SIMPLE SYMBOL LTD v. MCS LTD

HCA2882/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2882 OF 2000

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J U D G M E N T

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1. This case concerns two shipments of goods, namely candle holders, from Xingang in the PRC to the United States. The goods were sold by the plaintiff to one Davco Silver Ltd ("Davco"), in New York. The defendant was the forwarder. In respect of the first shipment the defendant issued Forwarder's Cargo Receipt ("FCR") No. BA657, dated 5 October 1999, and in respect of the second, FCR No. BA 676 dated 2 November 1999. On each of these the European American Bank ("EAB") was named as the consignee. However, the defendant in the respective bills of lading named Davco as the consignee. The goods were duly shipped, and were released to Davco, which did not pay the agreed price, namely US$67,424.40 for the first shipment, and US$16,815.60 for the second shipment.

2. The plaintiff now claims that it had two contracts of carriage with the defendant, contained in or evidenced by the FCRs and that the defendant acted in breach of these contracts by releasing the goods to Davco without the consent of the plaintiff or of the consignee, the EAB. Further or alternatively, in breach of contract the defendant released the goods without production of any of the FCRs or other supporting documents, thereby converting the goods. Further, the plaintiff pleads that its staff instructed the defendant that the consignee to be named in the bills of lading was to be "to the order of European American Bank", and that the goods should only be released on production of the FCRs. The plaintiff pleads that the defendant was in breach of its duty as a bailee in failing to follow these instructions. The plaintiff accordingly claims damages equivalent to the unpaid purchase price of the two consignments.

3. The defendant's case is that in consideration of fees paid, it acted for Davco as forwarder or alternatively that the plaintiff as agent for Davco instructed the defendant to act as Davco's forwarder. There were no contracts of carriage between the plaintiff and the defendant. The plaintiff was selling goods on FOB terms; on delivery of the goods to the vessels, the title in them passed to Davco. The defendant therefore denies owing the plaintiff any duty as alleged. The defendant further says that it had for some time acted as forwarder for Davco under a "Revised Consolidation Procedures Agreement". There are lengthy averments as to the procedures followed, but basically what is averred is that the plaintiff would notify the defendant of a proposed shipment and the defendant would seek confirmation from Davco before proceeding. It would then, on the basis of information given by the plaintiff in a shipping order, prepare bills of lading showing Davco as the consignee, which it would send to Davco, and FCRs which it would send to the plaintiff. Davco would obtain the release of the goods by presenting the bills of lading, whereas the plaintiff would present the FCRs to the bank for negotiation of the documentary credit. In respect of all shipments save the two at issue in this case, Davco had obtained release of the goods, and the plaintiff had obtained payment in this way. The defendant accordingly says that the plaintiff was estopped under the doctrine of estoppel by convention from alleging that the defendant should fill in particulars of the bills of lading, and/or not release the goods except on production of the FCRs.

4. The plaintiff by way of reply admits that the goods were sold on FOB terms but avers that this did not signify the intention of the plaintiff and Davco to be governed by the legal obligations relating to FOB contracts. In respect of the previous procedures the plaintiff admits that it had previously obtained payment of the price of goods by presenting the FCR for negotiation of documentary credits.

5. The following appears from the documents, and is not in dispute.

6. The plaintiff issued to Davco buying confirmation notes no.99-3-05085 dated 27 May 1999 for goods at a price of US$67,554.00, for delivery before July 30 1999, and no.99-3-06107 dated 29 June 1999 for goods at a price of US$51,959.61, for delivery one or before 10 August 1999. In each case payment was expressed to be "by transferable confirmed irrevocable 100% at sight letter of credit" opened through the plaintiff's bank, the Hang Seng Bank.

7. On 23 July 1999 Davco sent to the plaintiff by fax a copy of an irrevocable letter of credit ("LC") no. I038662 issued by EAB in favour of the plaintiff for US$95,849.40 on 22 July 1999. On 25 July, the Hang Seng Bank notified the plaintiff that it had received, without any engagement on its part, the same LC. This LC showed the expiry date 25 August 1999 but the date was later amended to 15 September 1999. The documents required for negotiation were, inter alia, "a full set of clean on board ocean bills of lading consigned to the order of European American Bank marked freight collect and notify Davco Silver Ltd". Insurance was to be effected by the buyer. The LC also specified "cargo receipt acceptable in lieu of ocean bill of lading". All documents were to be sent to the EAB. The period for presentation was shown as "15 days after issuance of the transport document but within the validity of this credit" .

8. On 10 September 1999 Davco sent to the plaintiff by fax a copy of an irrevocable LC no.I038735 issued by EAB in favour of the plaintiff for US$67,554.00 on the same date. The following day, the Hang Seng Bank notified the plaintiff of its receipt of the LC. Its terms were identical to those of the first LC, save that the date of expiry was 30 October 1999.

9. In respect of the first shipment, the defendant issued to the plaintiff FCR no. BA 657 dated 5 October 1999, showing the plaintiff as exporter, EAB as the consignee and Davco as the "notify party". It also issued a bill of lading, no. APLU 0233253034 dated 2 October 1999 showing the shipper as "MCS Ltd. for and on behalf of Simple Symbol Ltd.", the consignee as Davco, and the "notify party" also as Davco. The vessel was Asimont No.166.

