FIRSTGRADE INDUSTRIES LTD v. HELKA EXPRESS INTERNATIONAL LTD

1991, No. A4445

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In this action, the plaintiff company sues the defendant company, a freight forwarder, for the sum of US$38,934.40, being the value of a consignment of garments delivered by the plaintiff to the defendant for transport to a company in Florida called Justin-Michael.

2. The only evidence before me came from the two witnesses for the plaintiff and the plaintiff's bundle of documents. Since the evidence of the plaintiff's witnesses is not contradicted, and it was not suggested in cross-examination that their evidence was untrue, I am' satisfied that the factual background leading to the action is as follows:

3. Prior to 18th November, 1990, the plaintiff contracted with the company Justin-Michael of Florida to supply a quantity-of garments. The plaintiff ordered the garments from a Hong Kong company, which in turn ordered them from a factory in China. Justin-Michael arranged .transport from China to the defendant, delivery to the defendant taking place on 18th November, 1990.

4. Payment of air freight to the defendant, and arrangements for insurance of the consignment, were the responsibility of Justin-Michael.

5. The defendant issued to the plaintiff the Air Waybill, item 5 of the plaintiff's bundle. PW2 was responsible for the consignee being named as the First Commerical Bank of Florida (FCB), with Justin-Michael named as "Notifying Party". PW2 did this deliberately to protect the plaintiff's interests, because this was the first time the plaintiff had done business with Justin-Michael.

6. Payment for the transaction was to be by way of a Letter of Credit, item 1 in the bundle, issued on Justin-Michael's behalf by FCB to the plaintiff's bank, Belgian Bank of Hong Kong.

7. A couple of days after 18th November, the plaintiff delivered to Belgian Bank a draft in the sum of US$38,934.40 together with the 4 sets of documents required under the Letter of Credit. When the draft reached FCB it was returned to Belgian Bank, who in turn sent it back to the plaintiff on 23rd November, together with the advice at page 6 of the bundle. The reasons given for the return of the draft, and its accompanying documents, were that the amount of the Letter of Credit was overdrawn and that late shipment had been made.

8. PW1 confirmed that both these reasons were factually justified, in that under the Letter of Credit shipment should have been made not later than 15th November, and the Letter of Credit was only for $36,647.10, not $38,934 as invoiced. PW1 explained that the agreement with Justin-Michael included a provision that garments delivered could be 5% more or less than the quantity contracted for, but that the Letter of Credit only covered the latter amount.

9. After telephone discussion with Justin-Michael, it was agreed that the plaintiff would accept the lower amount. The plaintiff then re-submitted the documents to Belgian Bank. On 23rd January, 1991, the Belgian Bank again returned all the documents to the Plaintiff, without payment, with the "Advice of Fate" item 8 of the bundle. This time, the reason for non-payment was to the effect that FCB had been taken over, and that the new bank would not honour the FCB's letter of credit.

10. On 28th March the plaintiff's solicitors wrote the letter item 12 of the bundle to a firm called Custom Service International Inc (CSII) in Florida receiving 1n response the letter item 10 of the bundle purporting to be from CSII's attorneys. This exchange of letters 1's fundamental to the plaintiff's case. The letter from CSII is the subject of a Hearsay Notice to which the defendant has filed no counter-notice. As set out in Para.4 of the Statement of Claim the plaintiff relies upon that letter to prove that the consignment of garments was delivered by CSII as defendant's agent hot to FCB but to Justin-Michael, without payment being received.

11. Para. 5 of the Statement of Claim lists 4 causes of action against the defendant, namely :-

(a) breach of duty as a common carrier;

(b) breach of the contract contained in the Air Waybill;

(c) breach of duties as bailee for reward;

(d) conversion of the consignment.

12. The particulars of (a) were stated as being (i) failure to deliver the consignment to FCB when the defendant had been directed to do so by the plaintiff, and (ii) delivering the consignment to Justin-Michael without the authority of the plaintiff and without being tendered valid title documents or obtaining payment.

13. The particulars of (b) repeat (i) and (ii), with the added particular that the defendant acted wrongfully and in breach of the express terms of the Air Waybill.

14. The particulars of (c) repeat (i) and (ii).

15. The particulars of (d) repeat (i) and (ii) with the added particular that the defendant has failed to deliver the consignment to the plaintiff after demands. With regard to this added particular, Mr Chung referred to the only two possibly relevant documents and pointed out that no such demand was contained in them. In reply, while not conceding the absence of a demand, Mr Leong told me he relied upon misdelivery. He was right to do so, because I am satisfied no such demand was in fact made.

16. Thus, the plaintiff's case turns entirely upon the allegation of wilful misdelivery of the consignment by the defendant's agent, and this case depends almost entirely upon the letter item 10 of the bundle.

17. The defendant's case on liability turned on 4 points relied upon by Mr Chung in his closing address:-

        (1) The locus standi of the plaintiff.

(2) The merits of the plaintiff's case as set out in para. 5 of the Statement of Claim.

(3) That conversion by keeping, as alleged in para. 5 of the Statement of Claim, was not proved by reason of there being no demand by the plaintiff.

