HIRDARAMANI INDUSTRIES LTD. AND ANOTHER v. ORIENT CONSOLIDATION SERVICES (HK) LTD.

HCCL215/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.215 OF 1997

---------------

____________________

J U D G M E N T

____________________

INTRODUCTION

1. This is a case which throws into focus a commercial document known as a Forwarder's Cargo Receipt. It arises in the context of a claim made by the plaintiffs, two affiliated Sri Lankan garment manufacturers, and the defendant ("OCS"), a Hong Kong freight consolidator, which operated in Colombo via its appointed agent, Maritime Agencies Limited ("MAL"). No issue arises as to such agency, and it is the interaction of MAL with the plaintiffs in terms of the export to America of ten shipments of garments which provides the relevant factual matrix.

2. The amount of the plaintiffs' claim is that which is pleaded, namely US$311,654.25 for the 1st plaintiff and US$32,416.80 for its sister company. These sums represent the value of six shipments and four shipments of garments respectively which the 1st and 2nd plaintiffs say were made through MAL, and for which no payment has been received from the buyer in the underlying sale contract. Quantum in itself is not in question, and this case has been fought solely upon the issue of liability.

THE FACTUAL BACKGROUND

3. The plaintiffs, as I have said, are garment manufacturers and exporters. Mr Janak Hirdaramani, who is a director of both companies, and who together with other members of his family created this business, told me that it has a turnover of in excess of US$60 million annually. So it is a not insubstantial operation.

4. One of its customers in America was one Malu Malu Imports Inc. ("Malu Malu") of New Jersey. The head of Malu Malu is a Mr Bakshani, who originally hailed from the same Sri Lanka community, and who had established a trading relationship with Mr Hirdaramani over the past 15 years or so. The details perhaps do not greatly matter. Suffice to say, as Mr Hirdaramani told the court, that prior to the events giving rise to this case, Malu Malu accounted for something in the region of US$4-5 million in annual trade with the plaintiffs.

5. It seems fairly clear that by 1994 Malu Malu was importing a large quantity of goods from the Indian sub-continent, including Sri Lanka, for sale on the American market. This no doubt accounted for the conclusion of a service contract, in August 1994, with NYK Line, whereby commitment to shipping a certain annual volume of cargo upon that shipping line produced a more beneficial freight rate for Malu Malu, which purchased garments from the plaintiffs, and no doubt from other vendors also, on an FOB basis.

6. With the service contract with NYK came introduction of Malu Malu to OCS, an introduction which was, perhaps, not surprising, given that NYK Line has a controlling interest in OCS. OCS carries on business as, inter alia, a cargo consolidator. It does not actually effect carriage itself, but accepts separate consignments of goods from various shippers which are then consolidated into containers for carriage by the relevant ocean line (in this case NYK) to the designated country. Such evidence as has been available from OCS indicates that this process, the cost of which was paid by NYK, permitted co-ordination with those exporters from Sri Lanka who were shipping to Malu Malu, with the result that individual shipments from various sellers could be brought together to be shipped in one full container load.

7. In the event, this is what appears to have happened from or about September 1994 when OCS began to act for Malu Malu, and MAL, as OCS's designated agent in Colombo, became involved in the process of co-ordinating and consolidating Malu Malu's shipments from Sri Lanka exporters. At the same time, also, OCS created an 'Operation Manual' relating to the operation of the Malu Malu account, which provided instruction to the local agent, MAL, as to the manner in which Malu Malu's shipments were to be handled, and provided examples of the relevant documentation which was to be used. And within such documentation, a key document was the document known as the Forwarder's Cargo Receipt.

8. Up to this time, that is, towards the end of 1994, Hirdaramani's export business with Malu Malu had been conducted without assistance from any such intermediary, and had taken place in the normal course of FOB exports, with payment either under a letter of credit or, where the value of that credit had been exceeded and the credit was not correspondingly enhanced, on a D/P basis. But whatever the mode of payment it had been the practice for Hirdaramani to ship under a direct liner of bill of lading, the consignee therein being to the Order of Malu Malu's bank which, in the case of the Hirdaramani business, was either the Bank of New York or Habib Bank, thereby ensuring that the bill of lading would not be endorsed in favour of Malu Malu absent payment for the goods so shipped.