10. In respect of the second shipment, the defendant issued to the plaintiff FCR no. BA676 dated 2 November 1999, again showing the plaintiff as exporter, EAB as the consignee and Davco as the "notify party". It also issued a bill of lading, no. APLU 023253039 dated 30 October 1999 which again showed the shipper as "MCS Ltd. for and on behalf of Simple Symbol Ltd.", the consignee as Davco, and the "notify party" also as Davco. The vessel was Asimont No.168.

11. On 8 October 1999, the plaintiff issued a draft of exchange No.99/9878 to the EAB against LC no.I038662 for US$67,424.40 but payment was refused on the ground of discrepancies. These were that the beneficiaries statement, as well as other documents indicated the vessel as 1669 whereas in the FCR it was shown as 166, and that the shipment had been effected to Ozone Park, New York, via Los Angeles, California whereas the LC called for the shipment to be made to New York N.Y., with the final destination Ozone Park, New York. In fact, the LC appears to show transportation to Elizabeth, New Jersey. Also, as noted above, the expiry date was 15 September 1999. In any event, this refusal was communicated to the plaintiff by the Hang Seng Bank by fax message on 21 October 1999.

12. In respect of the second shipment, the plaintiff issued a draft of exchange to the EAB for US$16,815.60, dated 5 November 1999, also against LC no.I038662. Payment was also refused, this time on the grounds that the LC had expired, late presentation, late shipment, and a misspelling of the name of the port of shipment. This refusal was communicated to the plaintiff by the Hang Seng Bank by fax message on 17 November 1999.

13. On 10 December 1999, the plaintiff wrote to the defendant advising that owing to non-payment from the buyer for the two shipments, it had no choice but to call back the goods, and asking the defendant to let it know where the goods were so that it could give further instructions as to how to take the next step. The defendant appears to have advised that it had released the cargoes to Davco. On 13 December 1999, the plaintiff again wrote to the defendant protesting against the mishandling of the shipments and noting that according to the cargo receipts, the shipments were to be consigned "to the order of European American Bank". The plaintiff went on to say that if Davco failed to pay for the shipments against the LC within a reasonable period of time, it would hold the defendant to be responsible for the value of the goods.

14. Further correspondence indicates that Davco refused to pay for the goods which had been shipped in the two consignments on the ground that they were defective. There were some negotiations between the parties but these came to nothing. Ultimately the plaintiff's solicitors wrote a letter before action on 29 February 2000 and these proceedings were issued on 7 March 2000.

15. The issues for decision are :

(1)	Whether there were contacts of carriage between the plaintiff and the defendant or between Davco and the defendant;
(2)	If the former, whether the defendant acted in breach of those contracts by issuing the bills of lading to Davco in which Davco was named as the consignee;
(3)	Whether the property in the goods passed to Davco when the goods were loaded onto the ships in Xingang PRC;
(4)	If so, whether the defendant breached its duty to the plaintiff as a bailee or committed the tort of conversion;
(5)	Whether the defendant can make out its defence of estoppel by convention.

16. Evidence for the plaintiff comes from Ms Lo Hung Kau, Rebecca, the assistant shipping manager, and Ms Fung King Yi, the operations officer. Ms Lo adopted a witness statement in which she detailed how she had received the LC and made out shipping orders to the defendant, on the basis of which, according to her, the plaintiff would enter the contract of carriage with the defendant. She said that the plaintiff and Davco had agreed that Davco would nominate the freight forwarder, namely, the defendant and that the defendant and the plaintiff would enter into a contract of carriage. She further said that this arrangement had been in place between the plaintiff and Davco for several past transactions. However, it became quite apparent from cross-examination that she had no direct knowledge of any contractual dealings or negotiations between the plaintiff and Davco.

17. Ms Lo also said that she knew that it was important that the property in the goods would not pass to Davco until the plaintiff had obtained full payment. She said that by means of the shipping order she gave instructions to the defendant that, inter alia, the consignee to be named in the bills of lading or cargo receipt to be "to the order of European American Bank" and that the goods should only be released upon the production of cargo receipts. However, it became apparent from cross-examination that she had little real knowledge of what happened outside her immediate sphere of work. In oral evidence, she said that Davco would have to pay the EAB before receiving the FCR, which it would then take to the shipping company to exchange for the bill of lading and after that it would take delivery of the goods. However, such information that she had on this had come from the Hang Seng Bank and not from her own knowledge.

18. Ms Lo did not know very much about bills of lading and indeed she had never received any in these or the previous transactions which she had had with the defendant. One thing, however, which did become apparent from cross-examination was this: contrary to what she had said in the written statement, the factory which produced the goods in Xingang was not the plaintiff's factory at all, but an independent factory from which the plaintiff purchased the goods for onward sale to Davco.

19. Ms Fung was the operations officer of the plaintiff. As such she supervised the shipping department in which Ms Lo worked. Ms Fung adopted as evidence a witness statement. In it she said that the plaintiff would sell goods to Davco, which would pay for them by way of an irrevocable LC. This LC would be opened in favour of and payable to the plaintiff upon presentation of, amongst other documents, the original bills of lading of FCR. The property in the goods would not pass to Davco until the plaintiff had presented the documents and obtained full payment from the EAB. The defendant would be responsible for the freight charges and insurance. Because Davco was responsible for the freight, the term "FOB Xingang" was used in the purchase orders and other documents but this term merely denoted the plaintiff's calculation of the price of goods in the contract between the plaintiff and Davco. Davco would nominate a freight forwarder and the plaintiff would enter into the contract of carriage with the freight forwarder for the account of Davco. Further, Davco could only take delivery of the goods upon presenting either the bill of lading or the FCR to the EAB.

