REGALITE INTERNATIONAL LTD v. AIRCARGO CONSOLIDATIONSERVICE (HK) LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Judgment

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The facts

1. In this action the Plaintiff claimed against the Defendant for the value of 12 consignments of watches. It is common ground that the Plaintiff was a supplier of watches in Hong Kong. It had a customer by the name of M & M Jewelers & Co. (hereinafter called M & M) which was a corporation carrying on business in Los Angeles. U.S.A. M & M purchased watches from the Plaintiff on C & 1 terms. The business between the Plaintiff and M & M commenced sometime in April 1993. According to Mr. Chong of the Plaintiff. The first shipment was a test shipment and it was made by the Plaintiff using its own air forwarders. After the goods were received by M & M, the parties decided to do business on a regular basis. There were subsequently about 29 shipments of watches by the Plaintiff to M & M. and all these 29 shipments were effected through the Defendant and the 12 shipments, the subject matter of this action, were the last 12 of the 29 shipments.

2. Mr. Chong of the Plaintiff told me and I accept his evidence that all the sales made by the Plaintiff to M & M were on D/P terms. There was the possible exception of one shipment which was orignally shipped on D/P terms. However the shipment was returned owing to some problems with the United States customs. The goods were re-shipped to another person acting as the Plaintiff's agent in New York who transmitted the same to M & M in Los Angeles on open account basis. This shipment had been paid and did not form the subject matter of this action. For the purpose of deciding the issues in this action, I am of the view that this shipment could be ignored.

3. Before the first of the 29 shipments was effected, M & M had given the Plaintiff shipping instructions that the M & M's banker was the Bank of America of Transamerica Centre, 1155 S. Hill Street, Los Angeles and that the forwarder for the cargo should be the Defendant in Hong Kong and one Air Cargo Systems Inc. (hereinafter called "ACS") in Los Angeles. The shipping arrangement for the first of the 29 shipments was arranged by M & M in that M & M either themselves or through ACS informed the Defendant to collect the goods from the Plaintiff. An Air Waybill No. ACS-185389 was duly issued by the Defendant naming the Plaintiff as the Consignor, The Bank of America as the Consignee and the freight was to be "freight collect".

4. It is common ground that since the first consignment, a practice had gradually been established that the Defendant was no longer informed by M & M or ACS to approach the Plaintiff to collect goods for shipment. Instead the practice had developed that whenever there were goods to be shipped by the Plaintiff to M & M, the Plaintiff would contact the Defendant and asked the Defendant to come to collect the goods. It is not entirely clear as to when this practice had finally become established and in particular, there is no specific evidence as to whether any of the 12 consignments now sued upon by the Plaintiff was effected as a result of the initiative on the part of M & M or the Plaintiff. What is clear from the documents put before me is that since the 4th shipment made on 25th May, 1993, in respect of each subsequent shipments (including all the 12 shipments now sued upon), the Plaintiff had signed a shipper's instruction form addressed to the Defendant to ask the Defendant to receive the goods for shipment. I will have to revert to these shipper's instructions later. It is common ground that for each of the shipments, the Defendant issued an air waybill and gave the shipper's copy thereof to the Plaintiff. Each of the air waybills named the Plaintiff as the consignor, the Bank of America as the consignee and M & Mas the notified party. Each of the air waybills contained inter alia the following clause:

"(9) Except as otherwise specifically provided in this contract, delivery of the goods will be made only to the consignee named on the face hereof, unless such consignee is one of the Carriers participating in the carriage, in which event, delivery shall be made to the person indicated on the face hereof as the person to be notified. Notice of arrival of the goods will, in the absence of other instructions, be sent to the Consignee, or the person to be notified, by ordinary methods. Carrier is not liable for non-receipt or delay in receipt of such notice."

5. As the sales by the Plaintiff to M & M were on D/P basis, in each instance, the Plaintiff made out a commercial invoice, a custom invoice, a packing list and a bill of exchange drawn on M & M at sight for the amount of the invoice. The Plaintiff presented these documents together with the shipper's copy of the air waybill and an insurance certificate to its bank, the Daiwa Bank, for onward transmission to Bank of America, the banker of M & M. In the ordinary course of events, the Bank of America would not release the air waybill or the goods to M & M without M & M's acceptance and payment of the bill of exchange.

6. All the shipments arrived at Los Angeles safely. The person handling the release of the goods at Los Angeles was ACS. When the goods arrived, the goods would be put into the custody of the U.S. Customs at the air port. The documents which accompanied the shipment such as the consignee's copy of the air waybill would be delivered to ACS. ACS would inform both the Bank of America and M & M of the arrival of the goods. The persons who wanted to take delivery of the goods would have to approach ACS who would be responsible for releasing the documents required for taking delivery. It is not in dispute that in all shipments, including the 12 shipments now under dispute, the release documents were given by ACS to M & M's customs brokers who were the agents for M & M to obtain release of the goods from the U.S. customs. It is also common ground that in fact all the goods were delivered to M & M. It is clear from the evidence of Mr. Kenny Nakagawa, the President of ACS, that the goods were so released to M & M without any consent or authorisation from the Bank of America, the consignee named on the air waybills.

