INTEROCEAN CONTAINER LEASING, INC. v. AFEA LINE LTD

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JUDGMENT

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Background

1. By agreement dated 1st July 1983 the defendant agreed to hire from the plaintiff 20' dry cargo containers at a daily rate of hire of US$1.45. clause 20 of the Agreement reads:

"(20) Unless otherwise agreed in writing, either party may terminate this Lease at any time by giving thirty (30) days' written notice to the other party at its principal place of business. In the event of termination, Lessee (the defendant) shall deliver all Equipment to interocean at a designated/authorized interocean depot or depots mutually agreed upon. Lessee shall pay interocean the agreed upon rental for such Equipment hereunder until such Equipment has been redelivered and accepted by interocean or its authorized depot(s), in accordance with Paragraph (7) hereof. Such termination shall not, however, relieve Lessee from any obligations and liabilities incurred under this Lease prior to such redelivery. This right of termination shall not apply to any Equipment which Lessee has received pursuant to a written commitment obligating Lessee to pay rental for a stated period of time. "

2. There were two schedules to the agreement clause V of Schedule A reads:

3. In June 1984, the plaintiff offered to renew the agreement at a daily rate of US$1.65. As the defendant would not accept the revised rate, the plaintiff notified the defendant by telex that it would not renew the agreement and requested the defendant to redeliver all containers on or before the expiry date of the agreement. However, the plaintiff was prepared to provide a build down period of 3 months in order to assist the defendant in its redelivery programme for the containers. The defendant did not accept that the plaintiff had the right to impose such a build down period and said that it would redeliver the containers as soon as it could in accordance with the agreement.

4. The plaintiff allowed the defendant 3 months in which to redeliver the containers. When all the containers had not been redelivered within this period, the plaintiff commenced proceedings, in what is now No. CL140, in detinue. The plaintiff sought redelivery of the outstanding containers or their cost; damages for detention of the containers and, in accordance with the agreement, a surcharge for late payment of certain invoices.

5. In its Defence the defendant contended that under Cl. 20 of the agreement, written notice was required to terminate the agreement. It did not accept that the agreement was for a term of 12 months which expired by effluxion on 30th June 1984. Out of an abundance of caution, therefore, the plaintiff gave such notice by solicitors' letter dated 20th March 1985 which would, if necessary, have had the effect of terminating the agreement at midnight on 19th April 1985. In September 1985, the plaintiff issued another writ in No. CL105 in which it sought the same relief as in the earlier writ, but based on termination of the agreement in April 1985.

Construction of the agreement

6. The first issue between the parties, therefore, when they came to trial was the interpretation of the agreement. However, Mr. Kenneth Chan, the deputy managing director of the defendant, in his evidence said he understood that the agreement terminated at the end of June 1984. He disagreed with the plaintiff only over redelivery of the containers. There was no fixed period, he thought, within which the containers should be redelivered. The only requirement in his view was for the defendant to redeliver the containers as soon as it could.

7. Interpretation of an agreement is, of course, a matter for the court. However, where parties put a common construction upon an agreement a court should be slow to disagree with that construction and so rewrite the agreement or a term thereof for the parties. In the present case I have no difficulty in finding that the construction put forward by the parties, namely that the agreement expired on 30th June 1984, is the correct one.

Demand

8. Counsel agree that for the plaintiff to succeed in detinue it must prove that it demanded the return of the containers and that the defendant wrongfully refused or failed to comply with that demand. Where they disagree is over when the demand was made and the interpretation of "wrongful". As to the demand, Mr. Scott on behalf of the defendant contends that there was no demand by the plaintiff until the solicitors' letter of March 1985. However, during the exchange of telexes in June 1984 to which I have already referred, in its telex dated 19th June (p. 146 of the bundle) the plaintiff said:

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You are requested to redeliver all Interocean containers to Interocean depots specified in Appendix 1 of the said lease agreement on/before the expiry date. "

I agree with Mr. Mumford who appeared for the plaintiff that that constitutes a sufficient demand. Although the plaintiff allowed the defendant a further 3 months for redelivery, I do not think that that concession vitiates the demand.

Wrongful failure to redeliver

9. It is Mr. Mumford's argument that a hirer must return a hired chattel at the expiration of the agreed term (4th ed. Halsbury's Laws Vol. 2 para. 1559). The defendant's contention that it is only obliged to return the containers as soon as possible cannot be sustained. If that contention is right, how will an owner ever know when his chattels will be returned. It will be difficult, if not impossible, for an owner to investigate whether a hirer has in fact returned chattels as soon as he might. The result is to throw on an owner the risk of contingencies which are wholly outside his control. Therefore, says Mr. Mumford, it is incumbent upon a hirer to return chattels on or before the expiry of the agreed term and, if he does not do so, there is a wrongful refusal or failure to deliver.

