FREIGHT SYSTEMS LTD v. KOREA SHIPPING CORPORATION "KOREA WONIS-SUN"

1988, No. CL174

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. In this action the plaintiffs ("FSL"), who are International Freight Forwarders, claim an indemnity and/or damages in respect of US$18,876.16 against the defendants, the owners of the vessel Korea Wonis-Sun ("the vessel") in respect of damage to a cargo of tinned Chinese mushrooms allegedly occurring during the course of a voyage from Hong Kong to Seattle commencing on 28th July 1987.

2. At the commencement of this hearing, I was subjected to a barrage of interlocutory applications caused, regrettably, by non-compliance with sensible orders for directions. I do not intend to go into the cause of the lateness of these applications but I do have to say that the plaintiff has the carriage of the action and once a plaintiff fails to comply with orders for exchange of expert reports, there is little hope of the subsequent time-table being met. I delivered a separate ruling on the applications made to me on the first day of the trial. I strongly urge practitioners to bear in mind the importance in all cases, but particularly in commercial cases, of keeping to the time-tables laid down.

3. This case has been riddled with legal and factual difficulties. I have been addressed upon a wide range of legal points and I intend no discourtesy to counsel if I only deal with those that it appear to me to be important to the issues as I see them.

4. The factual background to the shipment which includes the journey from the Cannery in Xiamen in China to Hong Kong, the sea voyage to Seattle and the subsequent overland route to Minneapolis has not been easy to discern. Perhaps because of the small sum involved, there are large gaps in the evidence and at other times, there are only hearsay statements untested by cross-examination, or letters where the writer has not been called to give evidence. Both parties called expert marine surveyors who did their very best to fit the pieces of a jig-saw together and to assist me and, at the same time, they both indulged in detective work which would have put Sherlock Holmes to shame.

5. At the end of the day, the issues have narrowed to 3 with some sub-issues.

    (1) Has FSL title to sue on the two Bills of Lading in question? This involves arguments about principal and agent and, (b) the parol evidence rule and the admissiblity of extrinsic evidence and, (c) the effect of the indorsement in blank of these bills.

    (2) Have FSL established that any damage to the goods was caused during the course of the journey on the defendant's vessel in breach of the terms of the Bills of Lading.

    (3) If FSL have succeeded on issues (1) & (2) have they satisfied the court that the payment made by them (in respect of which they seek an indemnity) flowed from damage alleged to have been caused by the defendants to the goods.

6. Throughout this case, I have had to bear in mind that the onus of proof is upon FSL who have to establish the defendent's liability upon the balance of probabilities. Although this is trite, it is important to bear it in mind when considering a case where speculation outweighs hard evidence by a substantial factor. The experts have been cross-examined at length about "possibilities", "probabilities", "strong possibilities", "strong probabilities" and "likelihood" of their respective evidence.

The facts.

Hong Kong

7. At about the end of May 1987, Central States Trading Ltd. (Central) of Hong Kong agreed to buy a quantity of tins of mushrooms from the Xiamen Cannery factory in China. On or about the 3rd June 1987, Central offered to sell these mushrooms to Marianne Trading Ltd. (Marianne) also a Hong Kong Company.

8. Marianne's written order to Central is dated 6th June 1987 (bundle D page 1). The order was for 9,900 cases containing 24, 4 oz tins a case, the total being suitable for 3, 20 foot containers. The price was US$5.90 per case FOB Hong Kong shipment latest end June 1987. The total consideration was thus US$58,410 to be paid by Letter of Credit at sight. The order also stipulated that the product must meet USA Federal Drug Administration Specifications for canned mushrooms; the cases had to be free of rust or corrosion and there had to be a certificate stating that the goods would pass inspection and be allowed entry into the United States. The order was accepted by Central.

9. On 9th June 1987, Marianne confirmed to Central that "the label brand name should be print as "Richelieu" brand" (sic) (page 2).

10. At some time prior to June 18th 1987, Marianne sold 9,900 cases of the canned mushrooms to M & R Sales Corporation of Oak Park, Illinois. I can be certain that the agreement between Marianne and M & R pre-dated 9th June 1987 because "Richelieu" is their brand name and Marianne confirmed to Central that the labels should bear the name Richelieu on 9th June. It may well be that Marianne purchased these mushrooms expressly for the purpose of onward sale to M & R.

11. Marianne's invoice to M & R is dated 27th July 1987 and shows the total consideration to be US$63,855. Shipment was to be on board "Korea Wonis-Sun" (page 16). At page 11 can be seen an irrevocable Letter of Credit dated June 18th 1987 applied for by M & R in favour of Marianne in an amount up to US$63,855. One of the terms of this Letter of Credit was as follows:

"Full set of original Freight Systems Ocean Bills of Lading issued to the order of shipper endorsed in blank".

Another term was,

"B/L must indicate quote notify M & R Sales Corporation c/o George S.Bush & Co. Inc. ...... Seattle ..... unquote and must be marked quote freight collect unquote".