7. For all except the last 12 shipments, M & M paid the Plaintiff although in nearly all instances, payments were only made after more than 30 days from the date of the arrival of the goods. A summary of the dates of the payments are set out in exhibit D-1 produced by the Defendant. It would appear that at least for one shipment under air waybill No. ACS 186307 dated 3rd August, 1993, the Plaintiff was aware that the goods had been received by M & M sometime by 10th August, 1993 and yet no payment was made until 10th December, 1993. The explanation for allowing M & M to delay in making payments was that there were some communication gaps between the various departments within the Plaintiff so that those making decisions for the supply of the goods were not kept up to date on the payments outstanding and that often the Plaintiff agreed to ship further goods on the strength of the verbal assurances from M & M that they had already paid or they would pay the outstanding bills shortly. The Plaintiff had however never enquired of M & M as to how they could have obtained the goods without paying Bank of America. The Defendant contended that the only explanation for this was that the Plaintiff had agreed to extend credit to M & M and that the Plaintiff had agreed to allow M & M to take delivery of the goods without payment. The Plaintiff denied ever agreeing to grant credit to M & M and insisted that all dealings with M & M were on D/P basis although the Plaintiff agreed that for business reasons, the Plaintiff often tolerated late payments. Having heard the evidence from Mr. Chong of the Plaintiff and on all the circumstances of this case, I do not consider that the Plaintiff had agreed to extend credit to M & M. If the Plaintiff had done so, it would be very surprising that the Plaintiff would continue to cause the Bank of America to be named as the consignee on the air waybills. Further if any credit was granted, the most natural thing to do was that the terms of dealing would be changed from D/P to D/A so that M & M could legitimately obtain the documents for the delivery of the goods by accepting a bill of exchange payable on the date of the expiration of the credit period. Yet in the present case, M & M had not accepted any bill of exchange drawn on it by the Plaintiff whether in respect of the shipments sued upon or otherwise. I find that although the Plaintiff knew that the goods in one of the shipments made in August 1993 had been received by M & M without payment, the Plaintiff had not appreciated that Defendant and ACS had adopted a practice of just releasing goods to ACS without any authorisation from the Bank of America.

8. The 12 consignments, the subject matter of this proceeding, were shipped between 13th November, 1993 and 1st February, 1994. There is no dispute that the Plaintiff had not been paid by M & M or any one in respect of these goods. There was no evidence that the Plaintiff was aware that these goods were released to M & M until well after 21st February, 1994 when the Plaintiff wrote formally to M & M to demand payment of outstanding bills threatening to ask the Defendant to return the goods if the bills should remain unpaid.

The Plaintiff's causes of action

9. In the present case the Plaintiff brought this proceeding to recover from the Defendant the invoice value of the 12 shipments. The Plaintiff sued in contract and also in tort as the owner of the goods. The Statement of Claim was not as clear and precise as it should be. It is not very clear as to whether the Plaintiff claimed that there was a contract of carriage between the Plaintiff and the Defendant and whether the Plaintiff was also making a claim against the Defendant for conversion of the goods. However as both parties were not legally represented before me although the pleadings would appear to have been drawn up by solicitors there was relatively little point for me to seek clarifications from the parties and accordingly I decide to approach this case with the most benevolent interpretation of the pleadings giving the parties the full benefit of their legal rights as the evidence before me would support.

The Defence

10. The Defendant's defences were (1) a general denial of the Plaintiff's right and title to claim. (2) the Defendant was merely agent for ACS who was the carrier undertaking all liabilities and responsibilities of the carrier, (3) the Plaintiff was estopped from claiming in that the Plaintiff had informed the Defendant after the 1st shipment was made that the goods may be delivered to M & M without the consent of the Bank of America and that the Plaintiff had agreed to grant M & M credit, (4) certain exemption and limitation clauses contained in the shipper's Instruction and (5) the Plaintiff was somehow not entitled to claim against the Defendant because the Plaintiff had since the commencement of this, proceeding also commenced proceedings in U.S.A. against M & M ACS, the Defendant and other persons although the action against the Defendant in the U.S.A. had since been discontinued.

The Warsaw Convention and the right to sue

11. The carriage of goods by air from Hong Kong to the United States is governed by the unamended Warsaw Convention of 1929 and the Guadalajara Convention 1961. This is the result of a combination of the effects of a number of Acts of Parliament in the U.K. and Orders in Council the details of which were discussed by Trainor J. in Cordial Manufacturing Co. Ltd. & another-v- Hong Kong - America Air Transport Ltd. [1976] H.K.L.R. 555 at pages 561 to 567. The relevant provisions of the conventions are set out in Schedule 4 to the Caniage By Air Acts (Application of Provisions) (Overseas Territories) Order 1967. In Cordial's Case, the first plaintiff sold goods to the second plaintiff on f.o.b. terms and payment was to be made by letter of credit. The defendant was the carrier nominated by the second plaintiff. The defendant collected the goods from the first plaintiff and issued an air waybill naming the first plaintiff as consignor and the second defendant's bank as the consignee. Upon the arrival of the goods, the goods were delivered to some one who presented a set of forged documents to obtain delivery. Trainor J. held that on the facts before him, neither the first plaintiff, the seller of the goods, nor the second plaintiff, the buyer of the goods was entitled to claim against the carrier. The buyer's claim failed because Trainor J. took the view that under the Warsaw Convention only the consignor or the consignee named in the air waybill could bring an action against the carrier for loss and damage of the goods. The buyer, not being named as a consignor or consignee could not bring any action even though it had property in the goods. I shall revert to this part of his decision later. The seller's claim failed because if did not have property in the goods at the time of the loss and that it was not a party to the contract of carriage. Trainor J. held that this would be so notwithstanding that in the air waybill, there was a term that the shipper (seller) guaranteed the payment or (sic) air charges and advances (see page 561,584). Although the seller was named as the consignor in the air waybill and as such was entitled to bring an action under the War saw Convention without showing any interest in the goods, such right to sue was only conferred by Article 14 of the Convention and was limited to enforcing the rights conferred by Article 12. Article 14 of the Warsaw Convention provides:

"Article14 The consignor and the consignee can respectively enforce all the rights given them by Articles 12 and 13, each in his own name, whether he is acting in his interest or in the interest of another, provided that he carries out the obligations imposed by the contract."

