Miruvor Ltd. v. National Insurance Co. Ltd.
Read the full judgment text of CACV 3937/2001 on BabelCite. This Court of Appeal judgment was delivered on 21 February 2003.
1. I agree with the judgment of Mrs Justice Le Pichon JA.
Cites 1 case
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CACV003937/2001 CACV 3937/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 3937 OF 2001 (ON APPEAL FROM HCCL NO. 160 OF 1996) ____________________
____________________ Coram: Hon Rogers VP, Le Pichon and Yuen JJA in Court Date of Hearing: 27 June 2002 and 14 January 2003 Date of Handing Down Judgment: 21 February 2003 ____________________ J U D G M E N T ____________________ Hon Rogers VP: 1.I agree with the judgment of Mrs Justice Le Pichon JA. Hon Le Pichon JA: 2.This is an appeal from the judgment dated 24 October 2001 of Stone J. The issue before the judge was whether the defendant insurer was liable to pay under 8 policies of marine insurance issued in 1995 upon "all risk" terms and incorporating the Institute Cargo Clauses (A) ("ICC(A)") which had been taken out by the plaintiff, a Hong Kong company, in respect of 8 shipments of electronic goods which it had sold to its Paraguayan buyer, Dansun S.R.L. The defendant was found liable in respect of 7 of those policies and the plaintiff obtained judgment against the defendant in the sum of US$807,253.50, being the net sum due after certain adjustments. Background 3.The plaintiff is a company engaged in the export business. Its owner, Mr Teckchand, had done a small amount of export business with Mr Medlej, the owner of two Paraguayan companies, Dansun S.R.L. and Puerto Negro S.R.L. in 1990-1991. The commercial relationship resumed in mid-1994 when the business environment in Paraguay improved. Since that date Mr Teckchand has insured with the defendant a total of 23 (and not, as the judge had found, 21) shipments to South America, of which 8 form the subject matter of this action. The defendant categorised the policies as follows:
Pausing here, I would remark that the basis of the classification is not readily apparent, save for the 8 policies with which this action is concerned. 4.As Paraguay is landlocked, shipments had to be made to or via a port of one of its neighbouring countries such as Brazil. Save for one of the prior policies where the destination was Cuidad del Este, Paraguay (via Paranagua), all the other 22 policies were for shipments to either the ports of Santos or Paranagua in Brazil. As the goods were destined for Paraguay, Brazilian import duty was not required to be paid. Rather, upon discharge in Brazil, the cargoes were stored in a duty free warehouse for goods bound for Paraguay. When goods are taken out of the customs warehouse, a levy to the Brazilian authorities is paid but not import duty. The evidence of Mr Teckchand was to the effect that to clear the goods out of the customs warehouse, customs clearing agents would have to produce an original bill of lading to the carriers' agent who would endorse it and the bill would be passed to the port authority who would then produce a delivery order against which the goods could be cleared after payment of local charges. 5.In the present case, the goods covered by the 8 policies were in fact stolen by Dansun at either Santos or Paranagua through forged bills of lading being produced to the carriers' agents. In other words, Dansun was able to obtain the goods without having to pay for them. The plaintiff claimed under the 8 policies and brought this action after the defendant had declined payment. 6.As noted above, the 8 policies incorporated the ICC(A). Clause 8 is the 'transit clause' which dealt with the duration of the policies:
This type of policy is commonly known as 'warehouse to warehouse' insurance. 7.Of the 8 shipments, four were of television sets while the remaining four were of handheld electronic games. It would appear that the contracts were c.i.f. contracts. Although the confirmation notes issued by the plaintiff to the buyer stated the terms of payment to be "D/P" (i.e. documents against payment), insofar as three of the four shipments relating to handheld electronic games were concerned, they contained an endorsement to the following effect:
It would therefore appear that at least to this extent, the D/P terms had been varied. The judgment below 8.At trial, the defendant raised three specific defences. First, the defendant relied on clause 8.1.2 of the ICC(A) and submitted that cover had ceased because, at the plaintiff's election, the goods had been stored at the Santos/Paranagua warehouses other than "in the ordinary course of transit". The defendant relied on the payment delays experienced by the plaintiff during the prior shipments, when Mr Medlej had actually taken longer to pay for the goods than the average time of transit of the shipments from Hong Kong to Paranagua/Santos. The judge rejected the defendant's submission that it was obviously the plaintiff's intention that the goods should remain in the customs warehouse pending payment and that this constituted an election for the purposes of clause 8.1.2. He found that the submission accorded neither with the facts nor with principle. The judge found that there was no other place for goods in transit to Paraguay to be stored but the one designated warehouse in both Santos and Paranagua. Even if it were correct to extrapolate from prior shipments the anticipated periods for payment for the shipments under consideration, the judge did not consider that the fact that Mr Medlej hitherto had not purchased the shipping documents as quickly as he might have done constituted an election for the purposes of clause 8.1.2. He held that delay in taking up the documents did not render the cargo stored "other than in the ordinary course of transit". 