12. At some time in late June or early July 1987 Marianne gave instructions to FSL to arrange the shipment of these mushrooms to Seattle and thereafter to Iowa. At pages 27-8 can be seen 2 of FSL's Dock Receipts each for 1 20 foot container showing the notify party as M & R Sales and Marianne as shipper. The intended vessel is shown as Korea Wonis-Sun.

13. On 16th July 1987, Marianne obtained an export licence from Hong Kong Government showing the consignee as M & R Sales and a departure date for the vessel as on or about 21st July 1987 (page 14).

14. On the same day, Central wrote to Marianne certifying that the shipment of 3 containers would be shipped latest 27th July 1987.

15. I have had placed before me a letter written recently to the defendant's solicitors from a Mr. C.C. Lee who at all material times was employed by Minko Consolidators who were responsible for handling freight forwarding performed by Minko for Marianne. On this occasion, he says, and I have no reason to disbelieve him, that for this shipment Minko was employed by Marianne to collect empty containers from Hong Kong International Terminal (HIT) against a shipping order issued to them by FSL and to take them to China where they were packed with the cartons of mushrooms. When packed and sealed Minko took delivery of all three containers together with their contents on Marianne's behalf from Central. Minko issued a cargo receipt for each container noting thereon the seal number of the container.

16. Minko then took the containers back to HIT and issued a forwarding agents certificate of receipt. Minko were not instructed to check the condition of the tins or the cargo or to certify their condition. Minko merely collected three already sealed containers and transported them to HIT for Marianne.

17. In opening his case, Mr. Kat, for FSL, told me that the containers were stuffed in Shenzen. During the course of the hearing, translations of Minko's cargo receipts were placed into the bundle at pages 34(a), 34(b) and 35(a). Page 34(a) dated 25th July 1987 shows that received from Central was 3,300 cartons of canned mushrooms. A seal number and a container number appear on this document. The vessel's name and a Bill of Lading number also appear. At the top left of this document appears the following words:

18. "For and on behalf of Dongguan"

19. A map exhibit D1 shows that Dongguan is north of Shenzhen and inland to the east of the Pearl River estuary.

20. Page 34(b) is another Minko cargo receipt. It is dated 24th July 1987. It contains a container number and a seal number and reference to 3,300 cartons of mushrooms. The cargo is received from Central (it being conceded that is what "Chung Chau" means) "For and on behalf of Jiangmen." D1 shows this to be a larger town than Dongguan situated north-west of Macao (as opposed to north-east in the case of Dongguan). Neither town is on the sea or river although Jiangmen is close.

21. The relevance of all this is not to the contractual relationship between FSL and the defendants but to the route which these goods took once they left the Xiamen Cannery. Although not ruling out a sea voyage from Xiamen to Shenzhen the defendants say that if the goods went from Xiamen to warehouses in Dongguan and Jiangmen the strong likelihood is they made this journey by sea thus opening up a further part of the overall journey during which seawater damage could have occurred not the responsibility of these defendants. It was common ground that the road from Xiamen to Shenznen and a fortiori to Dongguan and Jiangmen was not good. To all these points I will have to return later. (The third cargo receipt is blank after the word "For and on behalf of").

22. A container whose last three digits are 889 was released by HIT to Minko at 2.33 on 19th July 1987 (page 33(a) and 39). It was re-delivered to HIT by Minko at mid-night on 23rd July 1987. Container 840 was released to Minko at 11.45 on 23rd July 1987 and re-delivered to HIT at 14.39 on 24th July 1987.

23. On 24th July 1987 Central wrote to Marianne stating:

"That the above-mentioned cargos have been inspected and found to be in good condition." (page 36)

24. On 27th July 1987 Marianne wrote to Central under the heading of "Inspection Certificate" (page 37).

"We hereby to certify that the above shipment are in good order." (sic)

25. In Central's letter dated October 2nd 1990 which appears at page 33(b) the following is alleged to have occurred,

"Prior to our purchase of the mushrooms from the Xiamen Cannery factory we would have inspected the tins before they had been labelled or packed, at the Cannery's warehouse in China, this would have been done in late May before we offered the mushrooms to Marianne on the 3rd of June, 1987.

On the 9th of June Marianne confirmed which labelling they would like on the tins. It was the "RICHELIEO" labels. Labelling was carried out by the Cannery at their warehouse. We attended at the Labelling operation to check that the correct labels were put on the tins. Labelling would have been completed about a week/ten days after Marianne ordered the labels. Sometime later the Cannery would put the tins in caraboard cartons. The cartons or tins should then have been put in a warehouse.

Marianne would have been invited to inspect the goods but we don't remember whether they did or not. All we can say is their letter of 27th July was in order for payment to be made under the letter of credit.

We would add that our normal procedure for this type of shipment is to seal containers at Hong Kong in order that the goods can be inspected before being loaded on to the vessel. In this case the containers were sealed in China. I don't remember who sealed the containers but it was not done by us.

At no time did Central States physically have custody of the goods. They were transferred airectly from the warehouse in China to Marianne or their agents."