20. Ms Fung said that this agreement had been in place between the plaintiff and Davco for several past transactions. She further said that the defendant was well aware of the contractual arrangements between the plaintiff and Davco and in particular knew that Davco was to pay the plaintiff by way of LC. This was clear from the fact that the shipping order instructed that the consignee be named as "to the order of European American Bank".

21. Ms Fung said that if the defendant had complied with the plaintiff's instruction it would have made out the bills of lading showing the consignee as "to the order of European American Bank". But the defendant did not. She said that in the normal course, Davco would only obtain the FCR or bill of lading from the EAB after the plaintiff had produced the relevant documents against the LC. The EAB would then pay the plaintiff. After Davco had paid the EAB in full, that bank would surrender the FCR or bill of lading to Davco and only then could the defendant release the goods to Davco.

22. Ms Fung also said that a clause appearing on the back of the FCRs, the important part of which is that it bears to show that the FCR is not a document of title, did not apply to the plaintiff. There is various other evidence in the witness statement which I do not need to repeat here.

23. In oral evidence-in-chief, Ms Fung said that in the plaintiff's transactions with Davco, the plaintiff never received the bill of lading. It received the FCR. The plaintiff would send the FCR to the Hang Seng Bank with a set of documents which included the invoice and packing list. The Hang Seng Bank should send these documents to the EAB which in term should obtain the money from Davco. After the bank had received Davco's money, it would give Davco the original documents and would then pay the plaintiff through the Hang Seng Bank. After Davco had paid EAB and got the documents they would go to the American office or agent of the defendant to take delivery of the goods. Davco, after obtaining the FCR, would go to the defendant to exchange it for the bill of lading which it would use to take delivery of the goods.

24. From cross-examination, however, it appears that Ms Fung had no real knowledge of the procedure to be undertaken in the United States. She said that it was a matter of trade practice. With regard to the clause on the back of the FCR, which she had said in her statement did not apply to the plaintiff, she said that she had not seen or known about this clause before the litigation commenced. Although she had spoken to the contractual arrangements between the plaintiff and Davco, she had not taken part in any negotiations with Davco herself. Although she insisted the property in the goods did not pass to Davco until Davco had paid the bank, she clearly had little or no knowledge of any contractual arrangement to this effect but rather based her view on the fact that the LC required the bills of lading to be made out to the order of the bank.

25. The first witness for the defendant was Ms Lisa Chia Ni Sa. She was a shipping clerk with Shenzhen Sea Freight (Hong Kong) Limited, the defendant's agent for dealing with shipments from most ports in the PRC, including Xingang. Like Ms Lo, she described in her written statement the mechanics of the work she did. It was she who received the shipping order from Ms Lo, and who prepared the FCRs and the bills of lading. She said that because she knew that the defendant had to follow the consolidation procedures applicable to the account of Davco so that she would invariably cause the bills of lading to be prepared in accordance with those procedures. Davco would be named as the consignee on the bills of lading. She said that the plaintiff had never questioned this practice in the past.

26. Once the factory had loaded the containers and returned them to the carrier's terminal, the plaintiff would provide the defendant's agent with the commercial documents required for the LC. In exchange for these documents Ms Chia would send the FCR to the plaintiff. She would send the commercial documents received from the plaintiff and the original bills of lading to the consignee, i.e. Davco.

27. Ms Chia said that she did not know anything about the contractual arrangements between the plaintiff and Davco as to when the property in the goods was intended to pass to the latter.

28. In oral evidence-in-chief, Ms Chia enlarged on the procedures which she followed, which also included a notification to and receipt of confirmation from Davco, that space was to be booked with the shipping company. In cross-examination she agreed that the bank would be put as the consignee on the FCR because for the transaction it had to go through the bank. She knew that there would be a LC between the vendor and purchaser. She did not know why they used a LC. Usually if the goods were to be paid for through a bank there would be an order bill rather than a straight bill of lading, but in this case the bills of lading were straight bills, i.e. not made out to the order of anyone. She did not know if the plaintiff knew about the arrangement between the defendant and Davco contained in the consolidation procedures, but she had to follow those procedures. According to them, she had to show Davco as the consignee on the bill of lading no matter what the plaintiff's instructions were in relation to who that consignee should be. She agreed that contrary to the plaintiff's instructions, a straight bill rather than an order bill was issued but she did not agree that the plaintiff would expect her to issue a bill of lading in accordance with its instructions. Whatever those instructions would be, the bill of lading would always be made out to Davco as consignee. She had not disobeyed the plaintiff's instructions in putting in Davco as the consignee. She agreed that it was for the plaintiff as opposed to Davco that she had booked the shipping space with her company, but in every case, the plaintiff told her company what kind of goods they wanted to ship and then she had to get confirmation from Davco before her company could arrange the shipment.

29. In re-examination, she said that in so far as preparation of the FCR was concerned she followed the plaintiff's instructions to make this out "to the order of European American Bank". In compliance with the consolidation procedures of Davco, she put in the consignee on the bill of lading as "Davco". For the purposes of the bill of lading she followed the instructions of Davco and for the purposes of the FCR she followed the instructions of the plaintiff. She had in cross-examination agreed that she had acted contrary to the instructions of the plaintiff in making the bills of lading but she did not regard putting in the consignee as "Davco" in the bills of lading as contrary to the instructions of the plaintiff. As far as she was concerned Davco was the client of the defendant and that she had to follow the practice agreed between Davco and the defendant.

