KERRY FOODSTUFFS CO. LTD. v. PHULSAWAT NAVAL CO. LTD. AND OTHERS

HCCL 1/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO. 1 OF 1992

__________

___________________________________

REASONS FOR JUDGMENT

___________________________________

Introduction

1. The Plaintiff brings this action against the 3 Defendants for payment of US$969,000, representing the price of 3,000 metric tons of Thai sugar ("the subject goods"). In order to facilitate the comprehension of this Judgment, the parties herein will be referred to respectively as:-

(a) the Plaintiff, "Kerry";

(b) D1, "the Shipowner";

(c) D2 (same as the 1st Third Party), "Arumugam";

(d) D3 (same as the 2nd Third Party), "Super Bulk".

2. In brief, Kerry's claim against the Shipowner is for damages for:-

(1) breach of the charterparty;

(2) conversion;

(3) negligence.

3. Kerry's claim against Arumugam (as the recipient of the subject goods) is for damages for conversion. Alternatively, Kerry claims that Arumugam is liable for the price of the subject goods.

4. Kerry's claim against Super Bulk (as Arumugam's cargo handling agent) is for damages for conversion.

5. The Shipowner's claim against Arumugam and Super Bulk is in essence for an indemnity (should it be held liable for Kerry's claim). By an order of Mayo, J (as he then was) made on 4 March 1993 (the order was however not drawn up), the Third Party claim was to be tried at the trial of this action.

6. Arumugam and Super Bulk failed to turn up at the trial despite having been notified of the trial dates (through their former solicitors). I consider it appropriate to exercise my discretion to allow the trial to proceed in their absence: R.H.C. Ord. 35 r. 1(2).

7. At the end of the trial on 12 September 2000,

(a) judgment was entered in Kerry's favour against the Shipowner, Arumugam and Super Bulk in the sum of US$969,000 (with interest thereon as agreed between Kerry and the Shipowner);

(b) the Shipowner's counterclaim is dismissed;

(c) judgment was entered in the Shipowner's favour against Arumugam and Super Bulk in the same terms as (a) above;

(d) costs of this action are to be paid by the Shipowner, Arumugam and Super Bulk to Kerry to be taxed if not agreed;

(e) Arumugam and Super Bulk are to indemnify the Shipowner's costs of defending Kerry's claim herein;

(f) costs of the Third Party Proceedings are to be paid by Arumugam and Super Bulk to the Shipowner to be taxed if not agreed.

The reasons for the above decision are as follows.

Summary of Facts

8. The facts related to this action are largely undisputed by the time of trial and are as follows:-

(a) by a contract dated 2 May 1991, a total quantity of 5,000 metric tons of Thai sugar was sold by a Thai company (Thailand Sugar Corporation Ltd. ("Thailand Sugar")) to Kerry;

(b) the Shipowner was also a Thai company and the owner of a vessel "Bangkhuntien" ("the Vessel");

(c) the said 5,000 metric tons of sugar was loaded onto the Vessel on 15 June 1991 at Bangkok;

(d) on 26 June 1991, the Vessel arrived at Colombo, Sri Lanka and commenced discharge of the Thai sugar which was completed by 1 July 1991;

(e) from 28 June 1991, Super Bulk started to release 3,000 metric tons of the Thai sugar (that is, the subject goods) to Arumugam based on stamped invoices. Arumugam was able to obtain delivery of the subject goods without the production of a bill of lading.

The other 2,000 metric tons of the Thai Sugar were sub-sold by Kerry to a Jones Overseas Limited in Sri Lanka ("Jones"). That sub-sale was duly completed and does not form part of this action.

9. Arumugam opened a letter of credit in Kerry's favour covering the subject goods. The letter of credit was issued on 30 May 1991 by the Bank of Credit and Commerce International ("BCCI"), Colombo office and payable through a Security Pacific International Bank ("SecPac") in New York. As is now widely known (and undisputed by the parties herein), BCCI ceased to operate in 1991. The documentary evidence herein shows that funds were unavailable to meet the BCCI letter of credit because (among other possible reasons) the SecPac account was frozen by the U.S. Government.

Issues

(1) Issues Between Kerry and the Shipowner

10. As the lines of defence raised in the Shipowner's pleading are different from those raised by Mr Smith for the Shipowner at the time of trial, I will set out the respective lines of defence below under separate headings. Further, the Shipowner no longer disputes the quantum of damages nor does it dispute the causation of damages.