26. It will be noticed that this letter does not make clear the location of the Cannery's warehouse in China. It would appear likely that pages 36 and 37 were required for the purposes of the Letter of Credit.

27. I should have added that a third container 447 was released by HIT to Minko at 13.48 on 24th July and was returned to HIT at 19.38 on 25th July. So two containers were away from HIT for just over 24 hours, while 889 was away 4 days.

28. I now come to two crucial documents. The first is at pages 19 and 19(a). It is a FSL "Intermodal B/L". It is dated 27th July 1990. The shipper is shown as Marianne Trading Ltd. It is marked consigned to order". The notify party is M & R Sales c/o George S. Bush. The latter also being shown as the delivery agent. The vessel is the Korea Wonis-Sun. The port of loading is Hong Kong and the port of discharge is Seattle. Final destination is shown "OCP Iowa". The goods are 3. 20 foot containers containing 9,900 cases of canned mushrooms. The 3 containers are 889, 840 and 447 respectively. All three seal numbers were also stated. On the reverse, it is indorsed by Marianne, M & R and George Bush. The bill is numbered BHV 101. It has been referred to as a House Bill.

29. It appears common ground that the House Bill does not qualify as a carrier's bill for the purposes of a Letter of Credit. Mr. Paul Wong, a manager of FSL gave evidence and said that the House Bill was what FSL gave Marianne in order for them to collect the goods from George Bush in Seattle.

30. It seems clear to me that this House Bill evidences FSL's obligations to Marianne to arrange transport for these goods from Hong Kong to Seattle by the vessel Korea Wohis Sun and thereafter to arrange the delivery of the goods to Iowa (subsequently altered to Minneapolis). It is for breach of the terms of this House Bill that FSL paid out US$18,876 (being only part of the claim) and for which they now seek an indemnity.

31. The second crucial document appears at pages 58 and 59 and is the defendant's Bill of Lading on which FSL's claim in relation to container 447 is made. Pages 60 and 60(a) are in identical terms and relate to container 840.

32. It is dated 28th July 1987. In the box headed shipper/exporter appear the following words,

"Freight Systems Ltd. o/b Harianne Trading Ltd."

(My underlining)

33. It is common ground that "o/b" means "on behalf of". The defendants say that shows FSL clearly were acting as agents and thus they cannot sue for the alleged breach of the terms of this Bill. FSL say not so, we contracted as principal with the defendants, as they well knew because of other matters referred to on the face of the bill. This is the basic title to sue argument to which I must return later.

34. The consignee on these two bills is shown as George Bush. These bills relate to one 20 foot container containing 3,300 cases of Richelieu brand canned mushrooms. The freight charge is shown on each bill as a lump sum of US$1.400. Both bills were indorsed in blank by FSL.

35. At the bottom of the central box of these bills appear the words;

36. "Freight Collect S/C ET-87-110"

37. I was told by Mr. Wong, and it features in certain voluntary further and particulars of the statement of claim, that this is a reference to a time volume contract entered into between FSL and the defendants by which, during 1987, FSL agreed with the defendants to take 50, 40 foot equivalent units. FSL were obliged to pay for that space whether or not they were able to find customers with cargo to fill it. Mr. Wong of FSL told me that these 3 containers were booked on the vessel under the umbrella of this time volume contract.

38. This contract appears to be lost and neither party was able to produce a copy. I am satisfied that Mr. Wong is correct when he tells that such a contract existed and I am prepared to accept the basic terms of that contract which he has described. He told me that he had seen it and had booked space under it. I am satisfied on this evidence that such an agreement existed between FSL and the defendant during 1987 and was in existence at the time of this voyage.

39. Mr. Barlow says that this is all very interesting but it is inadmissible because it is an attempt to breach the parol evidence rule by leading extrinsic evidence to contradict what he says are the clear terms of the Bills of Lading, namely the FSL were acting as the agent. To this point I will have to return.

40. On 28th July 1987 the containers were loaded on the vessel. A dispute has arisen as to whether the sequence checklist is accurate because the position of the three containers in the hold is directly relevant to the allegation that the cargo was damaged by the ingress of seawater to number I hold. I will have to consider this when I turn to the expert evidence.

41. At 05.35 on 29th July 1987 all cargo works were completed and at 06.30 on the same day, all shore lines were cast off for departure (log book at page 65).

42. After loading had been completed and after the vessel had sailed a computer generated loading sequence was compiled. This will become relevant later to the issue concerning the position of the containers. Other documents have been referred to but I do not deem it necessary to refer to them all.

Seattle

43. I now turn to the arrival of the vessel at Seattle. She arrived on 22nd August 1987 at 02.50. At 3.10 cargo work commenced and this was completed at 18.05. Both containers 840 and 447 were unloaded.

44. On 27th July 1987 container 840 was transloaded onto trailer REAZ and 447 was transloaded on to trailer BNZ. This part of the work was carried out by a company called western Cartage under the supervision of Mr. Sturtevant. At page 110 is a handwritten document showing that western Cartage noted that all cartons from container 840 were damp from condensation.