9.The second specific defence related to policy no. 7 only and was premised on the plaintiff knowing or suspecting by 23 June 1995 (the date that policy was issued) that goods were being wrongfully released to Dansun. The defence failed because the judge found that the defendant had failed to discharge the burden of establishing that as at 23 June 1995, Mr Teckchand knew or suspected what was happening but had failed to make due disclosure to the underwriters. 10.The third defence was based on clause 16.1 which imposed on the assured the duty "to take such measures as may be reasonable for the purpose of averting or minimizing such loss ...". The defendant argued that the plaintiff knew or at least had real reason to suspect as from 26 June 1995 that the cargoes were being stolen. As at that date, cargoes covered by policy nos. 1, 2, 3 and 7 had not yet been released to Dansun. But the judge found that whilst Mr Teckchand had become concerned by the end of June, he did not know then what in fact was happening. It was only at some stage shortly after Mr Teckchand's return to Hong Kong from India in late August 1995 that he must have realized what was happening. Given that the goods covered by policy nos. 1 and 3 had been released on 4 July 1995 and 30 June 1995 respectively and thus well before late August, the judge did not consider that there were any steps that Mr Teckchand could have taken to avert those losses. In relation to policy no. 2, those goods had been released on 29 August. However, Mr Teckchand had given specific instructions to the shipping company on 24 August not to release the cargo until further instructions but to no avail. In those circumstances, the judge held that the defence failed in relation to policy no. 2 as well. 11.That left policy no. 7. The goods were released on 6 September 1995. Here, there had not been a request to the shipper not to release the goods as had been made in respect of the shipment covered by policy no. 2. The judge held that the plaintiff had made an insufficient attempt to safeguard its goods and the defence succeeded in relation to the amount covered by policy no. 7. This appeal 12.The defendant submitted that the judge was wrong in holding it liable under the 7 policies as at the time of the theft insurance cover no longer attached. Its case was put on the basis that either the goods were no longer 'in the ordinary course of transit' at the time of the theft for the purposes of clause 8.1 or the assured had elected to utilize the customs warehouse for storage other than in the ordinary course of transit within clause 8.1.2. which was the first defence it ran below.
13.Mr Sussex SC for the defendant submitted that for insurance cover to attach, it must be shown that the goods were in the ordinary course of transit. So, the argument ran, if goods are left in the customs warehouse for the convenience of a purchaser while he comes up with funds to pay for them, they cease to be 'in transit' because that expression means and involves the movement of goods. Any purpose that is not associated with that would take it out of the 'ordinary course of transit'. 14.To make good this proposition, Mr Sussex relied, inter alia, on the decision of the Supreme Court of Appeal in South Africa in Fedsure General Insurance Limited v Carefree Investments (Proprietrary) Limited, case no. 477/99. Carefree was the insured and consignee under a marine open insurance policy subject to the ICC. After discharge at Durban on 8 June 1995, the container was stored in the harbour precincts, first in the container terminal and then from 16 or 17 June in the warehouse. On 8 July, prior to customs clearance and collection by Carefree and while still in storage in the warehouse, the goods were stolen. Carefree failed in its insurance claim because it was found on the facts that when the original documentation came into its possession between 10 to 19 June, it did not have the necessary funds to arrange for clearance. When it ultimately decided to borrow which was not until 14 July, the financing was procured in 4 days but, by then, the goods had long been stolen. The judge therefore concluded that the goods had been left in bond for reasons of commercial convenience and that it was for those reasons that they were effectively in storage when stolen. Howie JA observed (at paragraph 12) that:
