CHAN CHARN LAM t/a HONG KONG YAU LUEN HONG v. FORDPOINTER SHIPPING CO. LTD.

CACV 356/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 356 OF 1999

(ON APPEAL FROM HCA 7764 OF 1997)

____________________

_________________

J U D G M E N T

_________________

Hon Ribeiro JA:-

1. This is an appeal from the judgment of Deputy Judge Longley who decided this action in the plaintiff's favour and awarded damages against the defendant in the sum of US$144,312.55 together with interest and costs.

2. The award was in respect of losses incurred by the plaintiff in consequence of seven shipping containers of Chinese food and condiments having been released on arrival in the United States to the consignee (one William Ho trading as Dai Woo Wholesale Company, "Dai Woo") without production of any of the six bills of lading covering the same. Dai Woo had contracted to buy the goods from the plaintiff but had not paid for them. After the goods were released, Dai Woo could not be contacted and the plaintiff remained unpaid.

3. The bills of lading had been issued by a company called Fortune Network Limited ("Fortune Network") and Dai Woo had apparently secured release of the goods against an indemnity given by it to a company called Multi Express Inc ("Multi Express").

4. The issues at the trial were:-

(1) whether any contract relating to the carriage of each of those containers came into existence between the plaintiff and the defendant;

(2) if so, whether it was an express or implied term of such contracts that the defendant would not release the goods at the destination save (a) with the permission of the plaintiff and/or (b) against production of the bills of lading; and,

(3) if such terms or either of them existed and had been breached, whether the defendant could claim the protection of certain exemption and limitation clauses in the bills of lading in question.

The Judge answered the first two questions in the affirmative, finding that both terms (a) and (b) existed. He answered the third question in the negative.

5. He found that the defendant had entered into a contract with the plaintiff whereby the defendant undertook liability for the entire carriage of the containers to the destinations named in the bills of lading and that such carriage involved not merely the ocean carriage but also overland carriage by road or rail. He held that this contract had arisen concurrently with another contract entered into between the plaintiff and Fortune Network through the agency of the defendant in respect of the ocean voyage segment of the carriage.

6. In relation to the contract found to exist between plaintiff and defendant, the Judge held that the plaintiff had given an express instruction that "the goods should not be released to the consignee without express instructions." He also held that such contract contained an implied term that "the goods were not to be released even to the named consignee without production of the original bills of lading," relying on Sze Hai Tong Limited v Rambler Cycle Company Limited [1959] AC 576.

7. It was found that the misdelivery occurred after arrival and discharge of the containers and that the loss therefore fell outside the confines of the contract of carriage with Fortune Network so that it was the defendant, rather than Fortune Network, who was to be held responsible. The exemption or limitation clauses contained in the ocean bills of lading were held not to cover losses occurring after discharge (even assuming that they conferred protection on Multi Express by virtue of a Himalaya clause) .

8. I note in passing that this action was fought solely on the basis of breach of contract. No causes of action in conversion, bailment or negligence were either pleaded or canvassed below.

9. Mr Desmond Keane SC (who did not appear below, but who appeared on the appeal for the defendant with Mr P K Chan) argued that the Judge had erred in finding that there was a contract between the parties. He submitted that such finding was at variance with the contractual documents and that there was nothing in the oral evidence to justify it. The evidence as whole, he contended, showed that the only contract of carriage in existence was that between the plaintiff and Fortune Network, concluded through the defendant acting as the latter's agent. Such contract was evidenced by the bills of lading issued by Fortune Network, nominating Multi Express as Fortune Network's agent in the United States for the purpose of effecting delivery of the containers on arrival. Mr Keane therefore submitted that any liability for misdelivery was that of Fortune Network or Multi Express and not the defendant. The defendant contends in the alternative that the exemption or limitation clauses in the bills of lading operated to cover losses incurred after discharge of the cargo.

10. Mr Chong Tin Chun, appearing for the plaintiff, submitted that the Judge's analysis and conclusions were correct and ought to be upheld.

11. In my view, there is much force in the defendant's contentions and the judgment cannot be supported. With respect, I am unable to discern the evidential basis upon which a contract between the plaintiff and defendant, containing the terms allegedly breached, was found to exist.

12. Looking first on the negative side, it is noteworthy that no document of any kind exists containing or evidencing any contract of carriage between the plaintiff and defendant. There is not even a receipt from the defendant for the containers handed over by the plaintiff. There was no evidence that the defendant was to be paid anything for the carriage and the Amended Statement of Claim does not plead any consideration in support of the alleged contract. One would expect documentation such as a bill of lading or an analogous document (as contemplated by Cap. 440) to cover the carriage of goods exported commercially as the exporter is unlikely to agree to hand over his goods to a carrier without requiring a receipt and without a document acknowledging his title to the goods handed over as well as some evidence of the terms of the agreed carriage. In the absence of any such documents, it is difficult to accept that the plaintiff and defendant intended to contract as shipper and carrier respectively.

13. The positive evidence, taken together with the negative position noted above, is in my view fatal to the plaintiff's case. When each of the containers was handed over by the plaintiff, a bill of lading was issued, naming the plaintiff as shipper, but by Fortune Network and not the defendant. These bills operated in law as a receipt for the goods, as evidence of the contract of carriage and as documents of title in respect of the goods shipped. They represented the only shipping documents issued in respect of the carriage and they expressly identified Fortune Network as the contractual carrier, evidencing a contract of carriage between itself and the plaintiff as shipper.