45. In relation to container 447, page 114 is a handwritten document prepared by western Cartage in Seattle which shows that some boxes were mouldy

46. Both trailers were transported to Minneapolis for delivery to Super Value stores in Minneapolis to whom this cargo had been on sold. Super Value stores rejected the whole shipment.

47. On 3rd September 1987, the containers were at BW Cartage at St. Paul where they were inspected and photographed by Mr. G.K. Shurb of Tow Inc. at the request of Alexander Gow of Seattle who are Lloyds agents.

48. The Tow report is at page 121. On p. 122, there follows several pages of photocopy photographs. Both experts have attempted to make points about these photographs but I have found it virtually useless to work from copies. Apparently, no one could provide the originals and this is much to be regretted.

49. In relation to BNZ which contained the goods originally in container 447 Tow said;

"Survey of Piggy Back BNZ 250160 reviewed a heavy musty odor, like bulk potatoes, possibly due to a previous cargo of bulk potatoes. Trailer also had wheat kernels scattered in bottom of trailer indicating failure to sweep or poor sweeping prior to loading.

Cartons had a slight dampness which has caused a slight rusting at the rim contact with the carton (see attached photograph). Cargo appears in fair to good condition with exception of the heavy musty odor. It was recommended cargo be unloaded to dissipate the odor."

50. In relation to REAZ which contained the goods originally in container 840 Tow said,

"Survey of Piggy Back REAZ 652277 reviewed cartons had been severely water damaged during transit with mold growth on cardboard cartons and moderate rusting at the rim contact with the cardboard carton. It was recommended cargo be unloaded with severely mold and obvious water damaged cartons segregated from the remaining good cartons."

The Tow report continued;

"On September 10th 1987 cargo was surveyed at the M.W. Ettinger warehouse where cargo had been palletized with 36 pallets and 180 cartons each, I pallet with 58 cartons and I pallet with 60 cartons; for total of 6,598 cartons in storage. Cargo had appeared to have lost its musty bulk potato odor and the majority of the cargo appeared in fair to good condition with the major damage now considered the light to moderate rusting which had occurred at the rim of the cans where contact with the damped wet cartons had occurred.

Samples of a damp carton taken from BNZ 250160, reviewed chlorides found and the sample of a wet carton from REAZ 652277 review heavy chlorides found per laboratory report from Twin City Testing Corporation forwarded on September 8th 1987 to Alexander Gow Inc."

51. Tow sent samples to Twin City Testing. In relation to a sample of corrugated cardboard sent by Tow which came from container 840, large amounts of chloride were found. In another sample from 447 chloride was found to be present.

52. On 5th September 1987, M & R requested an examination by International Adjusters which was carried out on September 8th.

53. As to the cause of damage they said at p. 132;

"We obtained samples of water damaged package and submitted to the firm of Stillwell and Gladding for testing. This report 87-2046 reveals samples tested as negative for chlorides. We believe loss a result of heavy condensation within containers during transit."

54. When International Adjusters inspected the goods themselves at M.W. Ettinger's warenouse, they saw extensive damage by water to the cases. They found that the cases that were stored throughout the container were wetted.

55. Stillwell and Gladding are consultant chemists in New York City. They received samples on October 2nd and reported on October 5th that both sections of card board tested negative for chloride.

56. At page 135, appears an unsigned letter dated 11th September 1987 from Marianne to M & R certifying that when Marianne inspected the goods they "were in good condition no damp rusted and in saleable condition when loaded in Hong Kong" (sic).

57. Regrettably, no one from Marianne, a Hong Kong Company, has given evidence before me to substantiate these matters.

58. The letter at page 135 must be read with p. 134 of like date where Marianne write to Central asking for proof that the goods were not damp when loaded in Hong Kong. If Marianne inspected them and found all to be in order, why should they write to Central for further documentary proof?

59. At page 138 is a telex from George Bush, to Paul Wong of FSL which does no credit to either of them. Bush are admitting that they should not have moved the goods from Seattle. They say that FDA had detained the goods. The goods were supposed to have passed FDA inspection and this clearly would have an effect upon the L/C. George Bush is asking Paul Wong of FSL not to tell the shippers the truth and Wong went along with this.

60. On 2nd October 1987, M & R made a claim on International Adjusters, for US$55,261,75. On 21st October 1987 International Adjusters sent M & R US$17,509 being the net proceeds of the salvage sale. The balance of the claim was then submitted to insurers.

61. On 21st December 1987, Bush faxed FSL and with regard to the M & R insurance claim they say "anything that we can do to speed up/settle the claim will help to get their freight for next year"

62. At page 148 on 22nd January 1988 Mr. Wong of FSL faxes Bush saying that it is all very confusing because the two survey reports conflict

63. At page 152 Bush faxed FSL saying they believe the Twin City analysis to be correct. They go on to suggest issuing proceedings against the derendants.