Articles 12 and 13 in turn provide:

          "Article 12

12. Article 13

In Cordial's case, Trainor J. held that under the scheme of the Warsaw Convention there could be only one possible plaintiff, either the consignor or the consignee. The right of the consignor to sue arose when the carriage by air as defined commenced and ceased when the right of the consignee came into existence. The right to sue would remain in the consignor no matter where the goods were lost or damaged if he had taken the necessary steps under Article 12 to retain it and had complied with the provisions of the Article. This right to sue would exist despite any common law inhibition. However once the rights of the consignees had arisen those of the consignor would cease. As the goods had arrived at the destination and the seller had not exercised any of the rights under Article 12. the right of the consignee had arisen and the consignor could no longer sue under the convention.

13. The decision of Trainor J. in Cordial's case was surprising and had given rise to great inconvenience in cases where the goods were consigned to the banks in pursuance of letters of credit or D/A or D/P arrangements as this would effectively mean that in cases of mis-delivery at the port of destination, the consignee bank who may not have any interest in the goods whatsoever would have to be the party to sue.

14. Three years after Cordial's case, the problem of the locus to sue in the case of air carriage arose again in Manchu Gems Ltd. and JP. Knight Co. -v- Pan American World Airways Inc. [1979] H.K.L.R. 109. In Manchu's case the first plaintiff sold goods to the second plaintiff and the arrangement was that the seller would arrange to ship the goods to Cincinnati by air and the buyer would in due course reimburse the seller for the freight and insurance charges. It would appear that the goods had been fully paid before shipment in Hong Kong. The seller arranged to have a forwarding agent to come to collect the goods and the agent duly sent the same to the Defendant for carriage. However as the defendant did not have any flight to Cincinnati, the defendant merely carried the goods to San Francisco and there handed over the goods to another carrier for onward carriage to Cincinnati. The goods were lost after the same were so handed over to the second carrier. It would appear that the air waybill issued by the defendant named the seller as consignor and. the buyer as consignee. The claim by the buyer (who was the owner of the goods at all material times) failed because as consignee he could only sued the last carrier and the carrier in whose hand the goods were lost under Article 30(3) of the Warsaw Convention. The defendant was not the last carrier nor were the goods lost when the same were being carried by the defendant. This does not necessarily mean that Cons J. had implicitly endorsed the views of Trainor J. In Cordial's case that the right to sue was limited to only the consignor or the consignee by excluding an onwer of the goods who was neither a consignor nor a consignee to sue as the owner had not brought any action against the carrier in whose possession the goods were lost. Cons J. however held that the seller's claim succeeded on the ground that although the seller did not have any property in the goods and had not exercised its rights under Article 12 of the Warsaw Convention, it could sue in common law as being the person who made a special contract of carriage with the defendant under the well known common law principles established in a series of cases like Dunlop -v- Lambert (1839) 6 CI. & F. 600 and The Albazero [1977] A.C. 774. Cons J. found that there was a special contract of carriage made between the seller and the carrier because the carrier was specifically chosen by the seller's forwarding agent and the seller was directly responsible to the carrier for the freight although there was a right of reimbursement of the freight from the buyer.

Was there a special contract of carriage between the Plaintiff and the Defendant?

15. The evidence in this case was that at the beginning of their business relationship M & M had nominated the Defendant to be the "forwarding agent" for carriage of the goods to the Defendant. The evidence did establish that for the first shipment, the contractual arrangement was made by M & M who either itself or through its agent ACS informed the Defendant to collect the goods from the Plaintiff for shipment. However as I have set out earlier in this judgment, since the 4^th shipment on 25^th May, 1993, the Plaintiff had issued to the Defendant shippers' instruction forms in respect of each shipment. For all but the first 2 consignments sued upon in this action (i.e. air waybills nos. ACS-187111 and ACS-187171) the shipper's instruction forms were in the printed forms supplied by the Defendant. The material part of the form contained the following terms:

In relation to the 2 consignments covered by air waybills nos. ACS 187111 and ACS 187171 instead of using the forms supplied by the Defendant, the Plaintiff instructed the Defendant by using a shipper's instruction form of another air carrier or forwarder Trans Am Air Freight (H.K.) Ltd. In this form, the Plaintiff agreed that "the customer (i.e. the Plaintiff) declared that pursuant to Condition 15 of the Conditions of Contract overleaf, if (i.e. the Plaintiff) shall be responsible for all charges and expenses relating to the goods whether or not the charges and expenses are to be prepaid or collected."

16. In his evidence before me, Mr Chong of the Plaintiff told me that all freights were in fact paid by M & M. However there were other charges on the part of the Defendant which were all paid by the Plaintiff. Mr. Cheng of the Defendant also confirmed this in evidence. Further more he told me that it was clearly the understanding of the parties that although all these consignments were on freight collect basis, the Plaintiff would have to pay the full freight in the event that the same was not paid by the persons at the destination. It was patent that neither the Plaintiff nor the Defendant had paid much attention to the detailed wordings of the clauses contained in the shipper's instruction. It is common ground that in pursuance of the shipper's instructions the Defendant went to the Plaintiff's premises to collect the goods for shipment and in due course, the Defendant also issued an air waybill in respect of the carriage. The air waybill was made out in accordance with the terms and directions set out in the shipper's instruction. In these circumstances the question is whether there was any special contract of carriage between the Plaintiff and the Defendant.

