RAHA IMPEX HK LTD v. DYNASTY JEWELRY (HONG KONG) LTD

DCCJ2125/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2125 OF 2015

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JUDGMENT

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INTRODUCTION

1.  Both the plaintiff and the defendant are wholesalers of diamonds, this action concerns a consignment of goods made by the plaintiff to the defendant.

THE PLAINTIFF’S CLAIM

2.  On 16 March 2012, on introduction by Hussain Mohideen Kaleel Rahman (“Hussain”), a staff of the defendant, Aditya Rathi (“Rathi”), a sales representative of the plaintiff, delivered 150.06 carats of loose diamonds to the defendant (“the Diamonds”) with a view to sell them to the defendant.  

3.  Rathi was received by Hussain in the office of the defendant on the material day. Li Kwok Kuen a staff of the defendant (“Li”) acknowledged the receipt of the Diamonds.  He issued to Rathi an official receipt affixing the defendant’s company chop.  On the receipt, the Diamonds were specifically described as “Lot 173, +6½”.  The plaintiff claimed the value of the Diamonds was valued at USD110,294.10.

4.  The consignment was made on purpose for the defendant to inspect and select those it intended to purchase. If the defendant decided not to purchase the entire lot or part of the lot, it was expected to return the remaining ones to the plaintiff.

5.  The receipt issued by the defendant bore the following conditions:-

“Received the above goods on the terms and conditions set out

In consideration of your allowing me to take away your above-mentioned goods (the receipt of which I acknowledge) and which are of the value stated above for the sole purpose of inspecting same. I hereby undertake to keep them in safe custody and in my own possession only. As bailee thereof, and to return them to you. In any event and without regard to the result of my inspection within ____ days of the above date of immediately upon your earliest request.

I agree to entirely responsible for any loss of damage suffered by the goods whilst they are in my care and custody, and acknowledge that no interest, right or title in them passes or shall pass to me by virtue of either this acknowledgment or any ordinance of law.

The Bailment hereby created shall not be determined unless and until either I shall return the said goods to you or a sale thereof shall be effected by you to me and I shall have made full payment to you in cash of the sale price or in the event that the sale shall be on credit terms.  I shall have signed your sales invoice or otherwise confirmed in writing the terms upon which such sale is effected.”

6.  On 19 March 2012, as the plaintiff did not hear from the defendant since the delivery, Rathi requested the defendant to return the Diamonds.  On 20 March 2012, Rathi attended the defendant’s office to retrieve the Diamonds.  At this time, Rathi discovered those loose stones purported to be returned were not the Diamonds.  The plaintiff claimed the loose stones returned were not genuine stones.  At this time, Hussain had already disappeared.

7.  It is not in dispute that the defendant was a bailee of the Diamonds, the plaintiff submitted (i) the defendant was obliged to the safe custody of the Diamonds; and (ii) be responsible for any loss or damage of the Diamonds.  For reason of the breach, the plaintiff claims the defendant for the price of the Diamonds.

THE DEFENCE

8.  The defendant said Li did not examine the authenticity of the Diamonds at time of delivery, he put the Diamonds in the safe directly. The Diamonds were kept in the safe at all times. The defendant has returned the Diamonds to the plaintiff. The defendant claimed the Diamonds were not genuine stones.

THE ISSUES

9.  The issue of whether the stones returned were the Diamonds should be determined first.  It is purely a factual issue.  The burden is on the plaintiff to prove the stones returned to it were not the Diamonds.

10.  The plaintiff pleaded a bailment arrangement in the statement of claim. The agreement between the parties were that upon delivery of the Diamonds, the defendant shall retain the Diamonds until demand for return by the plaintiff.  The defendant would exercise due care and undertake safe and proper custody of the Diamonds whilst they are in its possession.  Whether the defendant was in breach of the bailment agreement became applicable only when the Court had found the Diamonds returned on 20 March 2012 were not the same as those placed with the plaintiff on 16 March 2012.