64. At page 153 on 14th April 1988 Mr. Wong of FSL takes up the suggestion and claims from the defendant the sum US$37,752.31. He encloses the chemical report from Twin City but he is silent about the other report. Mr Barlow took him to task for this

65. To cut a long story short by December 1988 M & R had agreed to accept 80% of its claim. 30% of that claim was paid by western Cartage on the basis that the goods should not have been sent on from Seattle in this condition and Bush paid M & R US$18,876.16 on behalf of FSL. That is the sum in respect of which FSL seek an indemnity or damages against the defendant.

66. Despite its length, this review of the basic facts and documents has been necessarily selective. However, I believe the above summary contains sufficient detail upon which to base my findings of fact and conclusions of law.

Witnesses

The Plaintiff

67. FSL called 3 witnesses. Mr. Paul Wong, a manager, has already been mentioned. The second witness was Mr. Simon Chan who for some years and at the material times worked for HIT and gave evidence about the procedures involved in loading containers. More recently, he has left HIT and now works for Toplis and Harding and assisted Captain Farrow of that firm who gave expert evidence before me.

68. FSL sought to introduce an affidavit from Mr. T. Sturtevant of western Cartage. I permitted this and it appears at page 117(a). He confirmed the damp condition of some of the goods.

The Defendants.

69. They called Captain Matthews of Vart Mattnews to give expert evidence. In addition they adduced under the Civil Evidence Ordinance two statements, one from Captain Man of the vessel and the other from Mr. Kim, an employee of the defendants responsible for the vessel maintenance department of the defendants.

70. Captain Man, who had since retired, was in command of this vessel from 24th November 1986 until 4th April 1988. He states he had no experience of seawater entering any of the holds. No sea blew over the decks. The voyage to Seattle was uneventful. The bilge records show nothing untoward. No complaints were made to him and no maintenance was required during the journey. At no stage was he told by any member of his crew that there was any problem with the bilge pumps.

71. Mr. Kim has reviewed all the documents relating to the vessel and states that there is no record of any problem with bilge pumps.

72. I have to bear in mind that neither of these gentleman has had their evidence tested by cross-examination and now I have to decide in due course what weight I should attach to their statements.

73. The defendant has placed great reliance upon a survey carried out to the vessel on the 20th October 1986 some 9 months before this voyage. The survey report is at pages 100 to 103. It was a satisfactory survey carried out to ensure that the vessel retained classification of the Korean Register of Shipping.

Have FSL title to sue

74. I think it is common ground that if it was not for the time volume contract and its reference on the defendant's two Bills of Lading in this case there could be little doubt that FSL acted his agent and could not sue the defendants. "O/B" means "On behalf of" and I do not really need to cite authority for the proposition that this phrase is constantly employed to prevent the person using it from becoming a principal on a contract.

75. Mr. Wong's evidence was to the effect that these contracts evidenced by the Bills of Lading were entered into as part of the time/volume contract. He said that the reference to "O/B" was merely to advise the defendants that the cargo belonged to another party. There were so many other ways of doing this that I found this statement difficult to accept. Under cross-examination, he said that "O/B" was used in order to make the position clear to the Trade Department. He agreed with Mr. Barlow that "O/B" was used to show who the real shipper was. On the assumption that Mr. Wong's evidence was admissible as to why FSL and Marianne's name was on the bill I find his explanation most unsatisfactory and would not have been prepared to rely upon it. He gave one reason in his witness statement and then he gave two different reasons in the course of his cross-examination.

76. As the time volume contract has not been produced I do not know its terms. I do not know whether its terms provided that FSL would enter into a direct contract of carriage with the defendants in each case where contracts of carriage were entered into under the umbrella of the time volume contract. For all I know, it may have been expressed in terms that FSL would, during the relevant period, procure their clients to book space on the defendant's vessel. As Mr. Barlow put it "compliance with the time/volume contract may be as shipper or agent".

77. Mr. Kat referred me to various text book passages and cases which made the point, on which he heavily relied, that forwarding agents sometimes contract as principals. However, these passages and cases deal with the relationship between the owner of the goods and the forwarding agent. Pages 42 and 43 of Scrutton on Charter Parties 19th edition, in considering the question of principal and agent discusses the subject in the context of the relationship between the shipper and the forwarding agent. However on page 43, one finds the following passage.

"The fact that the forwarding agent takes a Bill of Lading from the sea-carrier naming himself as shipper does not of itself make the forwarding agent liable as a carrier although it may point to this result. But where, as is commonly the case where the forwarding agent is carrying on a groupage business, the forwarding agent books space at a concessionary rate of freight for the whole consignment in the hope of finding goods to fill it later, the inference is probably that the forwarding agent contracts as a principal. It is difficult to see how the shipper can be treated as a party, even by ratification, to a contract made before his existence is known, or, if the freight is not capable of being apportioned among the individual parcels in the consignment, now the shipper can be made liable to the actual carrier for the freight."

78. The crucial words in this passage are "naming himself as shipper". I do not have to decide what would be the position if the shipper was shown simply as FSL. It was not. Ex facie the Bill of Lading, it was clear that FSL were acting on behalf of Marianne. Am I permitted to look at evidence which is designed to show that "O/B" does not in fact mean what it says:

79. Mr. Barlow submits that extrinsic evidence is not admissible to contradict the clear words of the Bill of Lading. In this case, the plaintiffs wish to adduce evidence as to what is meant by the notation on the bill "S/C.ET 87 110".