10. Mr. Scott contends that a simple failure to deliver is not in itself wrongful. He says that, before it is wrongful, a failure must be culpable and reflect an intention on the part of the hirer not to redeliver upon a legitimate request. Consequently, if the defendant is believed in its assertion that it has throughout sought to return the containers as soon as possible, there has been no wrongful failure on its part. He cited a number of cases in support of this argument and, in particular, relied upon British crane Hire corporation Ltd. v. Ipswich Plant Hire Ltd. (1975) 1 Q.B. 303. In that case Sir Eric Sachs said at p. 313:

"In my judgment, the trial judge went too far when he said that the defendants were under this obligation that they would return the machine to the plaintiffs at the end of the hiring. I would not be prepared to hold that the obligation of a bailee is absolute or can be stated in such plain wide terms. On the other hand, it does seem to me that someone who hires a chattel is under an obligation to return that article to the owner unless he shows good cause for not returning it. What is good cause must depend on the particular facts of the case and must involve questions of degree. In relation, for instance, to an ordinary passenger car, at one end of the scale would come a tyre puncture where there was a spare wheel aboard: such a puncture would be no excuse for leaving the oar on the road. Similarly, if that car skidded without anyone's fault into a ditch, there would be no good cause to leave it there just because to get it out required £5 worth of service from a garage. On the other hand, if some great boulder descended on the vehicle and damaged it beyond repair, that might well be good cause for not returning it. As regards getting stuck in a snowdrift or a marsh, I would not think such a happening could normally constitute good cause. "

11. Mr. Scott argues that, on the basis of this judgment, a hirer may show good cause for not returning a chattel and, if he does so, his failure to return will not be wrongful. Whether or not a defendant can show good cause depends upon the facts of each case.

12. In the same case Lord Denning, M.R., said at p. 311:

"When a machine is let out on hire for use on marshy land, and both parties know that it may sink into a marsh, then it seems to me that, if it sinks into the marsh, it is the hirer's job to recover it, so as to restore it to the owner at the end of the hiring. Take a motor car which is let out on hire, and by reason of a gale, or an icy road, it goes off the road into a ditch. It is the hirer's job to get it back on to the road and restore it at the end of the hiring. Just as when he takes it on a long journey and falls ill a long distance away. It still is his duty to get it back and restore it to the owner at the end of the hiring. Of course, if it is lost or damaged and he can prove that it was not due to any fault on his part, he would not be liable. A bailee is not liable for loss or damage which he can prove occurred without any default on his part: but the return of the vehicle at the end of the hiring to the owner, and to pay the cost of doing so. Although he is not liable for less or damage occuring without his fault, nevertheless he is liable to do what is reasonable to restore the property to the owner. "

 

Megaw, L.J. agreed with Lord Denning's judgment.

13. Mr. Mumford argues that Sir Eric Sachs confused the question of loss or damage of an article while in a hirer's hands with the duty to return that article at the expiry of the hire. He says that the judge was doing no more than to illustrate how loss or damage prior to the expiry of hire affects the duty to return. This is plain from the illustration in respect of the boulder, which is the only illustration which the judge seems to think might provide good cause and which is clearly an example of loss or damage. Therefore, Mr. Mumford contends, the question of fault on the part of the hirer arises only where an article is lost or damaged, which is not an issue arising in the present case.

14. When Mr. Scott addressed me on the question of a demand he cited para. 1582, Halsbury Vol. 2. That paragraph reads in part:

"The bailee cannot justify or excuse his failure to comply with the demand merely by proving ... but he is excused if he can show that his failure to return the chattel arises from its loss or destruction before the demand for its return without any default on his part. "

15. In my view that is a correct statement of the law and British Crane Hire does no more than restate the law. Neither that case nor the earlier authorities cited by Mr. Scott support his argument that it is open to a defendant to avoid liability in detinue by showing good cause in a situation other than where the chattel has already been lost or damaged. I find therefore that the defendant was wrongful in its failure to deliver certain containers once the build down period expired on 30th September 1984.