9. The commencement of the OCS/MAL operation in terms of Malu Malu's imports from Sri Lanka appears broadly to have coincided with the onset of financial problems for that company. Mr Hirdaramani's evidence is that Malu Malu were not in the position to open letters of credit for the full value of the goods ordered from the plaintiffs, and in a telephone conversation at the end of 1994 he had told Mr Bakshani of Malu Malu that his goods would be shipped on D/P terms, but that these goods would be consigned to his bank. Mr Hirdaramani further said that Mr Bakshani in turn told him that he should use OCS to effect the shipments so that he could save on freight charges.

10. It is at this stage, therefore, that the events forming the subject matter of the present proceedings began to unfold.

THE PRESENT DISPUTE

11. As I have earlier indicated, the plaintiffs' claim comprises ten garment shipments, six from the 1st plaintiff (Invoice Nos.95/11K, 14K, 15K, 33K, 38K and 63K) and four from the 2nd plaintiff, its sister company (Invoice Nos.HGKL/95/76, 77, 84 and 114). These shipments all took place in the period between 26 January 1995 and 3 April 1995, and for all practical purposes are identical transactions involving the participation of OCS via the offices of its agent, MAL. Each shipment attracted the issuance of an OCS Forwarder's Cargo Receipt, the written terms of this document commencing in the following form (I use as an example the FCR dated 26.01.95 issued in respect of the 1st plaintiff's invoice No.95/11K) :-

"FORWARDER'S CARGO RECEIPT No. MAL/OCS/0203

RECEIVED by ORIENT CONSOLIDATION SERVICE (H.K.) LTD. (hereinafter referred to as OCS) in apparent good order and condition, unless otherwise indicated, the following cargoes for shipment by the first available vessel subject to the terms and conditions as hereunder:

Maker/Supplier: HIRDARAMANI INDUSTRIES LTD, 65-69 CHATHAM STREET FORT, COLOMBO 01, SRI LANKA Buyer/Consignee: BANK OF NEW YORK, N.Y. Shipment From: COLOMBO SRI LANKA To: NEW YORK. NY. USA "

Maker/Supplier's INVOICE No. 95/11K Dated 26.01.95 Value declared USD 118845.84 ___________________ Order No. 9846/9861

An FCR such as this was to be given to Hirdaramani, as shipper, in exchange for a number of original documents (commercial invoice, packing list, certificate of origin, textile visa) relevant to each particular shipment of garments, the FCR being dated by MAL to correspond to the date of the delivery of the particular shipment of goods to the local freight station, McClarens Containers (Pte) Ltd ("McClarens"), wherein the goods were physically consolidated with other shipments and stuffed into a container prior to being shipped on board the relevant NYK vessel for the voyage to New York.

12. However, what on any version was not given to the particular shipper under this system was an original bill of lading, albeit there is controversy in this case as to whether Hirdaramani was ever given sight of a copy of the bill of lading which was raised in each instance.

13. This latter issue is one of the findings of fact which require to be made in this case. For the present, however, suffice to say that what happened is that with regard to each shipment NYK issued to MAL an original liner bill of lading which was in the form of a master bill. So that, for example, in the 1st plaintiff's shipment represented by invoice No.95/11K, the Shipper is named as

"Maritime Agencies Ltd on behalf of :

Hirdaramani Garments, Kings International, Universal Lanka, Himaco Garments, Asiatex Ltd, Nilano Garments"

whilst the Consignee is not (as the 1st plaintiff maintain should have been the case) to the Order of the Bank of New York, but instead is named as the purchaser, Malu Malu Imports Inc., 160 Jony Drive, Carlstadt, New Jersey.

14. In a nutshell, therefore, it is the non-correlation between the named Consignee on the FCR and that upon the relevant bill of lading which provides the factual underpinning for the plaintiffs' present complaint. Because by reason of Malu Malu being named as consignee on the bill of lading, Malu Malu apparently was able to obtain, without payment therefor, the ten shipments of garments the subject of this claim. Nor is there now any prospect of recouping those funds from Malu Malu, since that company filed for a Chapter 11 bankruptcy protection in late 1995. Hence these proceedings, wherein the plaintiffs seek relief against the defendant in contract, bailment and conversion.

THE EVIDENCE

15. From an evidential viewpoint, this case has been far from satisfactory. No-one from the defendant apparently was available to attend court to give viva voce evidence, with the result that the defendant's evidence consisted solely of statements from :-

(i) Mrs Romesh Ranasinghe, who was the MAL executive charged with processing the Hirdaramani shipments at the relevant time;

(ii) Mr Ekanayake, who was Mrs Ranasinghe's assistant at the material time; and

(iii) Mr Mark Stevens, the General Sales Manager of OCS, America.

