EISEN TRADERS (a firm) v. PAK SIK ENTERPRISES LTD AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff who is an importer of goods claims the sum of $157,320 in damages in respect of 874 pieces of gaberdine which it alleges the defendant, a warehouse company, wrongfully disposed of to three third parties.

2. In the statement of claim the plaintiff alleges that

3. The defendant issued a third party notice to each of the three parties to whom the defendant had released the 874 pieces. At the commencement of the trial, by consent of the defendant and the three third parties, I ordered that the third party proceedings be adjourned sine die. The trial then proceeded as between the plaintiff and the defendant.

4. In order to narrow the issues the parties agreed the following facts before any viva voce evidence was given.

5. Although it did not form the subject of one of these formally agreed facts counsel for both parties indicated during the course of the trial that TSH had ceased carrying on business and that the persons who had operated it could not be located.

6. In his opening address Mr. Ronald Tang made it clear that the case for the plaintiff was that the property in the goods had been revested in the plaintiff by the letter of 29th November 1982 and the delivery order dated 1st December 1982 and that therefore the plaintiff was entitled to the goods. He contended that on being faced with the conflicting claims of the plaintiff and the three third parties the plaintiff should have withheld delivery of the goods to all claimants and proceeded by way of a godown keepers interpleader, that by his failure to do so and by delivering the 874 pieces to the three third parties the defendant was guilty of the tort of conversion.

7. In her closing address Miss Mok for the defendant contended that he plaintiff had not specifically pleaded conversion and that it was implicit in the statement of claim that the plaintiff's action was founded in contract. Although the pleader did not use the word conversion in the statement of claim I am of the view that it is tolerably plain from the words used that the action is founded in conversion.

8. The plaintiff's manager Mr. Ng testified that on 9th February 1983, the day after the Master's order, he went to the defendant's warehouse where he found an assistant bailiff present with the three third parties who were waiting to take delivery of the goods.

9. Mr. Ng said that he saw the assistant bailiff enter the premises and announce to the defendant's staff that the goods could be released. Mr. Ng noticed that delivery orders had already been presented by the three third parties and had been left on a counter. He presented the plaintiff's delivery order and was asked by a member of the defendant's staff to sit with the three third parties who were already seated behind him.

10. One of the defendant's staff then informed Mr. Ng that he could not take delivery of the total quantity of goods specified in his delivery order as the other parties had arrived first and therefore took precedence over Mr. Ng.  After some argument Mr. Ng sought the assistance of the assistant bailiff and asked him to speak to the defendant's staff on his behalf and inform them that the goods were his. According to Mr. Ng, the assistant bailiff replied that the goods had already been released and advised Mr. Ng to negotiate with the staff himself. Having said that the assistant bailiff withdrew.

11. Mr. Ng protested to the defendant's staff that they should not deliver the goods to anyone until the matter had been resolved. One of the defendant's staff told him in effect that if he did not take the remaining pieces he ran the risk of losing them to such other claimants who might attend later with delivery orders. In these circumstances Mr. Ng decided to accept the 1150 pieces and a godown warrant was issued to him. Evidence was later given that where a person presents a delivery order for goods but wishes to retain them in the godown a new godown warrant is issued in his name as the new depositor. In accordance with this practice the three third parties and the plaintiff each decided to leave their respective goods in the godown and had new godown warrants issued to them.

12. Mr. Ng made no attempt to explain the basis on which the plaintiff could claim ownership in the goods or on which it had a better title to them than that enjoyed by the three third parties. I found this particularly strange in the light of the assertion in the statement of claim on the one hand that the plaintiff had simply delivered the goods to TSH for it to sell on the plaintiff's behalf and that TSH had returned the goods for the reason that it could neither sell them nor afford to buy them, and the agreed facts on the other hand that the plaintiff had sold the goods to TSH and that some three months later TSH had written to the plaintiff saying that it was returning the goods as they were not suitable for sale. The two versions were plainly inconsistent.