11. Although the issues raised are set out below, it does not mean that they necessarily have to be proved by the Shipowner. In fact, it should be assumed that I consider the burden of proof to rest on Kerry unless it is expressly stated otherwise in the Reasons for Judgment.

(1)(a) Issues Raised in the Pleadings

12. The lines of defence raised in the Shipowner's Further Re-Amended Defence dated 7 July 1999 include the following:-

(a) it is denied that Kerry had purchased the documents under the BCCI letter of credit or made payment to Thailand Sugar. Hence, property in the 5,000 metric tons of Thai sugar either belonged to a Union Bank of Bangkok in London (which purchased the relevant documents from Thailand Sugar) or to some party other than Kerry ("the no title defence"): para. 10 thereof, especially para. 10(b)(i), (iii) and (iv);

(b) Kerry was not named in the bills of lading relating to the subject goods. Instead, Thailand Sugar was named as the Shipper, Arumugam was named as the Notified Party and the Consignee was "to the order of BCCI". In the absence of an endorsement in Kerry's favour, Kerry has no right to sue the Shipowner and it has no right to the immediate possession of the subject goods ("the no right to sue defence"): para. 9 thereof, especially para. 9(a) and (b);

(c) property in the subject goods passed to BCCI upon (1) shipment of the subject goods or (2) Thailand Sugar presenting the bills of lading with other documents for negotiation and payment by the negotiating bank ("the passing of property to BCCI defence"): para. 9 thereof, especially para. 9(c);

(d) on about 25 or 27 June 1991, Kerry negotiated the documents (including the bills of lading) under the BCCI letter of credit with the ANZ Bank ("ANZ") and ANZ purchased the said documents by making payment for the same to Kerry on about 27 June 1991 ("the payment by ANZ defence"): para. 12 thereof, especially para. 12(b)(i);

(e) by virtue of Sri Lankan law, property in the subject goods has passed to Arumugam under the sale contract between Kerry and Arumugam ("the Sri Lankan law defence"): para. 13 thereof;

(f) property in the subject goods passed to Arumugam on about 28 June 1991 upon Arumugam paying for the same when the Arumugam's account with BCCI was debited in the full value of the BCCI letter of credit on that day ("the payment by Arumugam defence"): para. 13 thereof;

(g) property in the subject goods passed to Arumugam by virtue of a course of dealing between Kerry and Arumugam (since 1986) whereby property in sugar purchased from Kerry would pass to Arumugam upon the said debiting of Arumugam's account with BCCI ("the course of dealing defence"): para. 13A thereof;

(h) the alleged acts of conversion are not actionable under Sri Lankan law and hence not actionable under Hong Kong law ("the conflict of laws defence"): para. 20 thereof;

(i) it is illegal under Sri Lankan law for the Shipowner to give possession of the subject goods to Kerry as Kerry did not have the appropriate Sri Lankan import licence ("the illegality defence"): para. 21 thereof;

(j) the duty of care in negligence was not a duty known to Sri Lankan law and hence not actionable under Hong Kong law ("the conflict of laws defence"): para. 22 thereof;

(k) the loss and damage claimed did not flow directly from the acts of the Shipowner ("the no causation defence"): para. 23 thereof.

13. Of these lines of defence, the following are no longer pursued at trial:-

(1) "the no title defence" (para. (a) above);

(2) "the payment by ANZ defence" (para. (d) above);

(3) "the Sri Lankan law defence" (para. (e) above);

(4) "the payment by Arumugam defence" (para. (f) above);

(5) "the conflict of laws defence" (para. (h) and (j) above);

(6) "the illegality defence" (para. (i) above);

(7) "the no causation defence" (para. (k) above).

Although no express indication was made, it also appears that the Shipowner no longer disputes that Kerry and Arumugam were respectively the seller and buyer of the subject goods.

14. The above conclusion was based on the arguments raised in the document headed "1st Defendant's Case" handed in by the Shipowner at the close of Kerry's case.

15. It is unclear whether "the passing of property to BCCI defence" (see (c) above) is still relied upon. It may well be that this line of defence is raised as part of "the no right to sue defence" (see (b) above). I shall assume that it is still relied upon and will deal with it further under the heading "(1)(d) Whether Kerry Has the Locus Standi in Tort".