16. For the plaintiffs, three witnesses of fact were called :-

(i) Mrs Belamini Serasinghe, the Export Manager of the 1st plaintiff;

(ii) Mr Janak Hirdaramani, a director of both the 1st and 2nd plaintiffs; and

(iii) Mr Antony Nadaraja, the then General Manager of the 1st plaintiff (who was called on one narrow issue only).

17. In addition, the plaintiff put in a statement of Mr Chandana Amarasinghe, an Export Assistant with the 1st plaintiff.

18. No expert evidence was led, although I gather that reports had been prepared by experts on both sides. However, absent agreement between counsel that I should do so, which agreement was not forthcoming, I have not read these reports, nor has reference been made by counsel to any part of their content at any stage of this case.

19. I refer to certain aspects of the factual evidence later in this judgment. For present purposes, however, I should indicate that in all material respects I accept the plaintiffs' evidence which was given before me. I formed the firm impression that the three plaintiffs' witnesses who appeared to give evidence in support of the claim were witnesses of truth, and in so far as their evidence contradicts the evidence proffered for the defence (and in particular that of Mrs Romesh Ranasinghe), having seen and heard the witnesses themselves, I prefer their version of events given on behalf of the plaintiffs.

20. Having indicated the court's general approach to the evidence, I should now, perhaps, immediately dispose of the specific issues which require specific findings of fact. To an extent they are aspects of the same broad issue : first, at what stage in the dealings between MAL and the plaintiff Hirdaramani companies did the plaintiffs have sight of the NYK bills of lading that had been raised in connection with the garment shipments the subject of this claim (and thus notice of the fact that the consignee thereon did not reflect the stipulated consignee on the FCR)?; and second, was the fax letter dated 11 March 1995 - which was the subject of a notice of non-admission by the defendant - a genuine document, and had it in fact been sent?

21. In terms of the bill of lading point, on which the evidence was diametrically opposed, I have concluded that I should accept the direct oral evidence of Mrs Serasinghe and Mr Hirdaramani, and accordingly find that, at least until 10 March 1995, neither Mrs Serasinghe nor Mr Hirdaramani (nor, for that matter, anyone else from the plaintiff companies), had had sight of these bills of lading. Interestingly, whilst Mrs Ranasinghe asserts otherwise in her statement ("following every shipment a clerk from Hirdaramani would attend at our offices to obtain a photocopy of the bill of lading for each shipment") - an issue which I note is specifically disputed by the Hirdaramani messenger, Chandana, in his statement - this stance does not appear always to have been the defendant's position, at least at the time of the plaintiffs' Order 14 application. Pursuant to that application, a Mr Sasaki, the Assistant General Manager of the defendant, who received his information from, inter alia, Mrs Romesh Ranasinghe, says in his affidavit (at paragraph 23) :-

"Although the Plaintiffs did not obtain copies of the ocean bills of lading, contained in Exhibit 5 to Mr. Hirdaramani's Affirmation, until after proceedings were threatened in August 1995, it is clear that the Plaintiffs were aware that the goods had been consigned to Malu Malu."

22. The significance of 10 March 1995 lies in the evidence of Mr Hirdaramani, which the court has accepted, to the effect that a telephone conversation with Mr Bakshani of that date :-

"... was the first indication I had received that the bills of lading were not confined to the banks ... and I had not seen copies of the bills of lading previously ... My files contain copies of the bills of lading concerned. I am not sure when or from whom these were received, but I am certain it was after 10 March 1995 ..."

23. This in turn, on the plaintiffs' evidence, led to the so-called 'disputed fax' of 11 March 1995 from the 1st plaintiff to MAL which reads :-

"RE: SHIPMENTS TO MALU - MALU

VERY SURPRISED TO NOTE FROM YOUR FAX OF 10.03.95 THAT GOODS UNDER FOLLOWING B/L'S HAVE BEEN CLEARED BY THE BUYER AS WE HAD CLEARLY CONSIGNED OUR B/L'S TO BANK OF NEW YORK.

B/L NO'S NYK

1. NYKS496103756
2. NYKS496103894
3. NYKS496103997
4. NYKS496104112

PLEASE URGENTLY CONFIRM IF YOU HAVE OBTAINED BANK GUARANTEE BEFORE RELEASING GOODS. IF NOT, WE WILL HAVE TO HOLD YOU TOTALY RESPONSIBLE FOR THE FULL PAYMENT.