30. The next witness for the defendant was Ms Wu Wing Sze who was employed as a supervisor by the defendant. According to her statement, the defendant would not take shipment authorization from any party except the consignees as they had requested the defendant's services and would pay for them. One of the defendant's customers is Davco, and it had been engaging the defendant's services through its head office since 1985. The guidelines for handling their cargo were established in their consolidation procedures. The Hong Kong office of the defendant would invariably have to follow those procedures, which required that the consignee and the "notify party" on the bills of lading would have to show "Davco". The bills of lading would be sent to Davco by a courier.

31. Ms Wu set out the basic service for every account, including that of Davco. In particular she said that the FCR would allow the vendor to obtain payment upon presentation of the same and other documents to the corresponding bank in Hong Kong. In practice the vendor can get paid before a cargo even arrives at the destination as long as all of the required documents required by the LC are presented.

32. In her statement, Ms Wu also noted that the reason for non-payment of the plaintiff under the LC appeared to be the fact that it had expired and also that there were discrepancies.

33. Ms Wu made reference to other shipments made by the plaintiff to Davco both before and after those which are in dispute in this case. By reference to the documents produced, she said that all the bills of lading showed Davco as the consignee. She said that in none of these other cases had the plaintiff ever made any claim that the defendant should not release the bills of lading to Davco.

34. She said that the defendant does not collect freight from the vendors. All the FCRs are printed "freight collect"; Davco paid it. The defendant charged Davco a consolidation fee for its service.

35. She also said that the defendant did not know of the contractual arrangements between the plaintiff and Davco as to when the property in the goods was to pass.

36. From cross-examination it appears that Ms Wu did not have any direct involvement in dealing with the shipments which in issue here. She gave evidence of her usual practice in dealing with Davco and the plaintiff. I asked her whether, once the plaintiff obtained the FCR it could take that to the bank and thereby obtain payment but she said that she had no direct knowledge of this, which was a matter between the vendor and the consignee.

37. It is unfortunate that so far as various aspects of this case are concerned, evidence is given by witnesses who have no direct knowledge of those aspects.

38. Turning to the first issue, which is whether there were contracts of carriage between the plaintiff and the defendant, it seems to me that one must bear in mind the fact that it was not the plaintiff but Davco which was paying the defendant for its services. Further, Davco gave the defendant specific and lengthy instructions, in the form of the consolidation procedures, as to how of those services should be performed. These consolidation procedures were addressed to the defendant by Davco and were clearly intended to regulate how the defendant should deal with shipments of goods from various ports. On the evidence it appears that the plaintiff sent the shipping order to the defendant or its agent who acquired the information as to the number of containers from it, but then had to look for a date and check that with the shipping company, before sending a booking advice to Davco, through the agent's New York office, for Davco's confirmation that the shipment could go ahead. What the agent was doing was obtaining information, rather than instructions, from the plaintiff; the instructions being contained in Davco's confirmation.

39. The goods were sold on FOB terms. The plaintiff refers to the classification of the types of FOB contract referred to by Donaldson LJ in The El Aria and El Minia [1982] Lloyds Rep 28 at 32 as follows :

"In Pyrene & Co. v. Scindia Navigation Co., [1954] 1 Lloyd's Rep. 321; [1954] 2 Q.B. 402, at pp. 332 and 424 Mr. Justice Devlin instanced three types of f.o.b. contract. In the first, or classic type, the buyer nominates the ship and the seller puts the goods on board for account of the buyer, procuring a bill of lading. The seller is then a party to the contract of carriage and if he has taken the bill of lading to his order, the only contract of carriage to which the buyer can become a party is that contained in or evidence by the bill of lading which is endorsed to him by the seller. The second is a variant of the first, in that the seller arranges for the ship to come on the berth, but the legal incidents are the same. The third is where the seller puts the goods on board, takes a mate's receipt and gives this to the buyer or his agent who then takes a bill of lading. In this latter type the buyer is a party to the contract of carriage ab initio.

40. Counsel argues that, by reference to this classification, the contract must have been of either the first or the second type. In particular he relies on the fact that the plaintiff would, in respect of the shipments to be sent to Davco, send shipping orders to the defendant on the basis of which cargo space would be reserved and that, according to the Davco procedures, the shipper was to be shown on the bill of lading as M.C.S. Ltd for and on behalf of the vendor. But I do not think it is so simple. As I have indicated, there had to be confirmation from Davco before the shipment could go ahead. Further, the plaintiff never procured a bill of lading.

41. It is true that Davco required the bills of lading to be made out showing the shipper as the defendant on behalf of the vendor. However Davco's instructions to the defendant on this would not necessarily mean that there was a contract between the plaintiff and the defendant. On the totality of the evidence it appears rather that the contract of carriage was between Davco and the defendant, and that insofar as the plaintiff had to place shipping orders with the defendant, the instructions in which had to be confirmed by Davco, it was acting as Davco's agent.