16. Not only was "the no title defence" not raised by the Shipowner, Mr Smith informed me that when I consider the issues raised at the time of trial, I could assume that property in the subject goods had passed from Thailand Sugar to Kerry. In any event, I consider the evidence adduced at trial justifies such a conclusion to be made.

(1)(b) Issues Raised at Trial

17. After Kerry closed its case, Mr Smith handed in a "1st Defendant's Case". He also confirms to me that this document serves both as the Shipowner's opening speech as well as its closing speech (no evidence was called by the Shipowner). The lines of defence relied upon therein include the following:-

(a) Kerry and Arumugam intended property in the subject goods to pass to Arumugam upon shipment ("the property passed with shipment defence");

(b) alternatively, they intended property in the subject goods to pass to Arumugam when Kerry "negotiated" (or "collected") under the terms of the BCCI letter of credit when Kerry asked ANZ to present the relevant documents to BCCI/SecPac and to claim reimbursement on 1 July 1991 ("the property passed with presentation of documents defence");

(c) by reason of the matters set out in (b) above, it is immaterial whether ANZ's presentation of the relevant documents and claim for reimbursement be called a "negotiation" of (or "collection" under) the BCCI letter of credit. However, as a fact, ANZ negotiated the BCCI letter of credit by giving value in that ANZ incurred an obligation to transmit the documents to BCCI. This obligation arose out of ANZ's certification that the documents were in order and complied with the terms of the BCCI letter of credit.

18. Alternatively, if the Court should find that property has not passed to Arumugam and still vests with Kerry, the Shipowner argues that Kerry has failed to establish its claim herein. First, Kerry has not established a valid claim based on any contract entered into with the Shipowner. Secondly, Kerry does not have the necessary locus standi to make out a claim based on tort.

19. These lines of defence will be dealt with under separate sub-headings below. As stated above (under the sub-heading "(1)(a) Issues Raised in the Pleadings"), the Shipowner no longer relies on the "no title defence" and agrees that I can assume that property in the subject goods had passed from Thailand Sugar to Kerry. In any event, I already stated that I consider the evidence justifies such a finding to be made. The burden therefore lies with the Shipowner to establish that property in the subject goods passed from Kerry to some other party, or no longer rests with it.

(1)(b)(i) The Property Passed with Shipment Defence

20. Not only is there no proper evidential basis to support such a defence, the evidence adduced at trial militates against it. The contract between Kerry and Arumugam was a c & f contract. The usual inference from such a contract is that property in the goods is not intended to pass until payment has been made: see, for example, Smyth v. Bailey [1940] 3 All E.R. 60, 65-8; The Kronprinsessan Margareta [1921] 1 A.C. 486, 515, 517; The Glenroy [1945] A.C. 124, 134-5; The Future Express [1993] 2 Ll. Rep. 542, 547; Leigh and Sillavan v. Aliakmon [1986] 1 A.C. 785, 808. I do not find that there is evidential basis to justify departing from this inference.

21. Further, the subject goods was part of the bulk of the sugar loaded onto the Vessel before it departed Bangkok. S. 18 of the Sale of Goods Ordinance, Cap. 26 provides:-

"Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained" (emphasis supplied).

S. 20 of Cap. 26 further provides:-

"Rule 5. (1) Where there is a contract for the sale of unascertained ...goods by description, and goods of that description, and in a deliverable state, are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made" (emphasis supplied).

Thus, I agree with Kerry's argument that property in the subject goods, being part of the bulk at the time of shipment, did not pass to Arumugam unless and until they had become ascertained by being separated from the bulk: see also Benjamin's Sale of Goods (1997) 5th Ed., para. 5-060, The Elafi [1981] 2 Ll. Rep. 679, 681-2. As the subject goods have not been separated from the bulk at the time of shipment, property therein did not pass to Arumugam.

22. Mr Smith has raised a number of matters regarding this defence. They will be dealt with under the sub-heading "(1)(b)(ii) The Property Passed with Presentation of Documents Defence". For the reasons given therein, I do not find that these matters show that Kerry and Arumugam intended property in the subject goods to pass at the time of shipment.

(1)(b)(ii) The Property Passed with Presentation of Documents Defence

23. It is common ground that when property in the subject goods should pass from Kerry to Arumugam is a matter of intention which is to be inferred from the relevant circumstances.