        (4) The provisions of condition 10(a) of the Air Waybill.

18. In view of Mr Leong's response to Mr Chung's point (3), and his reliance as to conversion upon wilful misdelivery, the 3 issues for me to decide as to liability in this case are, firstly, the plaintiff's locus standi; secondly whether there was wilful misdelivery of the consignment by an agent of the defendant;. and thirdly whether the plaintiff's claim is barred by condition 10(a).

The Evidence

19. I will deal with the second point first.

20. With regard to the letter from CSII's attorneys, Mr Chung submits firstly that there is no evidence that CSII is the agent of the defendant, and no evidence that any admission in the letter was authorised by the defendant. In the absence of such evidence he submits that any admission in the letter is only admissible against the person making it and not against the defendant.

21. Mr Leong submits that the attorney's letter must be read together with the letter to CSII from the plaintiff's solicitors, item 12 in the bundle, since it is obvious from the reference on the attorneys' letter that it was a reply to the solicitors' letter. He further submits that since the attorneys' letter is subject to a hearsay notice, with no counter-notice, the contents of the letter must be accepted as, in effect, the evidence of the person writing it.

22. In all the circumstances of the case, and having regard to the contents of the 2 letters, which I agree should be read together, I find that CSII were the defendant's agents in Florida. In my view, the only reasonable inferences to be drawn from the letter are that, acting as the defendant's agents, CSII did deliver the consignment to Justin-Michael without obtaining payment. I am satisfied this delivery was a wilful misdelivery in contravention of the terms of the Air Waybill.

Plaintiff's locus standi

23. As to the plaintiff's locus standi, both counsel rely upon provisions of the Sale of Goods Ordinance, Cap. 26, although upon different sections.

24. Mr Leong submits that the plaintiff had property in the consignment by having reserved the right of disposal and being entitled to immediate possession of it, thus giving the plaintiff the necessary locus. He relies upon the provisions of sections 21(1) and 21(3) of Cap. 26.

Section 21(1) reads:-

"Where there is a contract for the sale of specific goods, or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee for the purpose.of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled."

Section 21(3) reads:-

"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."

25. Mr Chung relies upon s.19 and s.20 rule 5 which read as follows:-

Section 19:-

"(1)	Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2)	For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, and the circumtances of the case."

Section 20 Rule 5(1):-

"Where there is a contract for the sale of unascertained or future goods by description, and goods of that description, and in a deliverable state, are conditionally 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."

Rule 5(2):-

"Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract."

26. Mr Leong submits that by consigning the garments to the FCB, rather than Justin-Michael, the plaintiff has used a common business practice in international dealings to ensure that the consignment would not reach the buyer until payment was made, and thus did "reserve the right of disposal". He maintains that FCB would have refused to accept delivery of the consignment without an undertaking to pay from Justin-Michael, and the plaintiff would then have been able to recover the consignment, and that by releasing the consignment to Justin-Michael without payment or an undertaking from FCB, the defendant through its agent has put the plaintiff in the very situation the plaintiff was seeking to guard against, i.e. Justin-Michael getting the consignment without payment.

27. I am satisfied that the provisions of s.21 prevail over those of s.20 rule 5, and that the plaintiff did indeed "reserve the right of disposal" by the terms of the Air Waybill, and thus has locus standi to sue the defendant.

Condition 10(a) of the Air Waybill

Condition 10(a) of the Air Waybill provides:-

"No action shall be maintained in the case of damage to goods unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage, and the details of the claim, is presented to an office of Carrier within 7 days from the date of receipt thereof, in the case of delay unless presented within 14 days from the date the goods are placed at the disposal of the person entitled to delivery, and in the case of loss (including non-delivery) unless presented within 120 days from the date of issue of the air bill."

28. Mr Chung maintains that since no such notice was presented within 120 days, which is admitted by the plaintiff, this action should not have been brought. Mr Leong maintains that "loss" does not extend to deliberate wilful misconduct. I agree with Mr Leong.

29. I find for the plaintiff on all 4 causes of action.

Quantum.

30. It is common ground that the Warsaw Convention governs the carriage of the consignment. The Air Waybill conditions are based upon the Articles of that Convention. Condition 4 contains limitations on the liability of the carrier, based upon Article 22(2) of the Convention. Condition 4(c) provides that if the value of the consignment is not declared on the face of the Air Waybill,. (and it was not so declared) the liability of the carrier is limited to 250 French gold francs (about US$20, so counsel tell me), per kilo. This provision is relied upon by the defence. However, Article 25 of the Convention (reproduced in Vol.29 of the Laws) provides that such limitations on liability do not apply if damage is caused by the carriers' wilful misconduct. As I have found that such wilful misconduct did lead to the loss, the limitation does not apply.

31. I give judgment to the plaintiff in the sum claimed of US$39,934.30. There will be interest on that sum at Judgment Rate from time to time applicable from 23rd November, 1990, being the date by which I assess the plaintiff should have received payment, until payment.

32. I make a costs order nisi in favour of the plaintiff.