PLEASE CONFIRM URGENTLY.

REGARDS,"

24. The evidence with regard to the dictating and sending of this fax came from Mr Antony Nadaraja, who also produced in court the old computer diskette from which this copy letter had been retrieved. Once again, I accept his evidence as truthful, and find that this is an authentic document which duly has been proved and which was sent as alleged.

THE ARGUMENT

25. Perhaps unsurprisingly, given the protracted history of these proceedings, the parties' respective positions permitted of little room for compromise. On behalf of the plaintiffs, Mr Kerr maintained that this was a relatively simple and straightforward case of the plaintiffs handing over their goods to the defendant on the basis of a specific instruction that the consignee of these goods was to be an America bank : Why, he asked rhetorically, should they not be bound by that? His clients certainly thought so. These instructions were ignored, and bills of lading were raised naming Malu Malu as consignee. Consequently, Malu Malu had been able to obtain the goods without making payment therefor, thereby causing the loss now claimed. On behalf of his clients Mr Kerr rebutted the suggestion that the plaintiffs' knew all along that the bills of lading named Malu Malu as consignee, nor had such bills of lading been provided contemporaneously to the plaintiffs. In putting his case primarily on the basis of contract and bailment, he submitted that such authorities as existed dealing with FCR's were in agreement that this document contains the instructions of the shipper and that the FCR issuer was required to follow those instructions. If this fundamental principle was not to be upheld, he suggested, FCR's would have no place in the commercial world.

26. Mrs Campbell-Moffat, who conducted a difficult case with ability, submitted on behalf of the defendant that in the circumstances the defendant should bear no liability for any loss. She argued that OCS, via its agent, MAL, was no more than a "conduit", for the receipt of the plaintiffs' goods in apparent good order and condition. There was no contractual relationship between these parties, she said, nor in the circumstances was there any question of bailment, given that MAL had exercised no control over these goods after their delivery to McClarens, the container freight station to which the goods were delivered for containerization prior to being shipped on board the various NYK vessels; and whilst the FCR, as duly issued, was backdated to indicate the day of receipt at McClarens' yard, in fact MAL did not appear to be aware of the precise date of delivery until informed by McClarens, which was NYK's agent.

27. It was the situation throughout, argued Mrs Campbell-Moffat, that OCS/MAL had believed that the purpose of the FCR procedure was to act as a "trigger" for payment pursuant to a letter of credit. Accordingly, if, as appeared to be the case in light of Mr Hirdaramani's evidence, payment from Malu Malu was no longer being arranged by letter of credit but was to be made on a D/P basis, then it was, as she put it, "unfair to affix MAL with responsibility for some such new arrangement" absent information as to such change in payment system. The burden, therefore, lay on the plaintiffs to check that procedures appropriate to the new payment system were being effected. This was particularly so, she said, because the Operation Manual which had been issued by OCS with regard to the Malu Malu procedures demonstrated, in the pro forma exhibits, that in terms of the designated consignee in the FCR and the bill of lading, the Manual had been complied with to the letter in the case of each of the ten shipments the subject of the present claim : "There is no FCR which isn't as it should be."

28. In fact, she said, compliance with the Manual was part and parcel of MAL's duty to its principal Malu Malu, so that if (which was not accepted) MAL had been told to do things differently and to ensure that the bill of lading was other than in terms of consignment to Malu Malu, it would have to have reverted to Malu Malu for instructions. In the event, she said, there was a "total misconception" on the part of MAL and Hirdaramani as to what each was doing.

29. The foregoing represents the substance of Mrs Campbell-Moffat's primary argument. In addition she also ran an alternative case. It was this. If and in so far as the court were to find, contrary to her submissions, that there was liability on the defendant's part, such liability could not in the circumstances accrue to the full amount claimed. This was because there came a point when Hirdaramani knew that "matters had gone pear-shaped", namely, on 10 March 1995, the day prior to the 'disputed fax', when Mr Hirdaramani had had a telephone call with Mr Bakshani and had realized that there were shipments for which they had not been paid. If Mr Hirdaramani knew then, and even if there was no responsibility earlier, asserted Mrs Campbell-Moffat, there now clearly was the responsibility "to ensure that everybody was unequivocally made aware of what was required to be done". And if this was correct, there were three shipments from the 1st plaintiff post-dating 10 March (Nos.95/33, 38 and 63) to the value of US$79,047.42, for which on any basis her client should bear no responsibility, so that the 1st plaintiff's claim in any event must be reduced by this amount.