24. The Shipowner contends that Kerry and Arumugam intended property to pass on 1 July 1991 when ANZ (on behalf of Kerry) presented the relevant documents to and claimed reimbursement from BCCI pursuant to the terms of the BCCI letter of credit. The circumstances relied on by the Shipowner in support of this contention are:-

(1) payment was to be by letter of credit and the voyage was short and hence the bills of lading might not reach Arumugam before the discharge of the subject goods;

(2) Kerry and Arumugam both wished to have a speedy and efficient loading and discharge of the subject goods;

(3) such an intention is consistent with Kerry's correspondence relating to 2 previous transactions, one in about June 1989 and another in May 1990 involving a vessel "Hang Wan";

(4) the bills of lading were made out to the order of BCCI and hence there was not even a prima facie case of Kerry reserving its right of disposal of the subject goods;

(5) where, as in this case, an irrevocable letter of credit has been established, the Court will readily infer that property is to pass when the seller is equipped to operate the letter of credit or when it presents the relevant documents to the issuing bank. The establishment of a letter of credit is an indication that the seller did not intend to reserve its right of disposal of the goods.

25. I shall deal with these circumstances under separate sub-headings below but this does not mean that they have not been considered collectively (and cumulatively). This is only to facilitate setting out the reasons for my findings. I have considered them collectively (and cumulatively) when I find that this defence should be rejected.

Short Voyage

26. The Shipowner relies on The Filiatra Legacy [1991] 2 Ll. Rep. 337 in support of this point. The facts of that case were as follows. The bill of lading was made out to the order of the seller. This gave rise to the presumption under s. 18 rule 5(2) of the Sale of Goods Act 1979 (same as our s. 21(2), Cap. 26) that the seller had reserved its right of disposal of the goods. Because of the short duration of the voyage and the parties' contemplation that the cargo would be discharged before the arrival of the bill of lading, the court held that the said presumption was rebutted on the facts of that case. Mr Smith submits the Court of Appeal in that case distinguished The Glenroy (entirely) on the ground that The Glenroy was not concerned with a short voyage.

27. In the present case, the sugar was loaded onto the Vessel on 15 June 1991 and it arrived at Colombo on 26 June. Discharge commenced on 28 June and was completed by 1 July (the date on which ANZ informed BCCI that the documents complied with the letter of credit and claimed reimbursement). The Shipowner contends the parties could not have intended the subject goods should remain on the Vessel pending the availability of the bills of lading. On the contrary, they intended to have speedy discharge of the goods. Further,

(a) Kerry's witness agreed that any demurrage and despatch was to be shared by the parties;

(b) Kerry's contemporaneous documents show that Kerry wanted the cargo to be speedily loaded, carried and discharged;

(c) Kerry's witness agreed that Kerry understood that the cargo might be discharged and delivered to the buyer before the arrival of the bill of lading.

28. 2 terms in the contract in The Filiatra Legacy were important. One term provided that the seller was to instruct the shipowner/master to deliver the cargo without presentation of the bill of lading and the other provided that payment was to be by telegraphic transfer within 30 days from bill of lading date. The Court of Appeal concluded from these terms that it was the parties' contemplation that property was to pass before payment: see especially p. 343 of The Filiatra Legacy.

29. As will be further discussed, the bills of lading were held by Kerry at all times. The terms of the contract in this case were different from those in The Filiatra Legacy. The voyage in that case lasted 5 days whereas that in this case lasted about 12 days. Lastly, there was direct evidence from the testimony of Kerry's witnesses that Kerry would only pass title to Arumugam upon receipt of payment under the letter of credit. I therefore consider The Filiatra Legacy to be distinguishable and Davy v. Emerald Field Contracting [1992] 2 Ll. Rep. 142 can be distinguished for the same reason.

30. I do not find the sharing of demurrage and despatch should affect my decision. The question relating to speedy delivery and the bills of lading will be dealt with below. In short, I also do not find they should affect my decision either.

31. For the above reasons, I do not agree with the Shipowner's argument relating to this matter.

Speedy Discharge of Goods

32. In commerce, maximum efficiency is almost invariably a major consideration in every transaction. There is no evidence in this action that Kerry desired to achieve efficiency such that it intended property should pass to Arumugam before Kerry received payment from Arumugam (or the issuing bank). In fact, the testimony of the witnesses is to the contrary. For these reasons, I do not find that there is substance in the Shipowner's argument regarding this matter.