42. It is true that the defendant issued FCRs to the plaintiff but on the back of every FCR was printed the following :

"Received the goods described on the reverse side hereof in apparent of good order and condition expect has noted, to be held and transported subject to the terms and conditions contained in the regular form of bill of lading of the carrier. The goods are received subject to delay or carrier's inability to carry due to accumulation of goods, lack of conveyances, space or facilities of any sort, labour disputes, strikes, lockouts, riots, war, government authority or any condition whatsoever be on the control of carrier. Nothing in this cargo receipt shall operate to limit or deprieve the carrier of any statutory protection or of any exemption or limitation of liability. This document is issued only to aid the shipper in seeking negotiation of the relevant letter of credit. This document does not grant any title to the goods described on the reverse side hereof."

43. It is all very well for the plaintiff to say, through a rather junior employee who has little knowledge beyond the work she does herself, that this is simply a pro forma and does not apply to it, but the simple fact is that on the face of the FCR there is reference to the terms and conditions and it must be perfectly obvious to anyone dealing with the FCR that one of these terms and conditions is printed on the back. What the printed legend shows is that the FCR is simply a receipt issued to aid the plaintiff in negotiating the letter of credit; it is not a document of title, and neither is it a contract document.

44. In the circumstances it is very difficult to see how the FCR could be said to constitute a contract of carriage. That is what is pleaded. Nor is it apparent that the shipping order and the acceptance of the same by the defendant would constitute a contract of carriage. It is rather a notification to the defendant of what is to be done by it as part of its services rendered under its contract with the defendant.

45. I am satisfied therefore that the contracts of carriage in respect of these two shipments were between Davco and the defendant, and not between the plaintiff and the defendant. So there can be no question of any breach of contract as between the plaintiff and the defendant.

46. I turn to the question of when the property in the goods passed. This is regulated by section 19 of the Sale of Goods Ordinance, Cap.26 which provides :

"(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 circumstances of the case."

47. Section 20 of the Ordinance provides rules for ascertaining the intention of the parties as to the time at which property is to pass. The relevant rule is Rule 5 (2) which provides :

"(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."

48. It is unfortunate that in this case we have no evidence from Davco, but only from the plaintiff as to what was the intention of the parties to the sale. The plaintiff's employees who have given evidence were not involved in the making of that contract and what they say is not necessarily to be regarded as accurate. The only documents we have are the buying confirmation notes, and they do not specify when the property is to pass.

49. So far as the conduct of the parties is concerned, it is not in dispute that the goods were shipped "FOB Xingang". According to Ms Fung's evidence that represented the total value of the goods sold to Davco including transport and insurance up to the point of loading on the ship. After that the buyer paid for everything, including insurance and sea transport and the charges for taking delivery after arrival at the port. In fact the plaintiff bought the goods from the factory on the same FOB basis, paying the factory for the price of the goods plus transport to the ship.

50. The situation here was something like Lord Devlin's third category of FOB contract. According to Ms Chia, no mate's receipt was issued; but she said that what happened was that her office would ask her company's branch office to release the container to the vendor's factory and the goods would be loaded, counted and sealed there. Her company would arrange the truck transportation of the containers from the factory to the dock and the shipping company would be responsible for loading them on the ship. In other words, the goods passed into the possession of the defendant's agent which was effectively the agent of Davco, at the factory. The defendant procured the bill of lading; and the defendant issued the FCR to the plaintiff.

51. This also appears to be the position contemplated by Rule 5(2) in section 20, unless the plaintiff can be said to have reserved the right of disposal. It is argued that the fact that the plaintiff had instructed that the consignee be shown as "to the order of European American Bank", along with, of course, its alleged agreement with Davco as to when property should pass, showed that it had. An order bill of lading would show such reservation of right but it appears that Ms Lo never actually instructed that bills of lading be prepared, and Ms Fung never cast her mind to them because the plaintiff could be paid on presentation of the FCR.

52. The plaintiff's witnesses were at pains to describe a procedure whereby they would present the FCR to their bank, and from there it would go to the EAB, where Davco would redeem it for money, and use it to obtain the bill of lading, against which it could take delivery, but I cannot accept that that is what happened. The LCs were irrevocable and, so long as the required papers were presented to it, without discrepancies, the EAB would pay out on sight of them. It is true that the LC calls for a set of bills of lading consigned to the order of EAB, but it also specifies that the FCR is acceptable in lieu of the bill of lading. The plaintiff did in fact present the FCR, and the EAB did not refuse to pay out because it had not received the funds from Davco but because of the discrepancies it mentioned. In this connection the evidence of Ms Wu, that consignments had been dealt with in this way both before and after the shipments concerned here, is relevant. In respect of those shipments the plaintiff got the FCR; Davco got a straight bill of lading on which it could take delivery; and apparently the plaintiff was paid on presentation of the FCR.

53. For the purposes of section 19 regard must be had to the terms of the contract between the plaintiff and Davco, the conduct of the parties, and the circumstances of the case. The terms of that contract are a matter of ignorant assertion on the part of the plaintiff's witnesses; they do not really know anything about them. But the conduct of the parties and the other circumstances infer that property must have been intended to pass when the goods were loaded on the ship. Looking at it simply, once the goods were loaded the plaintiff would get the FCR, and then all it needed to do was to collect the money from the EAB; its money was secure and it had no further interest in what happened to the goods.

54. The fact that the plaintiff was not paid on presentation, not because Davco had been able to take delivery of the goods without putting the bank in funds to pay for them, but because of discrepancies found by the bank, also means that if there had been a contract and the defendant had been in breach, such breach was not the cause of the defendant's loss. The plaintiff was not paid because of irregularities in the presentation of documents to the EAB. Rightly or wrongly, Davco took advantage of the situation. But the non-payment did not result from any action on the defendant's part.