17. On the facts before me I am of the view that there was such a contract of carriage between the Plaintiff and the Defendant in respect of each of the 12 consignments the subject matter of this action. Although the Defendant was initially nominated by M & M at the beginning of the business relationship between the Plaintiff and M & M there was no suggestion that in any one of the 12 consignments in this action, It was M & M who instructed the Defendant to collect the goods for shipment. There was not even any suggestion that after the initial instruction to use the Defendant, M & M had ever instructed the Plaintiff to use the Defendant in any of the subsequent sales to it. it would appear to me that as the Defendant was a carrier acceptable to M & M the Plaintiff found it suitable to continue to use the Defendant to effect shipments to M & M. As evidenced by the shipper's instruction forms, it was rather the Plaintiff who took the initiative to contact the Defendant to ask the Defendant to ship the goods. Likewise it was the Plaintiff who decided what goods he would like the Defendant to carry and the person to whom the delivery was to be made and also the place of destination. Of course one would have expected that the Plaintiff would only ask the Defendant to carry so much of the goods as were to be sold by the Plaintiff to M & M. However as between the Plaintiff and the Defendant, the Defendant was in no way concerned with whether the goods it was asked to carry were those required or wanted by M & M. The fact that the Defendant was the carrier which M & M would like or even insist on the Plaintiff to use does not mean that the contract of carriage would necessarily be between the Defendant and M & M. 1 see no objection to some one saying to his vendor that if you want to sell me goods, you have to make a contract with Mr. X for him to carry the goods to me.

18. Of course, it is possible to argue that in dealing with the Defendant, the Plaintiff did so as the agent for M & M. This analysis would receive support from the fact that as between the Plaintiff and M & M, it was M & M who was primarily responsible for the freight and that even as between the Plaintiff and the Defendant, the Defendant would first look to the person collecting goods at the destination to pay the freight. However this does not mean that the Defendant would first look to M & M to pay the freight. In cases such as the present where the goods were in fact consigned to a bank, a consignment on freight collect would mean that the Defendant would expect the back, the person who is entitled to take delivery of the goods to pay the freight. Further more, I am of the view that it was wholly artificial to consider that the Plaintiff was dealing with the Defendant as agent for M & M. Under the arrangement between the Plaintiff and the Defendant the Plaintiff was directly responsible for the payment of a lot of other charges for which M & M was not responsible. It would be wholly artificial to say that in entering into the deal to undertake to forward or deliver the goods to M & M or its bank, the Defendant had in fact entered into 2 contracts, one with the Plaintiff for the collection of the goods from the Plaintiff's premises and another with M & M for the carriage by air of the goods from Hong Kong to Los Angeles for delivery to the order of the Bank of America. To adopt this analysis, one would have to overcome the difficulty of deciding the precise scope of the contract with the Plaintiff. Surely the contract could not be just for the receipt of the goods from the Plaintiff only. It must be the receipt of the goods for delivery to someone somewhere. Inevitably the next questions are who was this someone and where was this somewhere? The only sensible answers were that the delivery was to be made to the Bank of America or its order and the goods were to be delivered at Los Angeles as stated in the shipper's instruction forms. The Plaintiff had given no instruction to the Defendant otherwise than in the shipper's instruction forms. This would in fact mean that the whole contract for carriage by air between the Defendant and M & M would then be wholly subsumed into this collateral contract with the Plaintiff. This is a situation which I found it difficult to accept.

19. I appreciate that in Cordial's case, on the facts before him Trainor J. held that in effect there were 2 contracts, one between the seller and the carrier and the other between the carrier and either the purchaser or the consignee and it was the latter which was the contract of carriage by air. Trainor J. said (at [1976] H.K.L.R. 555 AT 584):

"The instant case is an example of a very ordinary situation when goods were given to a carrier for delivery to a named consignee, the freight to be paid by someone other than the first plaintiff. In this case there do not exist circumstances which would even suggest that the first plaintiff was acting as an agent for the second. plaintiff to make a contract with the defendant. It merely delivered the goods to the carrier stipulated by the second plaintiff and thereby put in train circumstances which gave rise to a contract between the carrier and another, be it Irving Trust Inc., the consignee or the second plaintiff. The first plaintiff was not a party to the contract; there was no privity of contract between it and the defendant. There was a contract, perhaps, between the first plaintiff and the defendant to take the goods from the first plaintiff's factory or warehouse in consideration of which the first plaintiff paid cartage and some "local payment" but that contract was fulfilled when the goods were transported to America. I am aware that the first plaintiff guaranteed the payment of the air charges and advances but that does not make him a party to the contract of carriage; it is a separate and distinct contract."

20. With all respects to Trainor J. if there were to be a separate contract made between the carrier and the seller of the goods at all, I find it surprising that this contract would only be fulfilled when the goods had reached America, the destination of the goods under the air carriage contract. At any rate the present case was distinguishable from the Cordial's case. First this was not a case that goods were merely delivered to a carrier so as to put in train circumstances which gave rise to a contract of carriage between the carrier and the consignee bank or M & M. The Defendant was directed by the shipper's instruction to deliver the goods to the consignee bank at Los Angeles specifically. This is a matter of importance to the Plaintiff. The Plaintiff consigned the goods to the Bank as part of the D/P arrangement in order to make sure that the property in the goods and the right of disposal of the same would not pass to M & M without payment of the price by M & M. The Plaintiff would not have left the goods with the Defendant if someone else was entitled to direct the Defendant to deliver the goods to another person without payment of the price. Having received the goods in pursuance to the terms of the shipper's instruction, the Defendant would have to comply with the direction in the instruction and there was little room for any separate contract of carriage between the Defendant and M & M or the bank. The matter could be tested this way. If there was to be a separate contract of carriage between the Defendant and either M & M or the bank, it must be open to the Defendant and M & M or the bank to agree to change the place of destination or the name of the consignee under this contract of carriage. Thus assuming that after the Plaintiff had delivered the goods to the Defendant in pursuance of the shipper's instruction, the Defendant and M & M or the bank were to agree that the goods should be delivered to someone else. and at some other place, common sense would dictate that this would be a wholly unacceptable proposition.

