by air shall be governed by the law applicable to carriage of goods by air.

54.  P relies on the law of the carriage of goods by air and the relevant conventions which do require the consignee to present any document for the release of the goods to justify releasing the goods without the presentation of a B/L.

55.  According to D’s pleaded case, the P’s obligation to issue the 2^nd B/L for switching bills and to release the goods against presentation of the B/L are based on the express and implied terms of the contract.

56.  Even if I agree with P that the law of carriage of goods by air applies in the second part of the shipment and such law does not require the consignee to present the relevant document, I do not think such law would go further to exempt P’s contractual duties, if any, in respect of the issue of the 2^nd B/L and the procedure of release of goods.  In the circumstances, I do not think that P could merely rely on such law to justify the release of goods without production of any B/L.  The questions remain whether there are any implied terms applicable in this case and any express instructions given to release goods without production of any B/L.

57.  After all, the application of such law is not the real issue but seems more likely to be an academic argument.  The main issues are those which I have already dealt with.  Therefore, I do not think it is necessary to decide on this matter further. 

The Exemption Clause

58.  If my above findings were wrong and if P were liable to D, P would seek to limit damages to US$100 per ton in respect of the shipment, pursuant to clause 4 on the reverse side of the August Combined B/L, including the air part which it claims was governed by the AWB.

59.  As P has admitted that it had kept the original of the August Combined B/L all along without sending it to Xiamen, I agree with the D’s submission that the exemption clause has not been incorporated into the contract in such circumstances.

60.  Furthermore, the exemption clause does not cover the present situation because it only covers situations of loss or damage to the goods which are not the present case.

61.  Therefore, had P been found liable to D, P could not rely on the said exemption clause to restrict its liability.

Quantum of Damages

62.  In light of the reasons above, P is not in breach of any contract or duties of a bailee, and thus P is entitled to receive the outstanding freight of US$28,855.

63.  However, if my above findings were wrong and in the event that P should be obliged to issue a 2^nd B/L and to release the goods against production of the 2^nd B/L, P would not be entitled to receive the freight amount because of its fundamental breach of the contract (Kuehne & Nagel (Hong Kong ) Ltd v Yuen Fung Metal Works Ltd [1979] HKLR 526) but to pay damages to D.

64.  D’s counterclaim is in the sum of US$117,633.60 being the amount it should have received under the Mulitex LC or alternatively US$122,302.80 being the invoice value of the goods.

65.  P disagrees to D’s entitlement to either sum of US$117,633.60 or US$122,302.80, as D would have to pay Xiamen for the goods.  As an alternative argument, P submits that D is only entitled to claim the difference between US$122,302.80 and US$102,902.40, ie US$19,400.40 or the difference between US$117,633.60 and US$99,820.51 ie US$17,813.09.

66.  However, the evidence reveals that D has already paid Xiamen for the goods according to the second line of the said Mathilde’s email dated 25 September 2009 at 1608 hours stating “We already paid the factory”.  Therefore, there is no basis to deduct the payment made to Xiamen from the amount of damages payable to D. 

67.  Had D succeeded in the counterclaim, the amount of damages payable by P to D would be US$117,633.60, being the actual amount that D would have received according to the letter of credit.

Conclusion

68.  For the reasons aforesaid,  I make the following order:

(i) judgment be entered in favour of the plaintiff for the sum of US$28,855 (or the equivalent amount in Hong Kong dollar at the time of payment) with interest at judgment rate from the date of the writ until payment;

(ii) the defendant’s counterclaim be dismissed; and

(iii) there be order nisi that costs of the action be to the plaintiff, to be taxed if not agreed with certificate for counsel.

69.  Last but not the least, I wish to thank Miss Kung and Mr Wong for their valuable assistance rendered to this court.