11.  The legal principle on bailment is not in dispute.  An illustration can be found in Morris v C W Martin & Sons Ltd [1966] 1 QB 716. The plaintiff in this case sent a fur coat to a company which, with the plaintiff’s consent, sent the coat to the defendant, a specialist cleaning company.  When one of the defendant’s employees who was responsible for actual cleaning stole the fur coat, the plaintiff sought damages against the defendant.  Lord Denning, MR (as he then was) held at p 725 and p 728:

“If the master is under a duty to use due care to keep goods safely and protect them from theft and depredation, he cannot get rid of his responsibility by delegating his duty to another. If he entrusts that duty to his servant, he is answerable for the way in which the servant conducts himself therein. No matter whether the servant be negligent, fraudulent or dishonest, the master is liable.”

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“if the servant or agent is careless so that …[the goods]… are stolen by a stranger, the master is liable. So also if the servant or agent himself steals them or makes away with them.”

12.  Applying this landmark principle, the defendant should be accountable for the price of the Diamonds if the Court had found the Diamonds were replaced by fake ones.

13.  The plaintiff further pleaded in the Reply that Li has the “requisite authority” to enter into the bailment agreement.  Mr Babani, counsel for the plaintiff submitted the issue of apparent authority was also an issue.  I find this point is irrelevant in this bailment arrangement when the facts are so clear that Li has accepted the Diamonds on 16 March 2012 in return of a receipt with the defendant’s company chop affixed on it.

EVIDENCE

14.  Rathi is the only witness for the plaintiff; the defendant called its directors, Wong Shung Yiu, Desmond (“Wong”) and Hui Siu Ling Shelly (“Hui”); and its ex staff, Li as witnesses.

ANALYSIS

Whether the stones returned were the Diamonds

15.  The defendant said the loose stones have been returned to Rathi on 20 March 2012 were the Diamonds. Taking into account the Diamonds were loose stones, very small in size, homogenous in nature and without identifications, they were incapable to be identified easily.

16.  The plaintiff’s evidence came from Rathi.  Rathi was the only employee of the plaintiff’s Hong Kong office.  He was responsible for sale of diamonds.  He has 3 years’ experience in this industry.  He has no formal accreditation of professional qualification.  He obtained knowledge about precious stones from on-the-job training in both India and Hong Kong.

17.  Rathi was introduced by Hussain, a staff of the defendant.  Rathi visited the defendant’s office 3 to 4 times prior the date of delivery.  He was received by Hussain and had shown him various diamonds. Hussain did not take his diamonds in previous occasions.

18.  On 16 March 2012, Rathi was received by Hussain in the defendant’s office.  He saw Li sitting inside one room but had no conversation with him.  He handed over the Diamonds to Hussain, who passed the same to Li.  Li took the Diamonds and issued the official receipt to him.  He was not certain whether Li has checked the Diamonds.  Rathi described the Diamonds were around “3 – 7 points, VS to VVS grade, D to G color, sieve 6½”.  He estimated there were around 25 pieces of loose stones per carat.

19.  In Rathi’s witness statement made to the police, he complained of theft committed by the defendant of a batch of diamonds consisting “150.06 carats of Lot 173, 6 ½”.  He claimed the Diamonds were genuine stones by exhibiting the invoice of the seller, Rijiya Brothers, the airway bill and the declaration report.

20.  In proving the loose stones returned were not the Diamonds, Rathi stated in his witness statement that when Li had returned some loose stones to him on 20 March 2012. He examined the same with a loupe, a magnifying device.  Rathi testified in his evidence that he had found the size of the loose stones were smaller than the Diamonds, he took 10 pieces of loose stones from the entire batch, checked them carefully and then come to a conclusion that the loose diamonds returned were not the Diamonds.  Because of this, he refused to accept the loose stones and of which were still in the possession and custody of the defendant.  Rathi gave the same evidence at trial.

21.  During cross examination, Rathi accepted the weight of the loose stones being 150.04 carat (0.02 carat less than what has mentioned in the receipt). He was of the opinion that the specifications of the Diamonds should have been mentioned in the official receipt. Most importantly, Rathi admitted he could not have proved the Diamonds were genuine stones.  He only said, “Hussain saw the stones, he knows”.  