Previous Transactions

33. In support of its argument, the Shipowner relies on a telex relating to one of Kerry's earlier sales to Arumugam. It was a telex dated 30 June 1989 (from Kerry to Arumugam):-

"Since we are going to negotiate the L/C, we shall no longer be the B/L holders, and we shall no longer have the title of goods".

The other document relied upon is a telex from Kerry dated 23 May 1990 suggesting Arumugam to request the Bangkok Bank in London (Kerry's banker) to send the original bill of lading to Arumugam to take delivery of the cargo. This telex stated (among other things):-

"I think there was discussion regarding B/L. They wanted documents to arrive asap but Kerry could not comply without receipt of payment ...".

34. The Shipowner argues that these documents show that Kerry knew that the relevant documents would be presented to the issuing bank for payment but actual payment would not be made yet. I rather agree with Kerry's argument that the 1989 document shows that Kerry regarded the bills of lading as documents of title. Further, both documents show that Kerry regarded the bills of lading to be crucial to its interest in securing payment. The 1990 document clearly shows that Kerry was not agreeable to parting with these documents before obtaining payment.

35. In these circumstances, I do not consider that the argument regarding this matter to be valid.

Bills of Lading

36. If the bill of lading is made out to the order of the seller, there is a presumption that the seller reserves the right of disposal of the goods: see, for example, The Filiatra Legacy, p. 342 citing The Glenroy, p. 135 and Mitsui & Co. Ltd. v. Flota Mercante [1988] 2 Ll. Rep. 208, 214. In this action, the bills of lading were made out to the order of BCCI, the issuing bank. The Shipowner argues that this presumption therefore does not arise and shows further that Kerry did not intend to reserve the right of disposal.

37. One does not need to go further than the decisions in The Glenroy, pp. 127 and 135 and Kronprinsessan Margareta, pp. 510 -2 and 514-7 to conclude that merely because the bill of lading was made out to the order of the buyer's bank does not indicate an intention to pass property in the goods to the buyer. The retention of the bills of lading has been considered as an indication that the holder intends to retain title and control over the goods: Smith v. Bailey, p. 66-8. As will be dealt with below, I find as a fact that Kerry held onto the bills of lading (through ANZ) at all times until now.

38. Further, in this action:-

(a) there were contemporaneous documents showing that the parties were aware Kerry would not part with the documents (including the bills of lading) until it receives payment: see, for example, those referred to in para. 6 and 7 of the Plaintiff's submissions in reply;

(b) there is direct testimony evidence from Kerry's witness to the same effect.

39. For the above reasons, I reject the Shipowner's argument regarding this matter.

Payment by Letter of Credit

40. The Shipowner submitted inter alia in "The 1st Defendant's Case" that:-

"Where an irrevocable L/C has been established the court will readily infer, in the absence of contrary indications, that property is to pass when the seller is equipped to operate the L/C or when the seller presents documents to the bank":

see para. 10 thereof.

41. The Shipowner relies on Benjamin, para. 18-165 which states:-

"A further situation in which it is arguable that the seller does not intend to retain his right of disposal (and hence the property in the goods) is that in which the contract provides for payment by documentary credit. A number of dicta support the view that, in such cases, the seller relies on the bank's promise, rather than on his right of property in the goods, as security for payment of the price ... The difficult case is that in which the bank has accepted the documents against a time draft. In such a case property may pass on the bank's acceptance of the draft ... A seller who parts with documents against such a draft can be regarded as giving credit and so displacing the prima facie rule that property passes only on payment ... ".

42. Benjamin said in the same paragraph:-

"The only conclusion which can, in the present state of the authorities, be drawn from these conflicting dicta, is that the issue of a letter of credit is relevant, but not decisive, to the seller's intention to transfer property. Where it is so relevant, the question exactly when property passes is, further more, an open one ... ".

In view of this observation, I do not find that the Shipowner's argument correctly reflects the state of the law.

43. Further, by reason of:-

(a) Kerry's retention of the bills of lading;

(b) the contemporaneous documents between the parties regarding Kerry's intention as to when property should pass;

(c) the testimony of Kerry's witnesses regarding Kerry's said intention,

(see the related paragraphs under the previous sub-heading) I find that Kerry did not intend property to pass before payment has been received despite the opening of an irrevocable letter of credit by Arumugam/BCCI.