80. I do not find it necessary to go into Mr. Barlow's submission on the law of evidence and the law of principal and agent because I have come to the very firm conclusion that the state of the evidence before me is not sufficient (assuming it to be admissible) to displace the clear meaning of the words "Freight Systems Ltd. o/b Marianne Trading Ltd.". It should not be taken that I accept his submission on evidence because it does appear to me that one of the exceptions to the parol evidence rule (which is to the effect that where a contract is made wholly in writing, evidence is not admissible to add to vary or contradict the written terms) is that evidence is admissible to identify the parties to the contract. In Phipson on Evidence 14th edition 35 07 one finds the following passage.

"The intention with which a document is executed will affect its operation and may generally be shown by parol .... so also the capacity in which a party signed e.g. as principal or agent, or as party or agent, or signed as withess, or the purpose e.g. for indorsement or negotiation may be proved by parol."

81. Had I been satisfied that there was any evidence before me which justified placing a different construction than that of agency in so far as FSL are concerned I would have had to consider, in some depth, the nature of the exceptions to the parol evidence rule and would have had to consider among other cases, the cases of Fred Drugnorn Ltd. v. Rederiaxtiebolaget Translatantic [1919] A C 203 and Danziger v. Thompson [1944] 2 AER 151.

82. I heard Mr. Wong's evidence on this point as it were de bene esse and said I would rule on its admissibility in the course of this judgment. I do not think it necessary to burden this judgment with a consideration of the relevant law when, as I have said. I have come to the conclusion that on any basis his evidence on this topic is itself so unreliable that is not necessary to consider its admissibility.

83. As I have already made clear great reliance was placed on the time volume contract. However neither party has produced it. No withess has attempted to recount its terms. It would be an extraordinary result if the mere existence of this contract, which I am prepared to find existed at the relevant time, had the effect of turning what on the face of the bill is an agency situation into one of principal. If the contract had been produced, I would have had to decide all these nice points. But due to its absence I feel compelled to hold that FSL were acting as agent for Marianne when they entered into these two relevant Bills of Lading. Despite Mr. Kat's careful submission on this topic to the contrary I cannot go behind the clear terms of the bills themselves. I should add that out of all the cases cited to me not one dealt with the situation when a forwarding agent was held to be a principal on a bill with a carrier.

84. My finding that FSL acting as agent for Marianne thus precludes them from maintaining this action as principal. I cannot believe that if the defendants were to sue FSL under the bills, they would not have been met by a pure agency argument. This finding is sufficient to dispose of this case entirely. But lest this claim for US$18,876.16 should go further I must briefly give my conclusions on the rest of the case. In my judgment this case is an own facts case and involves no question of general principle.

Does the indorsement in blank preclude FSL from maintaining this action on the Bills of Lading (if they had been principals).

85. It is common ground that both bills were indorsed in blank. Section 2 of the Bills of Lading Ordinance Cap. 45 provides.

"Every consignee of goods named in a Bill of Lading, and every indorsee of a Bill of Lading, to whom the property in the goods therein mentioned passes upon or by reason of such consignment or indorsement shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the Bill of Lading had been made with himself."

86. Mr. Barlow's submission is that the effect of the endorsement in blank vests any cause of action against the defendants for damage to the goods during the course of the journey in the owner of the goods, namely M & R. Until 1976, the position seemed clear. The shipper was able to maintain a cause of action even if there had been an indorsement of the bills and title had passed to a third party but on the basis that any damages recovered for breach of the terms of the Bill of Lading would be held on some form of constructive trust on behalf of the owner of the goods.

87. In the Albazero (1977) A.C. 774 Lord Diplock referred to this rule which is known as the rule in Dunlop v. Lambert 6 C1 and F600 he said at page 845.

"It has been urged upon your lordships on behalf of the ship owners that if Dunlop v. Lambert ...... really is authority for the rule that it has for so long been understood to have laid down, it constitutes an anomalous exception to the general rule of English law that a party to a contract apart from nominal damages can only recover for its breach such actual loss as he has himself sustained, and that in view of the desdetude into which it had fallen before its revival in the Gardano (1962) 1 WLR 40, your Lordships should now declare that it is no longer the law."

88. At page 847 G is a passage upon which Mr. Barlow relied;

"With the passing of the Bills of Lading Act 1oss the rationale of Dunlop v. Lambert could no longer apply in cases where the only contract of carriage into which the ship owner had entered was that contained in the Bill of Lading and the property in the goods passed to the consignee or indorsee named in the Bill of Lading by reason of consignment or indorsement. Upon that happening the right of suit against the ship owner in respect of obligations arising under the contract of carriage passes to him from the consignor. Furthermore a holder of the bill for valuable consideration in exercising its own right of suit has the benefit of an estoppal not available to the consignor that the Bill of Lading is conclusive evidence against the ship owner of the shipment of the goods described in it."