21. Secondly I do not agree that the undertaking to pay freight on the part of the Plaintiff should only give rise to a separate contract of guarantee. No doubt the word used in the relevant clause in the shipper's instruction was the word "guarantee" which suggested that someone else was the party primarily liable for the freight. I see no conceptual difficulty in having a contract of carriage between A and B whereby in consideration of A agreeing to carry the goods for delivery to C and to ask C for the payment of the freight before the goods are to be released to C. B would agree to pay A the freight in event that C would not pay the freight to take delivery of the goods. On the facts before me, it would appear that the only means for which the Defendant could enforce payment of the freight from M & M or the Bank of America was to refuse to release the goods unless the freight was paid. If there was in fact a separate contract of air carriage between the Defendant and M & M or the Bank of America surely it would have been open to the Defendant to sue either M & M or the Bank of America for the freight whether they want to take delivery of the goods or not. In so far as the Bank of America is concerned, it would be ludicrous to suggest that the Bank of America would be liable for the freight when there was not even a shred of evidence to show that it had given any prior approval to any arrangement that it should be named as the consignee. In so far as M & M is concerned, there was no evidence to suggest that it had ever agreed with the Defendant to pay any freight as there was no contact between the Defendant and M & M whatsoever before the arrival of the goods. If there was any undertaking on the part of M & M to pay the freight, it must be founded on the basis that the Plaintiff as agent for M & M in arranging the shipment of the goods had given an implied undertaking to pay the freight on M & M's behalf. But why should it be necessary to infer such agency relationship between the Plaintiff and M & M when the whole arrangement was perfectly workable and would make commercial sense without such agency relationship? Further more given that the Plaintiff had given an undertaking to pay the freight in the event that the same was not paid by some one at the port of destination to secure the delivery of the goods, if the Plaintiff was not a party to the contract of carriage, the question would be what was the consideration given by the Defendant to support such guarantee? The answer could only be that the consideration was the Defendant's agreeing to enter into a contract of carriage with M & M or the Bank of America and did so upon the issuance of the air waybill. I would consider that this is a wholly artificial analysis of the factual situation. The reality of the situation was that the Defendant did not care who was the consignee named and who was the notifying party and certainly the Defendant would not have thought of the fact that in taking goods from the Plaintiff in pursuance of the shipper's instruction, the Defendant had in fact agreed that it would enter into a contract to carry the goods on the terms of the instruction with someone else.

22. As I have come to the conclusion that on the evidence before me there was a special contract of carriage made between the Plaintiff and the Defendant in respect of each of the 12 consignments, the subject matter of this action, the Plaintiff had a good cause of action against the Defendant at common law. (see Manchu's case [1979] H.K.L.R. 109) whether it had property in the goods at the time of loss or not.

The property in the goods

23. All 12 shipments were made on D/P basis. In respect of each of the shipments the Plaintiff had caused a bill of exchange to be drawn on M & M. M & M did not accept the bill of exchange in respect of any of the shipments. The Bank of America had subsequently returned the sets of documents it received to the Plaintiff. Although in the hearing before me the Plaintiff was only able to produce the originals of 9 sets of documents which were so returned by the Bank of America. I am satisfied that the remaining 3 shipments were handled in the same manner. In this respect I accept the evidence from the Plaintiff that the original of the remaining 3 sets were misplaced and could no be found. In the circumstances of this case, the question is whether any property in the goods would have passed to M & M upon shipment of the same.

24. I am of the view that by sending the air waybill naming the Bank of America as the consignee together with the bill of exchange for the price drawn on the Defendant to the Bank of America, the Plaintiff had reserved the property in the goods. This is a situation which was governed by Section 21(3) of the Sale of Goods Ordinance which provides:

"(3) Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him."

Although Section 21(3) of the Sale of Goods Ordinance speaks of the bill of lading, I am of the view that the same must also apply to cases such as the present when an air waybill naming a bank as the consignee is used.

25. The Defendant however contended that in fact the Plaintiff had extended credit to M & M. If this was so, of course, the property in the goods would have passed to M & M.

26. Mr. Cheng of the Defendant gave evidence before me. He told me in evidence that after the second or the third of the 29 shipments he had a telephone conversation with Mr. Chong of the Plaintiff about releasing the goods to M & M. In his witness statement which he adopted as part of his examination in chief, he said that in or about the end of May, 1993 he received a telephone call from Mr. Chong who told him to release the goods to the buyer without securing consent of the consignee bank. According to his statement, Mr. Chong had further told him that the Plaintiff had agreed to grant M & M credit terms of 90 days in this and future sales. I have also asked him to further elaborate this conversation he had with Mr. Chong. He told me that he could not be sure as to the background of this conversation. He thought that this conversation was probably prompted by the fact that M & M had informed the Plaintiff that it was not going to take delivery of the goods. He said that Mr. Chong told him to release the goods and to change the name of the consignee from the Bank of America to M & M. Thereupon he informed ACS by phone to release the goods to M & M. He told me that he only told ACS to release the goods for that consignment and he had not gone on to say that ACS could do the same in the future. In cross examination, he admitted that he did not know Mr. Chong of the Plaintiff and he had only got this one single telephone conversation with him until the Plaintiff made a claim against the Defendant in 1994. He agreed that normally after such a direction for release of the goods, he would expect the shipper to follow up with a written confirmation letter. However he admitted that he did not have any such written confirmation. He also admitted that apart from the very shipment in or about May 1993 in relation to which Mr. Chong had phoned to tell him to change the name of the consignee to M & M, he did not know at the time that ACS had also released the goods to M & M without the consent or endorsement of the Bank of America for all subsequent shipments. He left it to the people in ACS in Los Angeles to handle the release of the goods.