55. Since property in the goods passed to Davco, the defendant could not be the plaintiff's bailee of the goods. The plaintiff was not the bailor. The defendant did not owe the plaintiff any duty in respect of the goods.

56. Since there was no contract of carriage between the plaintiff and the defendant, and no bailment, it follows that the defendant was not in breach of contract nor of the duties of a bailee when it delivered the goods Davco or when it consigned them to Davco on straight bills of lading. It is not therefore necessary go into the issue of estoppel by convention. This would only arise if there had been a contract, and a common mistaken assumption which the parties had communicated to each other, about the performance of that contract. On my findings there was no contract.

57. The plaintiff's claim is accordingly dismissed with costs (nisi) to the defendant to be taxed if not agreed.

Representation:

Mr Victor Dawes, instructed by Messrs Kitty So & Tong, for the Plaintiff

Mr Andy Hung, instructed by Messrs Lo, Chan & Leung, for the Defendant

HCA 2882/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2882 OF 2000

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R E A S O N S   F O R    J U D G M E N T

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1. This is an appeal by the defendant from the order of Master C.B. Chan on 7 August 2001 in which she ordered that the defendant's summons for determination of various issues under O.14A of the Rules of the High Court and for striking out of the Statement of Claim be dismissed. After hearing submissions of counsel, I have dismissed the appeal from the Master's decision and these are the reasons for my decision.

2. The plaintiff sold various quantities of candle holders ("the goods") to a buyer in the United States known as Davco Silver Limited ("Davco") in mid 1999. The goods were sold on the term of "FOB Xingang". Xingang is a port in Tianjin in China. The defendant is a freight forwarder and it had issued two Forwarder's Cargo Receipts No. BA657 dated 5 October 1999 and No. BA676 dated 2 November 1999 ("the cargo receipts") to the plaintiff, acknowledging that the goods were received by the defendant in apparent good order and condition and that the goods were to be shipped by the vessel as stated in the cargo receipts and on the terms and conditions set out therein. The plaintiff failed to obtain payment for the goods from Davco under the two letters of credit provided by Davco. Notwithstanding this, the goods were released to Davco without production of any of the cargo receipts. The plaintiff claims against the defendant for the loss and damage suffered being the value of the goods that Davco had failed to pay in the sum of US$84,240.00. It is alleged by the plaintiff that it had a contract of carriage with the defendant as contained in or evidenced by the cargo receipts and that the defendant had acted in breach of contract in releasing the goods to Davco without the authorisation or consent of the plaintiff or of the consignee in the cargo receipts. It was stated in the cargo receipts that the goods were consigned to the order of European American Bank, which was the issuing bank of the letters of credit for the goods. Further, it is alleged by the plaintiff that the defendant had acted in breach of its duty as a bailee for reward. Further or in the alternative, the plaintiff claims against the defendant in conversion.

3. The issues that the defendant has sought to ask the court to determine in the O.14A procedure are designed to establish two matters:

(1) the plaintiff was not the owner and had no proprietary interest in the goods when the goods were released to Davco in the United States; and

(2) there was no contract of carriage between the plaintiff and the defendant as alleged.

4. The issues to be determined, as framed by the defendant in its summons, are as follows:

"(a) whether pursuant to the contracts evidenced or referred to in Buying Confirmation Note No. 99305085 and Buying Confirmation Note No. 99306107 made between the plaintiff on the one part and their buyer called Davco Silver Limited ("Davco Silver") of the USA on the other part, the goods, namely, the chrome plated candle holders ("the goods") referred to in the said Buying Confirmation Notes were sold on "FOB Xingang" term;

(b) whether the plaintiff by causing the goods to be placed on board of the vessels at Xingang, the property of the goods had already passed to the buyer Davco Silver and thereafter the plaintiff accordingly had ceased to have any proprietary interest in the goods;

(c) further or alternatively, whether the two forwarder cargo receipts, namely, Cargo Receipt No. BA657 and Cargo Receipt No. BA676 ("the two forwarder cargo receipts"), did not constitute any contract of carriage as alleged by the plaintiff;

alternatively, even if the two forwarder cargo receipts did constitute contracts of carriage, whether the plaintiff was making the contracts as the agent of the consignee, namely, Davco Silver, with the defendant; and

(d) whether the two forwarder cargo receipts issued by the defendant to the plaintiff are not documents of title at law."

Whether the plaintiff was the owner of the goods

5. It is the defendant's contention, as pleaded in the Defence, that as the goods were sold on the term of "FOB Xingang", Davco was the owner of the goods at all material times because upon the delivery of the goods on board the vessels in Xingang, the property of the goods had already passed to Davco. That being the case, the plaintiff would have no title to sue the defendant in tort.

6. The plaintiff did not file any Reply to the Defence which was filed and served in April 2000. It was only in the opposition to the defendant's summons for determination of issues under O.14A and for striking out of the Statement of Claim issued in February 2001 that the plaintiff filed evidence setting out its contention that the plaintiff was the owner of the goods at all material times as pleaded in the Statement of Claim. According to the plaintiff's affirmation, an agreement was reached between the plaintiff and Davco as follows:

(1) The plaintiff would sell goods to Davco and Davco would pay for the goods by an irrevocable letter of credit.