89. Lord Diplock concluded (and the other 3 Law Lords concurred) that the Court of Appeal were wrong in holding that the rule applied to a case such as that before them.

90. Bearing in mind, my finding that FSL were acting as agent, and thus cannot maintain this action against the defendants, it becomes unnecessary to decide what would the position have been had they in fact been principals. Further, in the light of my later findings of fact this does not seem to be an appropriate case to consider whether the effect of the Albazero is to preclude recovery in a case such as this. It is fair to say that this part of the argument did not feature too heavily in counsel's submissions because most of it was directed towards the principal and agent point and the factual situation relating to the damage. I am therefore reluctant to embark upon an analysis of Lord Diplock's speech or to consider it in the light of subsequent cases such as The Aliakmon [1986] 2 AER 145

91. I have noted the very strong criticism of this decision which appears in Carver, Carriage by Sea 13th edition between pages 45 and 59. I note that in paragraph 83 on page 59 the following appears in relation to this House of Lord's decision

"No common law tribunal abroad has yet applied the travesty of the common law implicit in the Lord's judgment therein, no common law tribunal outside the United Kingdom should do so. The law is correctly stated in Gardano."

92. Quite clearly this decision cannot be swept aside in the way that the editor of Carver suggests. I think it is more prudent to wait until a case arises where this point is fundamental to a decision before embarking upon an analysis of Lord Diplock's reasoning and its application to the facts of a particular case.

Was the damage caused by the defendant's breach of the terms of the Bills of Lading

93. In considering whether, on the assumption that FSL can maintain this action, the defendants are in breach of the terms of the Bills of Lading, it is necessary to consider 4 stages from the moment the mushrooms left the Xiamen Cannery until they reached Minneapolis.

(1) Pre-voyage stage

94. This stage covers the time when the mushrooms left Xiamen until they were loaded on board the vessel. The plaintiff submits that it is clear that the goods were in good condition when stuffed into the container. For this they rely upon the documents above referred to emanating from Central and Marianne. No one from these companies has given evidence although I was told that Mr. Pei of Marianne is in Hong Kong and has recently been seen in relation to this case. I am far from satisfied that Central or Marianne ever physically examined this cargo before it was placed into the containers.

95. In order to succeed on the voyage stage, FSL has to negate the possibility that the goods were in fact damaged during the course of the journey from Xiamen to Hong Kong. I have already alluded to the documents which ex facie seem to suggest that after leaving the Cannery at Xiamen the goods, or at least some of them, were sent to Dongguan and Jiangmen. Captain Matthews for the defendants suggest that it is far more likely that, if the goods did indeed go to these two places before going to Shenzhen, they went by sea. He relies upon the fact that the roads from Xiamen to Dongguan and Jiangmen are notoriously bad and although they are not sea ports, they are quite close to the Pearl River estuary and it is most likely that the goods made that journey by sea. If that is so then, he says, there is a possibility, not ruled out on the evidence, that seawater damage may have occurred during that part of the journey. It is clear that once the containers were loaded in China, they were sealed and no one saw the cargo until transloading in Seattle.

96. Captain Farrow the expert called by FSL, has satisfied himself that the goods were in good condition when placed into the containers on the strength of the two letters from Central and Marianne at pages 36 and 37 above referred to. I have received no evidence that anyone from either company attended at Shenzhen or Dongguan or Jiangmen and actually saw the goods being placed into the containers. I do not know whether the goods were in fact loaded in Dongguan and Jiangmen although only one container was away from HIT long enough to be a candidate for a journey to Dongguan or Jiangmen. It may well be that the goods were bought to Shenzhen and the three containers stuffed there. The evidence is not at all clear.

97. There must, in my judgment be a doubt as to whether these goods were in fact in good condition when stuffed into the containers in China. Whether that doubt is sufficient to preclude establishing, on the balance of probabilities, that the goods were damaged during the course of the sea journey is something to which I must return after I have considered the other stages of the journey

(2) Stowage

98. Bay plans produced by the defendants show that in number I hold, it was proposed that container 447 should be on the tank top with container 840 on top of it. Container 889, which contained part of the shipment of mushrooms was also to be on the tank top with an unrelated container on top of it. It is common ground that no claim for damage has been made in respect of the goods contained in container 889 and this presents a substantial problem to FSL.

99. If number I hold was flooded as suggested by Captain Farrow it seems incredible that goods in 447 should be damaged but not those in 889. Therefore Captain Farrow has attempted to show that the bay sequence was not followed. He says this in his first report,

"(h) it quite often happens that a container is delivered out of sequence, however the supervisor on board has copies of documentation showing the desired stowage position and not infrequently, because of this, containers destined for the same port will be interposed into each others position. The supervisor should then amend the records which he then delivers back to the terminal control.

(i) it follows therefore that it is quite probable for ...... 840 to have been placed in the position for ...... 889 and vice versa. It is also possible that this has not been documented.

(j) the normal procedure is for the gantry crane to work on one bay at a time in this case either the bay 01 or 03 and when all containers have been stowed to move to the next bay.