13. The defendant made no admission in its defence as to the plaintiff's ownership or right to possession of the goods.

14. In particular Mr. Ng gave no evidence as to whether the plaintiff accepted TSH's apparently unilateral decision to return the goods to the plaintiff after it had sold them to TSH. There had not been any physical redelivery of the goods to the plaintiff. All that I was able to deduce from the agreed facts was that TSH had simply informed the plaintiff that it had returned the goods because they were not suitable for sale and that three days later it issued the delivery note to the plaintiff for the goods.

15. No evidence was given on behalf of the plaintiff that it had actually agreed to accept the goods purportedly returned from TSH or that it had demonstrated its acceptance of their return by promptly attending at the godown with the delivery note either to take delivery of the goods or to have a new godown warrant issued in its name as the new depositor of the goods. Mr. Ng was strangely silent on these matters. I entertain serious doubts as to whether the plaintiff had accepted the goods. It seems likely that instead it had kept its options open and had played for time while deciding which was the most favourable course open to it. The contradictory nature of the statement of claim and the agreed facts cast further doubts on the legitimacy of the plaintiff's claim that it either owned the goods or had a better title to them than that asserted by the third parties.

16. It is not uncommon in Hong Kong that a business operation in financial difficulties disposes of assets to the most pressing of its creditors in order to buy time in the hope that its fortunes will be restored. The mere fact that the delivery order made out in favour of the plaintiff was dated one day earlier than those issued by TSH to the third parties is of no great assistance since the passing of title in the goods may have occurred much earlier. One merely needs to refer to TSH's letter to the plaintiff dated 29th November 1982 and to the delivery order issued to the plaintiff dated 1st December to realise that the actual passing of title or the attempt to pass title need not be contemporaneous with the issuance of documentation in the form of a delivery order enabling the new owner to obtain release of the goods from a godown in which they have been held.

17. Mr. Kwok, the manager of the defendant company, outlined the procedure employed by the godown. He informed the court that depositors or bearers of delivery orders may uplift goods from the godown after godown staff are satisfied that the signature on the delivery order matched the specimen signature provided by the depositor at the time he originally lodged the goods in the godown. A similar check is conducted when the holder of a delivery order does not wish to uplift the goods but requests that a new godown warrant be issued in his name as the new depositor.

18. Mr. Kwok said that he had been aware that interpleader proceedings had been initiated by the bailiff in respect of the goods and that he had been notified by the assistant bailiff by telephone on 8th February 1983 that a Master had made an order that the goods be released to the claimants. The assistant bailiff did not however specify who the claimants were.

19. On his arrival at the godown at 9 a.m. on 9th February Mr. Kwok was met by the three third parties each bearing a delivery order for part of the goods. In accordance with standard practice he checked the signatures on these delivery orders with those on the specimen card originally completed by the authorised signatory for TSH and found that they matched.

20. At the request of the three third parties Mr. Kwok executed fresh godown warrants in their names as new depositors.  At about 10 a.m. and after these warrants had been signed by the third parties Mr. Ng and the assistant bailiff arrived at the godown. After the assistant bailiff had spoken to Mr. Kwok and shown him a memorandum of the Master's order he then departed without giving Mr. Kwok any instructions as to whom the goods were to be released. Mr. Ng then presented his delivery order to Mr. Kwok.  Having verified that the signature on the delivery order matched that on the specimen card Mr. Kwok discovered that there were insufficient goods remaining unclaimed to satisfy the plaintiff's claim.

21. I accept Mr. Kwok's evidence that the new godown warrants had been prepared and signed by the three third parties but had not been handed to them before Mr. Ng presented his delivery order. There was certainly sufficient time for such to have been done before Mr. Ng's arrival. Moreover there was no evidence to the contrary. In this connexion counsel for the plaintiff conceded that the defendant company would have been protected had it released the goods to the third parties or executed new godown warrants in their names and handed them to the third parties before Mr. Ng presented his delivery order. It seems to me that the physical handing over of the new warrants to the third parties is not the determing factor. Had they left the warrants in the possession of the godown keeper their right to demand delivery at a later date would not have been affected.