14. The bills of lading provided that the containers were shipped on "freight collect" terms and, on arrival, the evidence shows that Multi Express issued invoices claiming payment not only of ocean freight (as the principal amount claimed) but also of charges for drayage and other expenses incurred in Hong Kong. This indicates that the cost of the carriage was not to be borne by the plaintiff or paid to the defendant in Hong Kong pursuant to any contract between them, but borne by the receiver of the cargoes when taking delivery of the goods upon payment to the carrier at their destination.

15. The fact (which the Judge found) that the plaintiff entered into a contract of carriage with Fortune Network evidenced by the bills of lading issued to the plaintiff, is in my view, quite inconsistent with the proposition (which the Judge was also persuaded to accept) that the plaintiff and defendant had entered into a contract of carriage on terms making release of the goods on arrival subject to the plaintiff's express approval.

16. The first difficulty with such a condition is its implicit assumption that the defendant would have control over the goods when they arrived in the United States and would be able require the carrier's agents to withhold delivery if the plaintiff so required. Nothing in the evidence or facts found appears to suggest that the defendant ever enjoyed such power or that the parties ever believed it would do so.

17. Secondly, the bills of lading taken by the plaintiff from Fortune Network are negotiable documents of title to the goods so that persons other than the plaintiff could be constituted holders of the bills and so become entitled to the goods they represent. On presentation of duly endorsed bills by a holder and on payment of outstanding freight, the carrier would in the ordinary way be entitled to deliver the goods to such a holder, an implied contract thereby coming into existence between them: Brandt v Liverpool, Brazil and River Plate Steam Navigation Co [1924] 1 KB 575; and see Benjamin's Sale of Goods, 5th Ed., §18-103. The carrier could not be restrained from releasing the goods to such a holder on the basis that the permission of the plaintiff had first to be obtained. He would be entitled to conclude that title to the goods was in the receiver as evidenced by his status as holder of the bill as a document of title thereto. There would be no document or other matter to indicate that the plaintiff in some way had an overriding right to the goods. Accordingly, having opted for the issue of bills of lading, the plaintiff cannot consistently or workably have nevertheless retained control over the goods at destination on some basis unrelated to and inconsistent with the rights of lawful holders of the bills. It is a fortiori difficult to see how any such overriding right could have come into existence as a result of a contract between the plaintiff and a defendant who, by common consent, was not involved in the actual carriage and had no control over the goods at destination.

18. The second contractual obligation which the Judge found to have been breached was an implied term that "the goods were not to be released even to the named consignee without production of the original bills of lading," based on Sze Hai Tong Limited v Rambler Cycle Company Limited [1959] AC 576. The implied term in that case was however a term implied into the contract of carriage between the shipper and the shipowner who had issued the relevant bill of lading. Lord Denning explained the position as follows :-

"It is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at his peril. The contract is to deliver, on production of the bill of lading, to the person entitled under the bill of lading. In this case it was 'unto order or his or their assigns,' that is to say, to the order of the Rambler Cycle Company, if they had not assigned the bill of lading, or to their assigns, if they had. The shipping company did not deliver the goods to any such person. They are therefore liable for breach of contract unless there is some term in the bill of lading protecting them. And they delivered the goods, without production of the bill of lading, to a person who was not entitled to receive them. They are therefore liable in conversion unless likewise so protected." ( at p 586)

One can readily see why it is necessary to imply such a term as between the shipper and the carrier who issued the bill of lading and who has taken custody of the goods for the purposes of the carriage. Having constituted the shipper the original holder of the bill which, as stated above, operates as a negotiable document of title representing the goods shipped, the parties must be taken to have intended that the carrier would require a person's entitlement to receive the goods at destination to be established by his production of that document duly endorsed to constitute him holder. It would follow that the interest of the ultimate holder is not to be defeated by the carrier ignoring one of the main purposes for which it issued its bill of lading and delivering the goods to someone without production of that document.

19. I am however unable to see on what basis a term to like effect should have been implied as between the plaintiff and the defendant. The defendant had not issued any bill of lading and is acknowledged not to have been the actual carrier and so was not intended by the parties to have the goods in its possession during or at the end of the carriage and accordingly, was not the person who would be making (or withholding) delivery to cargo receivers at the destination.

20. It would of course have been possible for there to be two (or even more) carriers in relation to any particular carriage, for instance, with the first carrier issuing a "house bill of lading" to the shipper and itself taking an ocean bill of lading (with itself named as shipper) from the second carrier. In such cases, the first carrier may act as shipper vis-à-vis the second carrier and assume liabilities to the original shipper which "bracket" the liabilities of the ocean carrier. That is, however, not this case and in my view, no basis exists here for the finding that the defendant contracted as carrier with the plaintiff on the terms allegedly breached, or on any terms. The questions relating to the exemption and limitation clauses do not arise.

21. Accordingly, in my view, the finding of liability for breach of contract in relation to the cargo's misdelivery cannot be upheld and the appeal must be allowed.

Hon Rogers JA:-

22. I agree with the judgments of Ribeiro JA and Godfrey VP and have nothing further to add.

Hon Godfrey VP:-

23. For the reasons given by Ribeiro JA, I too would allow this appeal.

24. I would add only this; that the only connection between the plaintiff and the defendant disclosed by the evidence was that, at the plaintiff's request, the defendant had arranged for the plaintiff's goods to be shipped to the USA, and had done so by procuring a contract for the carriage of the goods to be entered into between the Plaintiff and Fortune Network Limited. The defendant was not a party to that contract and cannot be liable to the plaintiff for any breach of it committed by Fortune Network Limited.

25. The court being unanimous, the appeal will be allowed accordingly and we will order (subject to the provisions of Order 42 rule 5B(6) of the Rules of the High Court) that the costs of the defendant appellant, here and below, be taxed (if not agreed) and paid by the plaintiff respondent to the defendant.