(1)(b)(iii) The Course of Dealing Defence

44. The documentary evidence adduced at trial falls far short of establishing such a defence. Arumugam has filed a witness statement from Mr Ramasamy Verrabagu. This defence (among others) was set out in his witness statement. However, neither Mr Ramasamy nor anyone from Arumugam/Super Bulk appeared at the trial to contest the Plaintiff's claim or to adduce evidence relating to their pleaded case. No reason has been given as to why they failed to do so. In these circumstances, I consider it appropriate to attach no weight to Mr Ramasamy's witness statement.

45. For the above reason, there is no satisfactory evidence to support this line of defence and it is rejected.

(1)(c) Whether Kerry can Establish a Claim Based on Contract

46. As stated above, I find that property in the subject goods remained with Kerry after 1 July 1991. The Shipowner argues that Kerry's claim based on breach of the charterparty fails nevertheless.

47. Mr Smith submits that there were only 2 contracts which Kerry could possibly rely on: a contract by way of the bills of lading and another by way of the charterparty. As Kerry was not the consignee or endorsee of the bills of lading, it therefore cannot sue on this contract.

48. Kerry's pleaded case is premised on a breach of the charterparty: see para. 16A of the Further Re-Amended Statement of Claim. Clauses 5, 9 and 16 of the charterparty are relied on by Kerry:-

"5. ... [the Vessel] shall with all convenient speed sail and proceed to ... BANGKOK and there load ... [5,000 MT] ... which [the Shipowner] bind themselves to ship ...

9. ... and there deliver the same ...as ordered

16. ... Clean Mate's receipts to be signed for each parcel of sugar ... and Master to sign bills of lading in accordance therewith as requested by Charterer or Shippers ... ".

49. The Shipowner submits that none of the terms relied upon gives rise to a valid claim in contract:-

(a) Clause 16 was intended to bring into being a contractual relationship between the shipowner and persons who ship goods on the vessel (consignors or shippers) and not to create an obligation on the shipowner to deliver goods only on production of the bills of lading;

(b) Clauses 5 and 9 were only intended to define the charterparty.

The duty of the Shipowner (so it argues) to deliver on production of the bills of lading is "an incident of the contract of carriage contained in the bills of lading" rather than the charterparty. Hence, since the bills of lading in this action were made to the order of BCCI, the proper person to sue would be BCCI and not Kerry.

50. It is true that there was no express term in the charterparty as to whether the Shipowner could only deliver the subject goods to the person named in, or the holder of, the bills of lading. However, Kerry was named (by its former name) as the Charterer. The relationship between Kerry and the Shipowner was thus in essence one of bailor and bailee: Chitty on Contracts (1999) 28th Ed., para. 36-001, esp. text to nn. 1 and 2. It is a term implied by law that a bailee is under a duty to deliver the goods to the bailor or to his order: Chitty, para. 33-010, esp. text to n. 49. Without the need to go into authorities, a similar duty is implied in a contract for carriage of goods. Thus, if the carrier delivers the goods to the wrong person, he is liable for breach of contract and for conversion: Chitty, para. 36-046, esp. text to n.66.

51. Further to the above, I agree with Kerry's arguments set out in para. 33 to 37 of the "Plaintiff's submissions in reply". In particular, I agree with the argument that BCCI does not have the right to sue the Shipowner in contract, not having paid for the subject goods nor being the holder of the bills of lading.

52. For the above reasons, I find that Kerry has established its case against the Shipowner in contract.

(1)(d) Whether Kerry Has the Locus Standi in Tort

53. The Shipowner argues that in order for Kerry to be able to sue in conversion, it must have possession, or the right to immediate possession, of the subject goods: Clerk & Lindsell on Torts (1995) 17th Ed., para. 13-51 to 13-57; The Gemini [1999] 2 Ll. L.R. 255, 256, 262.

54. I have already found that:-

(a) the relationship between Kerry and the Shipowner was in substance a bailment whereby Kerry was the bailor and the Shipowner the bailee. To uphold this line of defence will in effect be to allow the Shipowner to put forward a defence of jus tertii: see Chitty, para. 33-013, esp. text to n. 74. There is an estoppel in law prohibiting the bailee from doing so;

(b) neither Arumugam nor BCCI has title or right to possession of the subject goods.