27. Mr. Chong of the Plaintiff denied that he had ever had any such conversation with Mr. Cheng. He further said that at no time had the Plaintiff ever agreed to give credit to M & M and that all along, the Plaintiff dealt with M & M on D/P basis. He told me that at all material times, the Plaintiff dealt with one Mr. Lee of the Defendant and it was Miss Rita Lam of the Plaintiff who did the liaison work. Miss Lam confirmed what he said.

28. It is also interesting to compare Mr. Cheng's evidence with that of Mr. Kenny Nakagawa, the President of ACS. Mr. Nakagawa told me that the practice adopted by ACS was that when the goods arrived, the documents which accompanied shipment including the consignee's copy of the air waybill would be given by the air line to ACS would then notified both the consignee, Bank of America and also the notified party, M & M of the arrival of the goods. When the first of the 29 shipments arrived, he took instruction from the Bank of America and he was told to contact M & M direct for the release of the goods. He then spoke to one Benny whose full name was Mohammed Ibrahim, the proprietor of M & M. He was told by Benny that the Plaintiff had granted M & M credit. He then sought and obtained verification of what he was told from Mr. Cheng of the Defendant. Accordingly he released the goods to M & M without any consent or authorisation from the Bank of America. He said that the same exercise was repeated in relation to the second shipment. In relation to the 3rd shipment, he said that instead of himself speaking to Mr. Cheng of the Defendant to seek verification that the shipper would agree to release the goods to M & M he asked a staff of his company to do so. The feed back from his staff was that the goods could be so released and there was no need to ask in the future. Accordingly ACS did not ask for any further verification or instruction from the Defendant since and had proceeded to release all subsequent shipments to M & M without any consent, endorsement or authorisation from the Bank of America.

29. The evidence of what the staff of ACS might have told Mr. Nakagawa was obviously inadmissible hearsay. That version of the story was not even supported by Mr. Cheng of the Defendant. Having heard the evidence of Mr. Nakagawa I do not think that Mr. Nakagawa was a credible witness. I am unable to accept his evidence as to what he was told by Mr. Cheng and certainly his evidence as to what his staff was supposed to have been informed by the Defendant was hardly credible. In so far as Mr. Cheng's evidence is concerned, I do not accept his evidence that either Mr. Chong or any one from the Plaintiff had told him that the Plaintiff had agreed to grant credit to M & M in a particular sale and I do not think that Mr. Chong would have told him that the Plaintiff had agreed to grant M & M credit on the future sales as suggested in his witness statement. I see no reason for any one from the Plaintiff to inform the Defendant any credit or financial arrangement between the Plaintiff and its customer M & M. Indeed if after shipment of the goods, the Plaintiff should like M & M to get the goods of that shipment without requiring M & M to make any immediate payment, the natural thing to do was to instruct the Bank of America through the Plaintiff's own bank that they may release the air waybill to M & M without requiring the latter to accept and pay the bill of exchange. I see no reason for the Plaintiff to want to instruct the carrier to release the goods in defiance of the terms of the air waybill. As I have pointed out earlier, the Defendant had also relied on the fact that M & M had been in great delay in the payment of the goods and it was suggested that this could only be explained on the basis that the Plaintiff had agreed to grant credit to M & M. I have already given my view on this suggestion earlier. I do not think the documentation adopted by the parties was consistent with the suggestion that the Plaintiff had agreed to grant credit to M & M.

30. Accordingly I am of the view that the Plaintiff was still the owner of the goods at the time of the delivery of the same by ACS to M & M

The right to sue as owner

31. In Cordial's case Trainor J. held that under the Warsaw Convention only one person could sue the carrier and that person must be either the consignor or the consignee. In the case of the consignor unless he had exercised his right under Article 12 before the right of the consignee under Article 13 had arisen, he could not sue once the right of the consignee under Article 13 had arisen. This would effectively mean that unless the Plaintiff had exercised the right under Article 12 (which the Plaintiff had not), once the goods had arrived at Los Angeles, the Plaintiff had lost the right to sue. The fact that the Plaintiff was the owner of the goods did not entitle him to bring any action against the carrier. In so deciding that the owner of the goods per se had no locus to sue the carrier for loss of cargo in respect of carriage by air governed by the Warsaw Convention, Trainor J. had in fact followed the precedent of a number off decisions of the Courts in the United States and the decision of Bart -v- British West Indian Airways Ltd. [1967] 1 Lloyd's Rep 239, a decision of the Guyana Court of Appeal.

32. The proposition that the owner of the goods could not bring an action against the carrier for loss and damage to his cargo during the course of carriage is a startling proposition. In the case where goods are consigned to a banker under D/P arrangement but are wrongfully released to someone else, usually the consignee banker would have no real interest in the goods. In the present case, the Bank of America would not even have any interest in the goods as security as his customer got the goods without any payment and hence the overwhelming probabilities would be that the Bank of America had not even lent the price against the security of the goods. In this situation, it is understandable that the consignee banker would have little incentive to be involved in any litigation against the carrier. It is also understandable that the Plaintiff could not get the Bank of America to join as a Co-Plaintiff as the Bank of America was basically the banker of M & M.