(k) it is therefore essential to see the "loading sequence report" kept by the terminal which has been requested but not at this time been received."

100. Subsequently the computer generated sequence loading list was produced. This appears at page 45. It seems to suggest that 889 was loaded before 840 or 447 and this supports the point that 889 (the dry container) was also on the tank top. Captain Farrow requested this document and when he got it, he was still not satisfied with it and requested further documents during his cross-examination. I am, however, quite satisfied that on the evidence placed before me 889 was on the tank top and I will have to take into account this finding when considering the sum total of the evidence adduced by FSL.

(3) The voyage

101. As I have said, there is no direct evidence of an ingress of seawater into number I hold. The Captain states that he knows of no such incident. There is no reference to a post voyage repair of the bilge pumps. Furthermore, seawater damage claims have only been made in respect of these two containers.

102. So what is the evidence upon which I am entitled to act in finding a breach by the defendant of the terms of these two Bills of Lading. I mean no disrespect to Captain Farrow when I say that his evidence starts with a supposition (which I do not accept), namely that the goods were in good condition when stuffed into the containers and thus were clearly damaged when they arrived in Seattle. That led him to conclude that the damage must have occurred during the sea voyage and he then sets about trying to establish that fact. He had little to go on and one major hurdle to overcome. He had to get the dry container off the tank top or else his whole thesis falls apart. He has failed to do that as I am more satisfied than not that the computer generated sequence list is accurate. Of course I cannot rule out the possibility of a mistake but that is not the same thing as saying that I am satisfied on the balance of probabilities that it happened.

103. His main attack was upon the bilge sounding readings in number I hold. Although none of these ever came hear enough to indicate a flood in the hold he said they were suspicious especially the reading of one centimeter for so many consecutive days. The readings may in fact be inaccurate for a number of reasons into which I need not go. But if it was established that there was a flow of water back through the bilge pumps into the hold three valves would have had to break down at the same time. I received a lot of technical evidence about the bilge pumps, pipes valves and hat boxes and I was referred to text books and Society classification standards.

104. I cannot find that a flood occurred in number 1 hold unless I am prepared to find that the crew deliberately hid this fact from the owners of the ship and the captain. There is no reference to such an incident in the log book. It was said that the crew might have hidden this occurrence out of a sense of loyalty to the ship owners. I do not accept this Firstly if something went wrong and number 1 hold was flooded I would expect the crew to care because their safety could be at stake. Clearly little damage was in fact caused by such incident if it happened, and I can see no advantage to the crew in not telling the captain nor for him not to ensure that the bilges were checked at Seattle if he had been told. If repairs had been carried out on board I would expect some report of that fact to have been made.

105. Because of the state of the evidence generally in this case, I cannot rule out the possibility there was such a flood as a result to the mal-function in the bilge pumps and valves to number I hold but I find that this is a remote possibility and not one upon which I could possibly be satisfied on the balance of probabilities. It seems to me that the dry container on the tank top is a very strong contra-indication to Captain Farrow's theories, for that is what they were.

106. Both experts tried their very best to help me sort out this mystery but Captain Farrow's task in attempting to establish seawater damage during the voyage was too great.

(4) Seattle Minneapolis

107. On the evidence, I am quite satisfied the damage occur between Xiamen/Shenzhen and Seattle. Damage was discovered in Seattle and so I feel able to discount the land journey from Seattle to Minneapolis

Conclusion

108. It follows from the above analysis of the 4 stages of the journey that I am not satisfied on the balance of probabilities that FSL has established a breach of the terms of the Bills of Lading. In my judgment, it is more likely that some damage occurred before the goods were put into the containers in China. The fact that another container, which contained part of this consignment, was also on the tank top and was not subjected to any damage is a very strong indication that the goods were not damaged during the course of the voyage. The whole of FSL's case is predicated on a fact which I do not find established namely that the goods were in good condition when they were stuffed into the containers. Once that plank of the case has been removed, it seems to me inevitable that this claim must fail on the facts.

Loss

109. If I be wrong thus far, I must deal briefly with the submission that FSL has not shown that the payment which was made was one which flowed from the damage alleged to have been caused to the cargo.

110. It seems clear to me that FSL paid out part of Marianne's claim under FSL's House Bill with Marianne. This was a claim for seawater damage to the goods. Had I been satisfied that FSL had a cause of action against the defendants and had proved their claim on the facts, I would have held that the payment of US$18,876.16 was a loss which flowed from the breach and I would have granted the indemnity sought or awarded damages accordingly. I have read the correspondence upon which Mr. Barlow relied for a contrary submission but I would have been satisfied that this claim was a proper one.

Result

111. It follows therefore that this claim fails. The claim is thus dismissed and I make an order hisi for costs in favour of the defendants.

112. I cannot leave this case without expressing my gratitude to counsel for their help and assistance. Their industry threw up a lot of authorities all of which I read and it is no disrespect to them, or their arguments, that this judgment does not recite them all. My conclusion on the title to sue point made it unnecessary to delve any further into authority than was absolutely necessary