55. Further, I also agree with the matters set out in para. 38 of the "Plaintiff's submissions in reply".

56. For the above reasons, I do not find there is any substance in "the no right to sue defence" or "the passing of property to BCCI defence". I also find that Kerry has established its claim against the Shipowner in negligence for failing to ensure that the subject goods were properly delivered.

(1)(e) Whether the Letter of Credit was Negotiated

57. In view of:-

(a) the nature of the arguments raised by the Shipowner set out above (in particular, "the payment by ANZ defence" has been abandoned and only "the property passed with presentation of documents defence" is relied upon);

(b) the conclusions reached in relation to those arguments,

it is strictly irrelevant (and therefore unnecessary to consider) whether the BCCI letter of credit was negotiated by Kerry with ANZ. Originally, the significance of the negotiation of the BCCI letter of credit was said (in the defence pleadings) to show that:-

(1) Kerry has thereby been paid by ANZ;

(2) hence, property has passed (upon payment) to ANZ, BCCI or Arumugam

(that is, "the payment by ANZ defence"). However, payment by ANZ to Kerry has not been proved (in fact, the contrary has been established). The Shipowner accepts that whether there was a negotiation of the BCCI letter of credit is irrelevant: see para. 13 of the "1st Defendant's Case". I shall nevertheless deal with this issue for completeness.

58. The Shipowner's argument over this point is as follows:-

(a) the BCCI letter of credit contained a clause regarding the negotiating bank:-

"[BCCI] hereby give our undertaking to the drawers endorsers and bona-fide holders of all drafts drawn under and in compliance with this credit that such drafts will be duly honoured upon presentation";

(b) the above clause amounted to BCCI's assurance of payment both to Kerry as the drawer of the draft and to the negotiating bank which claims reimbursement in accordance with that clause;

(c) on 25 June 1991, Kerry signed a form requesting ANZ to "negotiate" the BCCI letter of credit;

(d) on 1 July 1991, ANZ sent telexes to SecPac and BCCI respectively in essence (1) informing them ANZ had "negotiated" the letter of credit, (2) certifying the documents were in order and strictly in terms of the credit and (3) claiming for "reimbursement";

(e) in these circumstances, BCCI was under a duty to ensure payment to ANZ;

(f) further, ANZ promised and thus was obliged to transmit the documents to BCCI. ANZ has therefore "purchased" the documents and/or given value for them.

59. In short, I conclude that there is insufficient evidence to support the Shipowner's argument set out in sub-para. (f) above. There is thus no need to consider its validity. If it had been necessary to do so, I would have found that it is invalid. Without actual payment being made by ANZ in Kerry's favour (as in the normal case of a "classical" negotiation situation), ANZ's telexes were nothing more than "offers" to SecPac and/or BCCI. Neither ANZ, SecPac nor BCCI would have intended "negotiation" to involve the situation described in the Shipowner's argument set out above: see the testimony of Professor Ellinger on the true meaning of "negotiation" of a letter of credit in the banking industry, namely, payment by the negotiating bank to purchase the documents from the beneficiary.

60. In any event, even if ANZ had "purchased" and/or given value for the documents in the way contended for by the Shipowner, I do not find that Kerry and Arumugam intended property in the subject goods to pass upon that event.

(2) Issues Between Kerry and Arumugam/Super Bulk

61. The lines of defence relied upon by Arumugam are similar to the ones relied upon by the Shipowner (set out above). They include:-

(a) "the payment by Arumugam defence": para. 7(ii) and (iii) of Arumugam's Amended Defence;

(b) "the no title defence", "the no right to sue defence", "the passing of property to BCCI defence", "the payment by ANZ defence" and "the Sri Lankan law defence": para. 8(ii) thereof;

(c) "the course of dealing defence": para. 9 thereof;

(d) Kerry failed to mitigate its damages by failing to lodge a proof of debt in the liquidation of BCCI ("the failure to mitigate defence"): para. 18 thereof.

62. As stated below, I find as a fact that Kerry has lodged a proof of debt in BCCI's liquidation but no payment was obtained.

63. By reason of the matters set out above, I also find that Arumugam has no defence to the Kerry's claim. By reason of the finding of facts set out below, I find that Super Bulk is liable to Kerry in conversion.