DECISION

30. Whatever may or may not be the truth of this case - and from an evidential standpoint I do not disguise the fact that the court would have been considerably assisted by direct oral evidence from OCS/MAL - I accept that from a practical viewpoint these parties appear to have been acting at cross-purposes. I have little doubt, for example, that Mrs Ranasinghe, whose late absence from this trial was particularly unfortunate, was minded to follow what she understood to be the procedures laid down in the Malu Malu Operation Manual, and did so come what may without any realization of the import of the plaintiffs' instructions as to the identity of the consignee.

31. These instructions from the plaintiffs were conveyed principally via the Shipping Note/Boat Note and the FCR, given that on the evidence there does not appear to have been a great deal in the way of direct oral communication between Mrs Serasinghe at Hirdaramani and Mrs Ranasinghe at her office at MAL. In this connection, Mrs Serasinghe recalls attending no meetings with Mrs Ranasinghe. In fact, Mrs Serasinghe, who struck me as entirely honest, said that she could not now recall precisely what had passed between them when they had spoken on the telephone; on those occasions when the FCR required correcting to ensure that the bank was correctly specified as consignee - a matter which was important in her mind since she had been instructed by Mr Janak Hirdaramani to ensure that these goods were not consigned to Malu Malu - she had told Mrs Ranasinghe that the cargo should be consigned to the bank, albeit she could not recall making specific reference to the bill of lading itself, maintaining her belief that "the FCR should be reflected on the bill of lading".

32. Against this background the Boat Note (of which Mrs Ranasinghe makes no mention in her statements), which was the government document completed by Hirdaramani, as shipper, and which was used at the outset to book space on the NYK vessel, assumes some prominence. It is abundantly clear on the evidence that this Boat Note was submitted to NYK via MAL, which must have been fully aware of its contents (indeed, as Mrs Ranasinghe points out in her statement, NYK and MAL shared an office in Colombo), and in each of the ten shipments in question the consignee is expressly stipulated as to the Order of the relevant American bank, which in the case of the 1st plaintiff is to the order of the Bank of New York and the Habib Bank for the 2nd plaintiff. There is no doubt about this.

33. The specific stipulation as to the Consignee on the Boat Note was reflected, of course, in the FCR, and on at least two occasions the incorrect insertion of Malu Malu as the consignee on the draft FCR was specifically corrected after telephone liaison with Mrs Ranasinghe to ensure that the relevant bank was named as consignee on the engrossed FCR. In fact, in the first of the shipments the subject of the 1st plaintiff's claim, the draft FCR prepared by Mrs Serasinghe and submitted to MAL actually bears this legend :-

"B/L SHOULD BE CONSIGNED TO :

TO THE ORDER OF THE BANK OF NEW YORK, NY"

Although nothing ultimately turned on it, this FCR appears to represent one of the two initial transactions wherein a lack of understanding of the system generally caused Hirdaramani to be reluctant to hand over original documents in exchange for a FCR rather than a bill of lading, and resulted in a FCR being issued by MAL (with the consent of OCS, Hong Kong) without first obtaining the necessary original documents. Moreover, the engrossed FCR (which was backdated to the date of receipt by McClarens freight station of the goods to be shipped) bore in the case of each of the shipments the legend :-

"NOTIFY:

1MALU MALU IMPORTS INC 1407 BROADWAY SUITE 3603 NEW YORK NY 10018 CLASSIC CUSTOMS BROKERS CARGO BLDG NO: 80 J.F.K. INTERNATIONAL AIRPORT JAMAICA NY 11430"

thereby emphasizing, suggested Mr Kerr, the importance of the consignment of the goods to the Bank of New York, given that in the normal course of events there would be little point in including a Notify Party on an FCR.