(2) The letter of credit would be opened in favour of and payable to the plaintiff upon presentation of, among other documents, the original bill of lading or cargo receipt.

(3) The property in the goods would not pass to Davco until the plaintiff had presented the documents and obtained full payment from the European American Bank, which was the issuing bank.

(4) Davco would be responsible for the freight charges and insurance.

(5) Davco would nominate the carrier or freight forwarder and the plaintiff would enter into a contract of carriage with the nominated carrier or freight forwarder for the account of Davco.

(6) Davco could only take delivery of the goods upon presenting the original bill of lading or the cargo receipt it had obtained from the European American Bank.

7. It is alleged by the plaintiff in its opposing affirmation that the aforesaid terms as agreed applied to the sale and purchase of the goods in question as evidenced by Buying Confirmation Notes No. 99305085 and 99306107. It is further alleged that before the shipments in question, the defendant was well aware of the above terms as agreed as the plaintiff had specifically instructed the defendant that the consignee was to be named as "to the order of European American Bank", whether the document was to be the cargo receipt or the bill of lading. The staff of the plaintiff who had allegedly given such instructions to the defendant was one Ms Rebecca Lo of the shipping department of the plaintiff. It would appear from the cargo receipts that the consignee as stated was in compliance with the alleged instructions. However, in the bill of lading, which was not supplied to the plaintiff prior to the commencement of these proceedings, the consignee was stated to be Davco. It is alleged by the plaintiff in its affirmation that this was not in compliance with the plaintiff's instructions. Thus, it would appear from that affirmation that the defendant was in breach of its obligations not only in releasing the goods to Davco without production of the cargo receipts, but the defendant had also failed to provide proper details in the two bills of lading in that Davco was wrongly named in the bills of lading as the consignee, contrary to the plaintiff's instructions. It was because Davco was named as the consignee in the bills of lading and the defendant had released the bills of lading to Davco that Davco was able to obtain release of the goods without effecting payment.

8. In the case of a contract for the sale of unascertained or future goods by description on FOB terms, there is a prima facie rule that the property passes to the buyer on shipment in that the goods would have been unconditionally appropriated to the contract at that point in time (see Rule 5(1) of section 20 of the Sale of Goods Ordinance, Cap. 26; Vol. 41 Halsbury's Laws of England (4th ed., Reissue), para. 351). The prima facie rule may be rebutted where the seller takes or deals with the shipping documents in such a form or manner as to show that he did not intend to appropriate the goods to the contract or that he has reserved a right of disposal (see Rule 5(2) of section 20, Cap. 26). Section 21 of Cap. 6 deals with reservation of the right of disposal by the seller and the relevant provisions are as follows:

"(1) 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.

(2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal."

9. On the plaintiff's case, as appears from its affirmation in opposition, the plaintiff had reserved the right of disposal by the terms of the agreement reached with Davco in that the property in the goods was not to pass to Davco until the plaintiff had obtained payment under the letter of credit from the issuing bank, that Davco was only to take delivery of the goods upon presenting the bill of lading or the cargo receipt to the issuing bank, and that the plaintiff had specifically instructed the defendant that the consignee named in the shipping document, whether this be the cargo receipt or the bill of lading, should be to the order of the issuing bank.

10. If the plaintiff could establish the matters alleged in its affirmation, it seems to me that the plaintiff would have reserved the right of disposal of the goods and as the condition imposed by the plaintiff had not been fulfilled by Davco, the property in the goods would still have remained with the plaintiff at the material time. I do not think it is material to my decision in this appeal whether the plaintiff can successfully establish the right of disposal with the benefit of the presumption in section 21(2) of Cap. 26 or without the benefit of that presumption in section 21(1).

11. It was argued by Mr Andy Hung for the defendant that I should disregard the allegation in the plaintiff's affirmation for two reasons. Firstly, the alleged agreement between the plaintiff and Davco regarding the reservation of a right of disposal has not been pleaded in the Statement of Claim and the plaintiff has not filed a Reply. Secondly, the alleged agreement was not borne out by any of the documents disclosed by the plaintiff and they are merely bare assertions. I was referred to paragraph 18/19/13 of the Hong Kong Civil Procedure 2001 for the proposition that in a very strong case the court may still order pleadings to be struck out notwithstanding that the facts are in dispute. I am unable to accept Mr Hung's submissions. I am not persuaded that it would be appropriate to disregard the plaintiff's assertion on affirmation of its arrangement with Davco that would have the effect of reserving the right of disposal. There is a dispute as to fact in this matter and this dispute should be resolved in a trial.

12. Issue (a) as framed in the defendant's summons, i.e. whether the goods were sold on the term of "FOB Xingang", does not appear to me to be an appropriate issue to be determined under the O.14A procedure because the determination of this issue will not finally determine the issue herein, namely, whether the plaintiff was the owner of the goods at the material time. As I have stated above, the prima facie rule that the property in the goods has passed on shipment when the goods were sold on FOB terms may be rebutted where the seller has reserved to himself a right of disposal. Issue (b) as framed in the defendant's summons, i.e. whether the property of the goods had passed to Davco when the plaintiff caused the goods to be placed on board the vessels at the loading port, is also not appropriate to be determined under the O.14A procedure because this question is not suitable for determination without a full trial of the action. For the above reasons, the defendant's summons for determination of the issues in (a) and (b) must be dismissed.