22. I am satisfied that Mr. Kwok acted in accordance with what the assistant bailiff had told him in the earlier telephone call, namely, that the Master had ordered that the goods be released to the claimants. In the circumstances it seems to me entirely reasonable and proper for Mr. Kwok to have honoured the delivery notes lodged by the three third parties.

23. Finally the delivery order on which the plaintiff in his pleading relies to establish his title to the goods was issued pursuant to a godown warrant issued to TSH. As such the delivery order is no more than a document of authorisation issued pursuant to a contract.

24. Two of the conditions endorsed on the warrant are as follows:

25. Counsel for the defendant submitted that although the plaintiff was not a party to the contract originally entered into between the defendant and TSH, it was bound by the conditions of contract made between those two parties. In support of this contention Miss Mok cited H.M.F. Humphrey Ltd. v. Baxter, Hoare & Co. Ltd. [1933] All E.R. 457 where Roche J. held that the buyers of goods stored in a warehouse were bound by a condition of contract made between the warehouseman and the seller that the warehouseman "shall not be liable for loss, damage or injury of or to the goods or property howsoever and whensoever caused and of what kind soever and in particular and without prejudice to the foregoing the [warehouseman] shall not be liable for consequences .... of any act neglect or default of the [warehouseman or his servants] or for others for whom [they] might be responsible."

26. In that case the sellers had passed the goods to the buyers by a delivery note and the buyers had left the goods in the warehouse for some six months at the end of which the goods were found to be damaged.

27. Roche J. said

"It cannot be contended that if these terms or conditions form part of the contract between the parties to this action the protection is not sufficient to excuse the defendants [warehouseman] from liability. As I have said, Arcos, Ltd., [seller] knew the warehousing contract contained a clause. They did not choose to read it, or make themselves acquainted with its contents. That is their lookout. The question is whether the plaintiffs are bound by the same contract. In my judgment, they are. The method of business was that the goods were passed over to them by delivery note. That delivery note was endorsed by the plaintiffs [buyers]: "Please hold to our sub-orders, and oblige."  It is contended quite plainly and precisely by counsel for the plaintiffs that in these circumstances that is what may be described as an open contract without any condition made upon acceptance of that endorsement by the defendants. In my view, that is not the case. The plaintiffs took the goods on the warehousing conditions under which they had been warehoused in the first instance. I find it difficult to see how this business could be conducted on any other view than that. Endorsements and acceptances of endorsements, which are relied on in commerce as passing the goods easily from hand to hand, would have to be so qualified and extended as to make business difficult, if not impossible. I have further to bear in mind that the plaintiffs were doing business in these matters at this time and previously with the defendants, and were receiving documents - invoices, letters and so forth-all of which bore this same clause, which is not so minute and illegible as these clauses sometimes are.

    In these circumstances I am satisfied that the plaintiffs took the goods under a warchousing contract which contained the clause I have read, which clause excused the defendants from responsibility for the matters alleged against them. On this ground, in addition to those with which I have previously dealt, the defendants are entitled to succeed."

28. It is true that the condition in the contract in Humphrey's case is different from condition 7 in the present contract, but that in no way affects the principle involved.

29. In the present case the conditions in the warehousing contract, namely the godown warrant, were prominently displayed in both English and Chinese. It is true that the delivery note had not been endorsed by the plaintiff in the same manner as that in Humphrey's case but I do not think that that affects the matter. As the plaintiff was content to leave the goods in the godown he must be taken to have accepted the conditions under which they were warehoused in the first instance. As Roche J. observed, it is difficult to see how this business could be conducted on any view other than that.

30. Be that as it may I am satisfied that once the bailiff had notified the defendant that the writ of fi fa had been lifted and that the goods were to be released to the claimants, the defendant acted properly in executing fresh godown warrants to such of the claimants, namely the three third parties, who presented duly authorised delivery notes to it. Secondly, the new godown warrants had been executed in favour of the three third parties before Mr. Ng presented the plaintiff's delivery note to Mr. Kwok. Thirdly, the plaintiff has not satisfied me that ownership in the goods passed to it as alleged or that it has a better title to the goods than any of the third parties.

31. For these reasons the action must fail. I give judgment for the defendant with costs.