34. On the evidence as it stands, I do not consider that it is open to MAL (and hence OCS) to distance themselves from the raising of the NYK bills of lading in the form in which they were raised. Given the ancillary documentation, and in particular the Boat Note, it is as plain as a pikestaff that the bills in each instance were raised pursuant to the instructions of MAL. Mr Janak Hirdaramani gave evidence, which I have accepted, to the effect that at no time were instructions ever given to MAL for MAL to appear on the bill of lading (as was the case in each claim instance) as "Shipper" on behalf of Hirdaramani Garments and others whose goods were being exported to America. In any event, in terms of MAL's bill of lading involvement, it appears from the Malu Malu Manual (at paragraph 10) that :-

"OCS Agent will be responsible for preparation of consolidated Bill of Lading",

so it is highly improbable that responsibility for completion of the bills of lading was NYK's alone. Whilst Mr Hirdaramani thought that his staff had indeed been given this Manual, or something similar, I do not think that the broad terms of this document (the Manual having been distributed by OCS to its agents in South East Asia in relation to the general operation of the Malu Malu account) should or could override Hirdaramani's specific documentary instructions as to shipment of his cargo. In this context, I am minded to agree with Mr Kerr's submission that even if, as seemed probable, the draft and engrossed FCR in each instance postdated the sailing of each particular vessel, it was always open to MAL to cause the bill of lading to be amended by means of the issuance of a new bill with respect to the Hirdaramani shipments in order to comply with Hirdaramani's instructions, although this was never done, nor, on the evidence, does it appear ever to have been considered.

35. I have earlier noted that Mrs Ranasinghe appears to have perceived her responsibility as following the relevant Manual come what may, and whilst her argument is persuasively couched, I do not accept Mrs Campbell-Moffat's submission that in the circumstances Hirdaramani should bear responsibility for the losses in this case by reason of the failure to notify MAL of what she described as the "new payment arrangement" he had entered into with Malu Malu. The evidence was that since Malu Malu was not in a position to enhance existing letters of credit, Mr Hirdaramani's bank, the Bank of Ceylon, was instructed to send the relevant documents (including the FCR so received from MAL) for collection to New York on a D/P basis. So that the FCR was not utilized as a letter of credit "trigger" but was effectively negotiated against payment, with the result - and this was Mr Hirdaramani's clear perception - that Malu Malu would only be able to obtain the FCR when it had paid for the particular shipment of goods, at which point it would be in a position to obtain the relevant bill of lading which was then being held by OCS in New York. If this be correct, and I have no reason to think that it is not, I have difficulty in seeing why the change in the mode of payment to his customer should affect the validity of the Hirdaramani instructions, via Boat Note and FCR, to MAL; indeed, for her part , I note that Mrs Ranasinghe "frankly confesses" that "I would not have understood that annotation [D/P] if I had seen it". Be that as it may. The court has not had the assistance of hearing from MAL or from Mrs Ranasinghe in person, and there is little alternative but to deal with this case on the evidence that is available. And at the end of the day the picture that clearly emerges is that MAL followed what were regarded as its normal procedures notwithstanding that, within both Boat Note and FCR, the stated consignee of Hirdaramani's goods was to order of the bank.

36. Nor am I sympathetic to the submission that in this situation MAL was no more than a "conduit", or that MAL could not be considered a bailee. To an extent these submissions go hand in hand. Whilst the distinction between forwarder and consolidator was alluded to in cross-examination, in my view these particular factual circumstances do not permit MAL to abjure any role as a forwarder. To the contrary. It seems to me that, notwithstanding its title as freight consolidator, what MAL was doing comprised an integral part of the forwarding process in the sense of carrying on the business of arranging for the carriage of goods for others, albeit not itself acting qua carrier. For his part Mr Hirdaramani understood this to be the position. He gave evidence that he perceived that this was MAL's function - as he put it, he delivered his goods to MAL for onward transmission to his buyer in America - and of course one of the primary documents under scrutiny in this case is entitled "Forwarders Cargo Receipt". So although, for example, no house bill of lading was issued and the FCR stood in lieu (albeit it is not, I think, in itself a document of title), it is abundantly clear that MAL had a close measure of liaison with and instructed NYK, the issuer, as to the raising of that bill. In fact, it could hardly have been otherwise, given MAL's specified status as 'Shipper' on the face of that ocean bill, and if and in so far as a finding of fact be necessary on this point, I find on the balance of probabilities that MAL gave NYK instructions as to the raising of the bill of lading in the form in which it was in fact issued.