13. As for issue (d) in the defendant's summons, i.e. whether the cargo receipts are documents of title, it is also not appropriate for determination under this procedure. The relevance of this issue, as I understand from Mr Hung's argument, would appear to be two-fold. Firstly, it would appear to be his contention that if the cargo receipt was not a document of title, the fact that the plaintiff had retained the cargo receipts throughout would not establish the plaintiff's case that the property in the goods had not passed to Davco. Secondly, Mr Hung would appear to contend that as the cargo receipts were not documents of title, they were not required to be produced by Davco to obtain a release of the goods and the defendant had not acted wrongfully in releasing the goods to Davco without the cargo receipts. I am not persuaded that the issue whether the plaintiff had reserved a right of disposal should be resolved by characterizing the cargo receipt as a document of title or otherwise. In my view, one should look at the substance of the condition imposed by the seller to ascertain whether the seller has indicated his intention to retain a right of disposal and the form and manner that the seller takes or deals with a shipping document. Further, even if the cargo receipts were not documents of title, it does not mean that the defendant would be justified in releasing the goods to Davco without the cargo receipts if the plaintiff had specifically instructed the defendant that the consignee to be named in the shipping document, whether this be the cargo receipt or the bill of lading, should be to the order of the issuing bank and the defendant had failed to comply with the specific instructions. I am unable to see how the determination of issue (d) will finally determine the entire cause or a relevant issue in this action. For that reason, I also reject the defendant's application to determine issue (d) under the O.14A procedure.

Whether there was a contract of carriage between the plainitff and the defendant

14. It is alleged in the Statement of Claim that the plaintiff had made two contracts of carriage with the defendant as contained in or evidenced by the cargo receipts. This is denied in the Defence. It is the defendant's pleaded case that it had acted for Davco as the latter's freight forwarder; alternatively, the plaintiff had acted as the agent of Davco in giving instructions to the defendant to act as the forwarder for the goods. These are the matters that the defendant sought to be determined in the summons in issue (c). The defendant relied on the fact that the defendant had agreed standard terms with Davco in the goods consolidation procedures and that the cargo receipts were all marked "freight collect". It was argued that the plaintiff had provided no consideration to support any contract of carriage made between the plaintiff and the defendant. Lastly, the defendant also relied on a rebuttable presumption of law that the consignor would have entered into a contract of carriage with a carrier as agent for the consignee, in the absence of evidence that the consignor had made a special contract with the carrier by which the carrier agreed to take the goods from the consignor and to deliver them to any particular person at any particular place.

15. Again, issue (c) does not seem to me appropriate for determination under this procedure because there are issues of fact interwoven with the legal issues raised and unless and until the factual disputes are resolved, the court cannot make a determination on the legal issue. The plaintiff has alleged on affirmation that the plaintiff had given specific instructions to the defendant regarding shipment and the preparation of documents by the defendant, and that the name of the consignee on the cargo receipts had conformed with the plaintiff's instructions but not that in the bills of lading. Mr Patrick Chong, who appeared for the plaintiff, referred me to The El Amria [1982] 2 Lloyd's Rep 28 at 32 in which Donaldson L. J. approved the statement of Devlin J. in Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 QB 402 at 424 in which he set out three types of FOB contract. In the first, or classic type, the buyer nominates the ship and the seller puts the goods on board for the account of the buyer, procuring a bill of lading. The seller is then a party to the contract of carriage and if he has taken the bill of lading to his order, he transfers it to the buyer. The second type is a variant of the first in that the shipping and insurance arrangements are made by the seller for the account of the buyer. As in the first type, the seller enters into a contract with the carrier and transfers the bill of lading to the buyer. The third type is where the buyer engages his own forwarding agent at the port of loading and to procure the bill of lading and the seller simply puts the goods on board, takes a mate's receipt and gives this to the buyer or his agent who then takes a bill of lading. In this instance, the buyer is a party to the contract of carriage ab initio.

16. It is the plaintiff's contention that it would come within the first type of FOB contract whereas it would appear from the defendant's contention that the present case would fall within the third type. It would simply be inappropriate for me to determine the issue at this stage when the available evidence is neither clear nor adequate for the factual dispute to be resolved, so that the court would not be giving a legal ruling in vacuo. For this reason, I also reject the application for determining issue (d) in the defendant's summons.

The striking out application

17. The defendant's application to strike out the Statement of Claim is made on the premise that the issues in (a) to (d) would be resolved in the defendant's favour. As I have indicated above, it would not be appropriate to give a summary ruling on these issues at this stage. It follows that the application to strike out must also be dismissed.

Orders

18. The learned Master has clearly reached the correct decision in dismissing the defendant's application for determination under O.14A and for striking out of the Statement of Claim. I dismiss the defendant's appeal. The plaintiff has sought an order that the defendant should pay its costs forthwith as the defendant's application is misconceived. In the exercise of my discretion, I have ordered that the costs of the appeal should be paid by the defendant to the plaintiff in any event. I take the view that the plaintiff has not pleaded its case properly, that it may be necessary for the plaintiff to amend the Statement of Claim and/or to file a Reply and the inadequacy of the plaintiff's pleading might have caused the defendant to form certain views of the plaintiff's case and to seek the reliefs in the defendant's summons.

Representation:

Mr Patrick Chong, instructed by Messrs So and Company, for the Plaintiff

Mr Andy Hung, instructed by Messrs Lo, Chan & Leung, for the Defendant