22.  It is unknown to me the reason the parties did not seek leave to adduce expert evidence in classifying the Diamonds, which are still in the possession of the defendant, which must be of assistance to this Court.

23.  To pitch the plaintiff’s case to the highest, I am not satisfied the plaintiff could have proved, on examination by Rathi’s naked eyes, by examining only 10 pieces of loose stones returned to him, were not the Diamonds.  Be it Rathi had given a detailed description of the Diamonds during cross examination, those specifications did not appear in the official receipt.  Neither did he state those specifications in the contemporary witness statement made to the police.  Having considered the abovementioned, I reject Rathi’s evidence.

24.  In the premises, the plaintiff failed to establish the defendant was in breach of the bailment agreement that it had failed to keep the Diamonds in safe custody whilst they were in the defendant’s possession.  The plaintiff’s claim is bound to fail.

The defendants’ evidence

25.  For completeness sake, I shall also deal with the defendants’ evidence.

26.  The defendant was incorporated in Hong Kong in 1995 and has been carrying on business in jewelry design, manufacturing and export.  Wong and Hui are husband and wife and they were the directors of the defendant.  The defendant has more than 20 staffs.  Hussain was employed as an assorter since 2005.  His duties included inspecting and classifying the stones.  Li was Hussain’s supervisor.  Wong gave an account of the usual operation of the defendant.  The defendant has its designated supplier of stones.  Unless with his permission or instructions, the defendant would not accept new suppliers.  As the value of precious stones and jewelry is very costly, he would be cautious in engaging new suppliers. Wong testified he would have checked the background and credentials of each of the new suppliers and to start off by purchasing a small quantity or value from them.  He would not accept new supplier of stones with a substantive amount in their first deal, like the plaintiff.

27.  Although Wong and Hui were pleased with Hussain’s performance at work, he testified he has never authorized Hussain to solicit new suppliers.  He only allowed his staffs to contact designated suppliers on Li’s instructions.  

28.  At the material time, on 16 March 2012, both Wong and Hui had attended a jewelry trade show in Switzerland. Wong recalled Hussain called up on 18 March 2012.  Hussain claimed he was suffering from some illness and had requested for a one week sick leave. Hussain said to him he has to return to India for medical treatment.  Hussain did not submit medical certificate to the defendant for prove of his medical conditions. During Hussain’s sick leave period, Wong instructed Li to return all the stones received by Hussain to the suppliers.  Li called up Rathi to retrieve the Diamonds.  Rathi came on 20 March 2012 and the complaint followed. Both Wong and Hui were alerted to the incident on 20 March 2012, and they reported to the police.

29.  Li was the supervisor of the operation department of the defendant.  Li was not an assorter, he relied on the expertise of Hussain to examine stones from suppliers.  He said Hussain was responsible for inspecting and selecting the stones, Li was only responsible to keep the stones in the safe.  The keys to the safe was in the possession of Li, Wong, Hui and one Mr Fan of the operations department.

30.  On 16 March 2012, Li saw Hussain attended to Rathi.  Hussain gave him a bag of diamonds. On reliance of Hussain where he had confirmed the weight of the bag of diamonds, Li issued the official receipt to Rathi.

31.  I have nothing to challenge the defendants’ evidence, that being the daily operation of the jewelry business.  The way that Rathi was received by Hussain on 16 March 2012 was consistent with the plaintiff’s evidence.  I therefore accept the evidence of Wong, Hui and Li.  Their evidence warranted as factual findings of this case.

Attempts to settle the matter

32.  The parties put in evidence in relation to settlement of the dispute.  Rathi said the defendant’s offer of settlement was not accepted by the plaintiff.  I place no weight in the evidence on attempts of settlement which I find they have no relevance in considering the evidence of this case.

CONCLUSION

33.  Having considered the evidence, I have no hesitation to conclude the plaintiff could not succeed in its claim. I order the plaintiff’s claim be dismissed.  I make a costs order nisi that the costs of this action be paid by the plaintiff to the defendant, with certificate for counsel, to be taxed if not agreed.  The costs order nisi shall be made absolute in absence of application to vary by way of inter parte summons within 14 days from the date of this judgment.