37. Mrs Campbell-Moffat also submitted that MAL was at no stage a bailee of these garment shipments, suggesting that this was so because the goods in question were delivered direct to McClarens Freight Station, so that MAL had no control thereof, and that the FCR was a stand alone receipt for the goods sent, albeit backdated to show the actual date of receipt of those goods by McClarens, and frequently issued after the particular NYK vessel had sailed. I found difficulty with this bailment submission at the time, and I find difficulty with it now. The goods in question were not physically at MAL because they were directed by MAL to be delivered not to its offices but to McClarens, which for these purposes must have been acting as MAL's agent, whatever McClarens' relationship with NYK. So that there was constructive possession and, in the circumstances, clearly control. In this connection, Mr Kerr has drawn my attention to the recent Court of Appeal decision in Hong Kong Hua Guang Industrial Company v. Midway International Ltd & Coastrand Shipping Ltd, Civil Appeal No.207 of 1999, Judgment dated 16 March 2000, wherein Rogers JA stated :-

"For the purposes of the bailment, a person will have possession provided he has the immediate right to physical possession. It seems to me that the question as to whether a person has constituted himself a bailee in circumstances where he does not obtain physical possession will be determined by the degree of control which he has over those who would be deemed to be his agents. In the case of Hoi Kong Container Services Co. Ltd v. Bewise Motors Co. Ltd [1997] 2 HKC 615, Bokhary PJ said in the Court of Appeal at 619H :-

'In my judgment, the judge rightly treated the defendant as a sub-bailee. That is what it was. As we have seen, Fast Trans was able to - and did - order the plaintiff's drivers to drive the cars to the defendant's container yard. That points to at least such constructive possession or control of the cars as to constitute Fast Trans a bailee of the plaintiff and, in turn, a bailor to the defendant.'

In that case, Fast Trans was a freight forwarder which had made arrangements for the cars to be stuffed into containers in readiness for ocean carriage. It also made arrangements for that carriage. Clearly Bokhary PJ considered the question of control as particularly important in relation to whether Fast Trans became a bailee ..."

38. Whilst the point was, perhaps, not as fully developed as it might have been, on the present state of the evidence I am disinclined to find a lack of control on the part of MAL so as to preclude existence of the bailment for which the plaintiffs submit. To the contrary. In terms of control, it seems clear that MAL, which of course was named as shipper on the master bill of lading, was in a position, had it so wished, practically to determine what happened to each of the various shipments which were directed to be sent to McClarens for consolidation and containerization - it could, for example, doubtless have instructed that any particular shipment be withdrawn should it have been necessary to do so. So that in the circumstances I am firmly inclined to the view that there was indeed such bailment, one of the terms of which, as reflected in the FCR, was that the defendant would only part with possession of the goods on the basis of their consignment to the order of the bank. In fact, this case throws into sharp relief the difficulties which inevitably arise when the terms of the FCR as issued fail to reflect those of the correlative bill of lading, a point which is made in one of the few texts which deal with FCRs, Freight Forwarders, D.J. Hill (1972), at paragraph 347, wherein the author observes :-

"... the Forwarding Agents Certificate of Receipt ... makes provision for the incorporation of irrevocable forwarding or disposal instructions, which may be included in the document. Amendment or rescission of these instructions is only possible against surrender of the F.C.R. in question, and is subject to the issuing forwarder still retaining a right of disposal over the shipment. Furthermore if such instructions authorise disposal by a nominated third party, the rescission or amendment will only be effective if they reach the forwarder prior to any disposition by such a third party.

As an F.C.R. does not establish any right to a claim for the surrender of the goods specified, but merely represents a forwarder's receipt for them with certain safeguards, only one original is issued, and if a copy is required, it is to be marked 'not negotiable.' When other freight documents such as bills of lading are to be issued subsequent to the issue of an F.C.R., care must be taken to ensure that the terms of such documents do not conflict with the obligations undertaken in the F.C.R., and especially that any safeguards therein are not rendered invalid. For instance, if a bill of lading is issued to a party who is debarred by an F.C.R. from exercising a right of disposal, the latter would be placed in the position of being able to dispose of the goods by means of the bill without the need to produce the F.C.R., which would defeat the object of such a document. ..." (emphasis added)

39. In the circumstances, therefore, I have concluded, not perhaps without a degree of hesitation, that the plaintiffs have successfully established the liability of the defendant for their loss. The core fact is that the plaintiffs' instructions (as reflected in the Boat Note and the FCR) as to the consignee of these shipments were not followed by the defendant, and indeed were promptly gainsaid upon the raising of the bill of lading in the circumstances to which I have earlier adverted. In a case which presents an unusual combination of facts, I have taken the view that the most appropriate analysis in the circumstances lies in bailment, and that the defendant as bailee was in breach of the terms of that bailment. It follows also, I think, that in causing the bill of lading to be raised in the form in which it was, there has been a conversion of the plaintiffs' goods.