33. Although I am not bound by the decision of Trainor J. in Cordial's case, that decision is of very persuasive authority and it would be my duty to follow that decision unless there are strong reasons to the contrary. I am not persuaded that this part of the decision is correct. As I have pointed out ealier, the decision gave rise to a most startling proposition and in my view, the decision could only be justified if there are some plain provisions in the Warsaw Convention which expressly exclude the right of any one other than the consignor or the consignee to sue. In 1988, the point was raised in England in Gatewhite Ltd. and another -v- Iberia Lineas Aereas de Espana S.A. [1990] 1 Q.B. 326 where goods were carried by the defendant by air from Las Palmas to London. The consignor was the seller of the goods and the consignee was the customs clearing agents of the buyer to whom the property in the goods had passed. The goods arrived damaged owing to an unaccountable delay. The action was brought against the carrier by both the shipper and also the buyer. In an application for summary judgment by the buyer to which the shipper had taken no part, it was agreed by the parties to the summons to treat the hearing of the summons as the trial of the action. It was not in dispute that the carriage was governed by the amended Warsaw Convention the text of which could be found in the First Annex to Schedule 1 of the Carriage By Air (Overseas Territories) Order 1967. The carrier contended that as the buyer was merely the owner of the goods and was not the consignor or the consignee, the action could not succeed. In his judgment. Gatehouse J. reviewed the provisions in the amended Warsaw Convention including in particular articles 12, 13, 14, 15(3) 18, 19, 20, 23, 24, & 30 and also the long chains of decisions of the Courts in the United States and other jurisdictions such as Manhattan Novelty Corporation -v- Seaboard & Western Airlines Inc. (1957) 5 Avi. Cas. 17,229, Holzer Watch Co. Inc. -v- Weaboard & Western Airlines Inc. (1957) 5 Avi. Cas. 17,854, Pilgrim Apparel Inc. -v- National Fire Insurance Co. (1959) 6 Avi Cas 17,733, Pan American World Airways Inc. -v- S.A. Fire and Accident Insurance Co. Ltd. (1865) 3 S.A. 150 especially the dissenting judgment of Steyn C.J. Bart -v- British West Indian Airways Ltd. [1967] 1 Lloyd's Rep 239, El Al Istael Airlines Ltd. -v- Oram Electrical Industries Ltd. (1974) I.A.T.A. A.C.L.R. No. 468 and also the decision of Trainor J. in Cordial's case. In all these cases, the courts had all come to the view that the only person who could sue the carrier of an air carriage covered by the Warsaw Convention was only the consignor or the consignee. Apart from following the precedent of the previous cases, the reasons given in all these decisions was that such was the result of the combination effects of Articles 12 to 15 of the Convention. It had also been suggested that the result was justified on the policy ground that it was reasonable that the carrier be subject to suit only by those whom it knowingly dealt with viz. the consignor and the consignee and that it was not unreasonable that the identities of consignor and consignee be disclosed in the air waybill and that others be not permitted to sue. Gatehouse J. was not convinced that the articles relied upon have any effect of excluding persons other than the consignor and the consignee to sue. Further there would appear to be no reason why the air carrier should only be made liable to parties with whom it knowingly dealt when the carrier by sea was not so protected. (see [1990] 1 Q.B. at 332F). In the end Gatehouse J. was impressed by views to the contrary expressed in the dissenting judgment of Steyn C.J. in the Pan American World Airway's case and also the decision of Prichard J. in the New Zealand High Court in Tasman Pulp & Paper Co. Ltd. -v- Brambles JB. O'Loghlen Ltd. [1981] 2 N.Z.L.R. 225. Gatehouse J. concluded (at page 334F to 335B):

I am persuaded that the view expressed by Gatehouse J. in Gatewhite Ltd. -v- Iberia Lineas Aereas de Espana S.A. is correct. I do not think that there is anything in either the Warsaw Convention or the amended Warsaw Convention which limits the right to sue to only the consignor or the consignee. Approaching the matter as a matter of principle and public policy, I have no doubt that there is no justification to limit the right to sue only to the consignor or the consignee.

34. I would add that no doubt the articles in the Warsaw Convention have granted certain rights to the consignor and the consignee and have imposed certain obligations on the carrier. The articles do not expressly say that these rights and obligations are exhausive. In my view Manchu's case would indicate that Cons J. did not consider that the right to sue in cases governed by the Warsaw Convention must necessarily be restricted to enforcing those rights expressly granted by the articles of the Convention. Although the views of Trainor J. in Cordial's case on the right to sue being restricted to either the consignor or the consignee had been noted by Cons J. without any comment (see [1979] H.K.L.R. 109 at 111), the very decision in Manchu's case would indicate that Cons J. was prepared to hold that a person was entitled to enforce against a carrier his common law right as being a party to a spcial contract which was not a right granted by the Warsaw Convention at all. If a person could enforce his "non convention" common law right under a special contract against the carrier, I see no reason why a person should not be allowed to enforce his common law rights as the owner of the goods. In my view, in Manchu's case it was a matter of fortuity that the person who made the special contract happened to be also named as the consignor on the air waybill.

35. I would therefore not follow the decision of Trainor J. in Cordial's case and I would hold that the Plaintiff had a good cause of action against the Defendant based on the Plaintiff's ownership of the goods and this would be so even if the Plaintiff was not a party to the contract of carriage.

The agency defence

36. This defence was raised in paragraph 3 of the Amended Defence where the Defendant pleaded that in fact the Defendant was merely the Hong Kong agent of ACS who was the carrier. If this defence was made out, it would mean that even thought the Plaintiff was a party to a special contract of air carriage, he could only sue ACS who was the carrier with whom the Plaintiff had contracted. Likewise any claim in tort or bailment based on the ownership of the goods would also fail as the goods were wrongfully given away by ACS who, on this scenario, would not be the Defendant's agent. In my view this defence fails on the facts. I can see no evidence to show that ACS was the Defendant's principal in relation to any one of the 12 contracts contained in or evidenced by the 12 air waybills in this case. All the evidence would point to the other direction - that ACS was the Defendant's agent in handling the delivery of the goods at the Los Angeles end.