Market rate

16. By way of damages, the plaintiff claims the full market rate of hire for the whole period of detention of the various containers. For this, reliance is placed on Strand Electric and Engineering Co. Ltd. v. Brisford Entertainments Ltd. (1952) 2 Q.B. 246. The headnote reads in part:

"In an action in detinue in respect of a chattel which the plaintiff, as part of his business, hires out to users, the plaintiff, if the defendant has during the period of detention made beneficial use of the chattel, is entitled to recover as damages the full market rate of hire for the whole period of detention. "

17. There was some argument as to whether the defendant had made beneficial or commercial use of the containers. The defendant is a shipping line which runs a liner service to West Africa, particularly to Nigeria, where the ports are congested and there is the great difficulty in clearing goods so that containers can be returned. Mr. Chan gave evidence, and it was not really disputed, that a container will spend a minimum of 90 days in port before it can be devanned and shipped out for return, while the round-trip time for a container shipped from the Far Fast to West Africa takes between 9 and 15 months. He said that the defendant had no desire for the containers to be delayed for such lengthy periods and gained no benefit therefrom.

18. The defendant charged lump sum freight. Although it was not suggested in argument, presumably that lump sum reflected the conditions which the defendant knew to exist in the West African trade. Further, receivers of goods paid demurrage. However, those factors apart, it seems to me to fly in the face of common sense to say that the defendant did not have beneficial use of the containers. Without containers to hold cargo from stuffing to devanning, whether the plaintiff's or another's, the defendant could not ply its trade. I have no hesitation, therefore, in finding that the defendant had beneficial or commercial use of the plaintiff's containers after September 1984.

19. The difficult question to be resolved is what was the market rate prevailing during the period of detention. The plaintiff claims US$1.75 per day for the hire of a 20' container. The defendant suggests that the rate was US$1.20 to US$1.30. For the plaintiff Mr. LEE Hung-cheong, a director of the plaintiff's agent in Hong Kong, gave evidence. He said he thought that after October 1984 the market sate was in excess of $1.75. He produced three agreements which he had made for his area, which covers Hong Kong, Taiwan and the Philippines, at sates ranging from US$1.80 to US$1.90. He also produced invoices supplied by his principal showing rates ranging from US$1.75 to US$2.60 in areas such as New Zealand, Australia and Europe. For his part, Ms. Chan produced agreements and invoices showing rates from US$1.20 to US$1.30.

20. Mr. Lee conceded that the plaintiff's rates were fixed by his principal and that he had no idea what factors, such as the creditworthiness of the customer or the area in which the containers were to be used, had been taken into account in fixing these rates. He agreed that the sate of US$2.60 for the Iraqi State Enterprise for Maritiem Transport probably reflected the possibility that the containers might be used in the Gulf which is a was zone. He conceded that under one of the agreements which he had made at a rate of US$1.80 the hirer had not picked up any containers. He accepted that a lease for a longer period such as 2 or 3 years will produce a lower rate because of the steady income which will be generated, while a spot lease will show a hires sate. He maintained, however, that if the defendant's containers had been available after October 1984 he would have had no difficulty in letting them at US$1.75.

21. Apart from producing the agreements and invoices to which I have referred, Ms. Chan's evidence showed that shipping lines do not rely on a single agreement at any one time. They conclude two or more agreements in order to ensure constant availability of containers and to take advantage of the lowest rates which they have been able to negotiate. Mr. Chan also agreed that rates depend upon various factors including supply and demand in different areas. It is also to be noted that in one of the agreements which he produced, namely that with Sea Containers Asia Ltd. (p. 27 of Ex. D2) there is provision for a rate of US$1.75 for containers not returned on termination of the agreement, although Mr. Chan did call this a penalty.

22. I am left then with a variety of rates from US$1.20 to US$2.60. These rates in turn depend upon a variety of factors ranging from trading area, supply and demand, and credit-worthiness to length of agreement. Inasmuch as it is permissible to take an average figure, then the plaintiff's rate of US$1.75 is a little below that figure. However, I take into account 2 particular matters. First, Mr. Lee, who has had some years' experience in the container trade, said that he is aware of market rates in his area and that he could have obtained US$1.75 for the defendant's containers. Secondly, the agreement produced by Mr. Lee which he had concluded on behalf of the plaintiff with Omex Shipping Co. Ltd., covering the period June 1984 to May 1985, was the one most closely resembling the defendant's agreement and was the one least challenged by the defendant. It provided for a rate of US$1.80.

23. I find on the balance of probabilities, therefore, that US$1.75 represents the market rate as claimed by the plaintiff.

Relief

24. In the consolidated claim, therefore, I grant the plaintiff the following relief:

1.    An order for delivery of all containers not yet returned.

2.    Damages in the sum of US$68,269.38 which is made up of :

 

3.    US$879.99 agreed surcharge.

4.    costs.

 

Liberty to apply.