Findings

64. The Shipowner has not disputed the credibility and reliability of Kerry's witnesses. In any event, I find their testimony to be truthful and reliable. I do not consider there are any real inconsistencies between their testimony given in evidence-in-chief and in cross-examination but insofar as there are any inconsistencies, I prefer their testimony given in evidence-in-chief.

65. Various findings of fact have been set out in the preceding paragraphs. In order to avoid any doubt, I will set out the findings of fact which I made (in addition to those already set out above) including the following:-

(1) Kerry was the purchaser of 5,000 metric tons of Thai sugar (of which the subject goods formed part) from Thailand Sugar in May 1991;

(2) by a charterparty dated 22 May 1991 between Kerry as the charterer and the Shipowner as the owner of the Vessel, the Shipowner agreed to load the said Thai sugar and deliver the same at Colombo, Sri Lanka;

(3) it was an implied term that the Shipowner was to deliver the Thai sugar to its true owner, alternatively, to Kerry or to its order;

(4) the said Thai sugar was loaded onto the Vessel on 15 June 1991 at Bangkok;

(5) on 24 June 1991, Thailand sugar received payment for the Thai sugar;

(6) on 26 June 1991, the Vessel arrived at Colombo and commenced discharge of the Thai sugar on 28 June 1991 which was completed by 1 July 1991;

(7) on 28 June 1991, Kerry made payment of US$1,176,750 against Thailand Sugar's draft drawn under Kerry's letter of credit;

(8) by reason of (5) and (7) above, property in the Thai sugar passed to Kerry on about 24 June 1991 (and latest by 28 June 1991);

(9) by a contract made between Kerry and Arumugam in about May 1991, Kerry agreed to sell the subject goods to Arumugam at US$969,000;

(10) US$969,000 was the fair market price of the subject goods;

(11) payment by Arumugam to Kerry was to be by way of the BCCI letter of credit;

(12) the bills of lading were retained by Kerry pending payment by Arumugam and/or BCCI;

(13) it was Kerry's intention to reserve the right of disposal of the subject goods until actual payment is received;

(14) it was the intention of Kerry and Arumugam that property in the subject goods was only to pass to Arumugam upon actual payment to Kerry;

(15) Kerry instructed ANZ to act as its collecting agent under the BCCI letter of credit and ANZ made the collection claim to BCCI and/or SecPac on 1 July 1991;

(16) Kerry did not receive any payment from Arumugam or BCCI regarding the subject goods;

(17) the subject goods were wrongfully delivered by the Shipowner to Arumugam from about 28 June 1991 to about 1 July 1991 without the production of the bills of lading;

(18) Super Bulk effected, alternatively assisted in or facilitated, the said mis-delivery of the subject goods;

(19) by reason of the said mis-delivery, the Shipowner was: (1) in breach of the charterparty, (2) liable in conversion and (3) liable in negligence;

(20) by reason of the said mis-delivery, Arumugam was liable: (1) for the price of the subject goods and (2) liable in conversion;

(21) by reason of the said mis-delivery, Super Bulk was liable in conversion;

(22) US$969,000 was the reasonable amount of loss suffered by Kerry;

(23) this amount of loss was caused by the said act of conversion (and negligence on the Shipowner's part);

(24) Kerry has mitigated its loss by lodging a proof of debt in BCCI's liquidation.

(1) Against the Shipowner

66. In view of the findings above, I find that Kerry has established its claim against the Shipowner regarding:-

(a) Kerry's claim based on contract;

(b) Kerry's claim based on conversion;

(c) Kerry's claim based on negligence.

(2) Against Arumugam and Super Bulk

67. Further, by reason of the findings above, I find that Kerry has established its claims against Arumugam and Super Bulk regarding:-

(a) Kerry's claim based on conversion;

(b) Kerry's claim for the price of the subject goods (only as against Arumugam ).

(3) The Shipowner's Third Party Claim against Arumugam and Super Bulk

68. I also find that the Shipowner has established its Third Party claim against Arumugam and Super Bulk.

Costs

69. There is no reason not to adopt the usual rule that costs of the action should follow the event. Those costs should therefore be paid by the Shipowner, Arumugam and Super Bulk to Kerry. For the same reason, the costs of the Third Party claim should be paid by Arumugam and Super Bulk to the Shipowner.