40. Alternatively, if I be wrong in this conclusion, I am persuaded, also, that in these particular circumstances that the FCR's as issued may justifiably be regarded as evidencing agreement between MAL/Hirdaramani for the arrangement of the onward transmission of the goods on the terms therein specified, in particular that the bank should be consignee, so that in this event the liability of the defendant would accrue also, given that such arrangement as was made by MAL with NYK produced precisely the opposite effect.

41. Quantum is not an issue as such, Mrs Campbell-Moffat expressly accepting the plaintiffs' figures, subject only to that which she has termed her 'alternative case'. I have earlier adverted to the manner in which she put her case in this regard, namely that if Hirdaramani was not aware of what was happening before, then they knew on 10 March - indeed, the fax of 11 March 1995 expressly put in evidence by Hirdaramani irrefutably fixed the 1st plaintiff with knowledge - thereby impugning any claim for the three shipments of the 1st plaintiff valued at US$79,047.42 (Nos.95/33 and 38 dated 20 March, and 95/63 dated 3 April) post-dating this knowledge.

42. At first blush this was a not unattractive argument. It was met thus. Mr Janak Hirdaramani's evidence, which I have accepted, was that consequent upon the fax of 11 March 1995 which had been sent by Mr Antony Nadaraja, a Mr Mohan Pandithage, then Managing Director of MAL, "immediately" called Mr Hirdaramani and his brother to arrange a meeting. Mr Hirdaramani said that he had known Mr Pandithage for 15 years, and that he visited their office shortly afterwards and "gave us an assurance that he would get Malu Malu to pay", and that "in the worst case he would be responsible for this payment". Mr Hirdaramani said that this was a relatively small business community and that in the circumstances he unhesitatingly relied on Mr Pandithage's word and acted on his assurance - in fact, he recalled more than one such meeting during March 1995 - with the result that as a consequence of such assurances he elected to carry on shipping through MAL until the beginning of April 1995, at which point he lost patience and confidence and called Mr Bakshani of Malu Malu at the beginning of April 1995 and informed him that he would no longer ship through OCS, saying that henceforth the only way in which goods were to be exported to Malu Malu was via a direct liner of bill of lading naming the bank as consignee.

43. The court did not, of course, hear evidence from Mr Pandithage, although I note that this gentleman is specified as one of the sources of information for Mr Sasaki, the Assistant General Manager of the defendant who swore the affidavit in opposition to the plaintiffs' application (subsequently withdrawn) for summary judgment in this case. Mr Kerr submitted, in my view appropriately, that in light of Mr Pandithage's assurance to Mr Hirdaramani that matters would be rectified, which assurance was taken at face value, and that it was perfectly reasonable in the circumstances that it was not until three to four weeks later that the plaintiffs decided to drop MAL completely and to take matters again into their own hands in terms of direct exporting to Malu Malu. Mr Kerr also complained that in this context there was no pleading in terms of acquiescence or waiver, and that the first time that this alternative case had been articulated was on the day of final submissions. In any event, it was, I think, never suggested to Mr Hirdaramani that the meetings with Mr Pandithage had not occurred, nor that such assurances had not been given, and in these circumstances, and having found primary liability on the part of the defendant, I decline to accede to the request to reduce the value of the 1st plaintiff's claim by the value of the three shipments made subsequent to the fax of 11 March. In my judgment, on this evidence Mr Hirdaramani was entitled to proceed as he did before, in effect, pulling the plug on the entire MAL/OCS operation early in April 1995.

ORDER

44. It follows from the foregoing, therefore, that the Order of the Court consequent upon this judgment is as follows :-

(1) Judgment is to be entered in favour of the 1st plaintiff against the defendant in the sum of US$311,654.25;

(2) Judgment is to be entered in favour of the 2nd plaintiff against the defendant in the sum of US$32,416.00;

(3) There is to be an order nisi that interest is to be awarded on such principal sums at the rate of 8% per annum for the period from 1 July 1995 to the date of judgment herein, and thereafter at the judgment rate from time to time prevailing until payment; and

(4) There is to be an order nisi that the costs of this action are to be paid by the defendant to the 1st and 2nd plaintiffs, such costs to be taxed if not agreed.