The estoppel defence

37. Again in my view, this defence fails as I am not satisfied that the Plaintiff had made any representation that the goods might be delivered to M & M without the consent, endorsement or authority of the Bank of America, the consignee named in the air waybills. Even if which I do not so find, the Plaintiff had on one occasion in May 1993 informed the Defendant that the goods could be released to M & M without any air waybill or without the consent, endorsement or approval of the named consignee, I do not think that that would justify the delivery of all the 12 consignments of the goods, the subject matter of this action, to M & M in the same manner. After all, each of the air waybills would form the subject matter of a separate contract and under each of the air waybills, there was a fresh and separate undertaking on the part of the Defendant as carrier to deliver only to the consignee (see clause 9 of the air waybill). Even if at some point of time in the past, the Plaintiff had informed the Defendant that delivery could be made to M & M, I could not see how this could affect the terms of the contracts subsequently entered into between the parties. Further I could not see how it could be said that the Plaintiff had agreed to give any credit to M & M would give rise to the defence of estoppel. I could not see how the Defendant or ACS could take advantage of the contractual arrangement between the Plaintiff and M & M. as a justification for the non performance of its own obligations under the contracts of carriage. In any event, my view is that the Plaintiff had not agreed to grant any credit to M & M nor had the Plaintiff ever informed the Defendant that it had granted credit to M & M.

The exemption clause defence

38. As the carriage was governed by the Warsaw Convention, the Defendant would not be entitled to rely on any exemption clause or any limitation of liability clause which gave the Defendant wider protections than what are laid down in the Convention. This is the result of Article 23 of the Convention which provides:

          "Article 23

Any provision tending to relieve the carrier of liability or to fix a lower limit than that which is laid down in this schedule shall be null and void, but the nullity of any such provision does not involve the nullity of the whole contract, which shall remain subject to the provisions of this schedule."

Under the Warsaw Convention, the Plaintiff would have 2 years from the date of arrival of the goods at the destination to bring an action (see Article 29) and the Plaintiff had brought this action within the 2 years period. Any provisions relied upon by the Defendant to provide for a shorter period to bring action would thus be void. In so far as the limitation of liability is concerned, under the Warsaw Convention, the limitation provided would be 250 francs (equivalent to HK$135) per kilogram (see Article 22(2) & Carriage by Air (Overseas Territories) (Hong Kong dollar equivalents) Order 1984) which would appear to be higher than the limitation of $200 per package relied upon by the Defendant. However the Plaintiff contended that the Defendant was not entitled to rely on any limitation of liability at all because of Article 25 of the Convention which says:

          "Article 25

The Plaintiff contended that the loss in this case was caused by the wilfull misconduct of the Defendant or its agent ACS.

39. In Rustenburg Platinum Mines Ltd. And others -v- South African Airways and others [1977]1 Lloyd's Rep 564 at 569 Ackner J. held that "wilful misconduct" went far beyond any negligence, even gross or culpable negligence, and involved a person doing or omitting to do that which was not only negligent but which he knew and appreciated was wrong, and was done or omitted regardless of the consequences, not caring what the result of his carelessness might be. On the facts of the Rustenbury's case, both Ackner J. and the Court of Appeal (see [1979] 1 Lloyd's Rep 19,24) held that the act on the part of the loaders employed by the carrier amounted to wilful misconduct because the loaders had acted in concert with some other persons to steal the goods. In this case, the goods were simply delivered to M & M in blatant disregard of the contractual obligation imposed by the terms of the air waybill by ACS, the agent of the Defendant. I am of the view that such conduct on the part of ACS would amount to wiful misconduct. As I do not accept the evidence that there was any representation from the Plaintiff or from the Defendant to ACS that all shipments might be delivered to M & M without the consent, endorsement or authorisation of the consignee bank, what ACS did would simply amount to acting in concert with M & M to give away the goods to M & M. Whether ACS had received any assurances from M & M that it was entitled to delivery of the goods without payment as the Plaintiff had agreed to grant it credit was immaterial. I do not consider that any reasonable person in the position of ACS could simply act on such representation of the person who wanted to take delivery of the goods.

40. Accordingly I am of the view that the Defendant was not entitled to rely on any exemption or limitation of liability under the Warsaw Convention. To this extent and for this reason, any exemption or limitation clause in the shipper's instruction would be rendered null and void by Article 23 and could not be relied on.

The U.S. proceedings defence

41. The Plaintiff admitted that it had brought proceedings in the United States against ACS, M & M and a number of other persons including the Defendant for the recovery of the value of the 12 shipments. I was told that the cause of action there was conspiracy. The action against the Defendant was withdrawn. However there was as yet no trial of the action in the United States and the Plaintiff had not obtained any judgment not to say satisfaction of any judgment against any one yet. In these circumstances I do not think the mere existence of the U.S. proceedings on a related cause of action would be a defence to the Plaintiff's claim in this case.

Quantum

42. The Plaintiff claimed the total invoice value of the goods for the 12 consignments. In the ordinary case I would consider that would be the appropriate measure of the damages. However in the present case, it is clear that each of the invoice was inflated by a sum representing US$0.2 per piece of the watches shipped. This added amount was for the purpose of repayment by M & M of an old debt due to Continental Watch Company which was owned by the brother of Mr. Chong of the Plaintiff. In these circumstances I do not think the Plaintiff is entitled to claim this extra sum of money. After deducting the element of old debts from the 12 invoices, the amount of the claim is reduced to US$177,293.45.

Conclusion

43. The Plaintiff is entitled to judgment in the sum of US$177,293.45. In exercise of my discretion I will hold that the Plaintiff should be entitled to be paid interest. Interest will normally be awarded at the rate of certain percentage above the prime rate. However as the claim was in U.S. dollars and unlike the situation in Hong Kong different banks in the United States may have different prime rates, to avoid any uncertainty I will direct that the Plaintiff is entitled to interest at the rate of 8% from the date of the writ.