But it is evident from the concluding words of that paragraph that the judge was dealing with a factual situation involving an interruption that was within the control of the assured. 15.Another decision relied on was Verna Trading Pty. Ltd. v New India Assurance Co. Ltd. [1991] 1 VR 129. This concerned a claim by the consignee who was the assured when the goods purchased were stolen whilst in bond in an area adjacent to the wharf called Strang's Triangle. The consignee did not arrange for customs clearance until 5 weeks after the goods had been discharged. The delay was due to Verna's decision to leave the goods in Strang's Triangle until such time as it had room for the goods in its warehouse. It was found that the storage of the goods had nothing to do with the requirements of transportation. On those facts, Beach J concluded that the insurance terminated once Verna made the decision to leave the goods in storage as a matter of convenience. At that moment, the goods ceased to be in transit. On appeal, Beach J's decision was upheld. Both Beach J and the Appeal Division cited with approval (at 139 and 147) Macfarlan J's observation in Wiggins Teape Australia Pty. Ltd. v Baltica Insurance Co. Ltd. [1970] 2 NSWLR 77, 80:
That was the basis of the decision in Verna. 16.It will be noted that in both Fedsure and Verna, the interruption and/or termination of insurance cover was brought about by a voluntary decision or an act within the control of the assured. Absent such a voluntary decision or act as described to interrupt or terminate it, the ordinary course of transit would continue. This finds support in First Art Investments Limited v Guardian Insurance Limited, case no. 00BUS 259, unreported, 14 February 2002, a decision of the Central London County Court. In that case, the consignor's claim was allowed when goods which the carrier's agents had retained on the carrier's behalf were released to the consignee within 30 days of the aircraft being unloaded despite the absence of the relevant documents. The contract between the assured (the consignor) and the purchaser had provided for payment being made "D/P 30 days". Judge Hallgarten QC considered that it made no difference whether that 'cryptic term' meant that the documents would be taken up by presentation of a bill of exchange payable at 30 days or that it afforded the purchaser 30 days to pay for the documents. Neither meaning was thought to affect the outcome of the claim even if, in practical terms, this meant that goods might well be left in store with the carrier's agent for a considerable time. Judge Hallgarten QC observed (at paragraph 24):
17.This echoed his earlier sentiments (at paragraph 21) to the effect that it was irrelevant that the consignee's financing arrangements might have involved possible delay in presentation of documents. (Incidentally, whilst paragraph 21 referred to the financing arrangements of the 'Claimants', that must have been a typographical error for the consignees since the Claimants were the sellers.) He further remarked that:
18.What the authorities show is that the ordinary course of transit would not be interrupted or terminated unless it has been brought about by a voluntary decision or act that can be shown to be within the assured's control. That appears to be a necessary element if the defendant is to succeed on its case based on clause 8.1. However, that element formed no part of the defendant's formulation of his case under clause 8.1.
19.Mr Sussex's alternative case was that the judge was wrong in rejecting the first specific defence because, on the facts, the assured had elected to utilize the customs warehouse for storage other than in the ordinary course of transit, that the election had been made on the part of the assured prior to delivery of the goods to the warehouse so that cover terminated upon delivery to the warehouse. 20.Mr Sussex invited the court to infer from the history of the prior policies that the plaintiff was acquiescing in Mr Medlej using the warehouse for storage pending his coming up with the necessary financing to pay for the goods. The court was referred to a schedule based on the prior policies which had been compiled by the defendant. It was said that it showed a course of conduct whereby the seller was bound to leave goods in the warehouse for as long as it took for payment to be made by the purchaser. It was also said that the plaintiff had a choice and he chose to permit the purchaser to leave the goods in the warehouse until such time as he could pay for them. 21.In the course of his submissions, Mr Sussex resiled somewhat from his initial stance that there had to be a prior consensual arrangement between the parties. (Had such an arrangement been made out, it could conceivably have been argued that that amounted to 'control' for the purposes of the argument based on clause 8.1 inasmuch as it could not have come about without the assured's co-operation and agreement. But there was no such finding below.) Rather, it was contended that all that was needed was a conscious decision or choice to permit the purchaser to leave the goods in the warehouse if necessary which would constitute an 'election' for the purposes of clause 8.1.2. 22.Turning to the schedule of prior policies, one striking omission is the date of arrival of each of the shipments at the relevant port other than for policy nos. 6 and 8 listed in that schedule. In other words, it is impossible to tell in relation to the other 10 shipments what the transit time was in each case. Whilst payment for the goods apparently ranged from 60 to 155 days after the bill of lading date, in two instances (policy nos. 6 and 8), the relevant goods had been released shortly after arrival and, inexplicably, a month or so prior to payment. That aside, the terms of each of the contracts underlying the prior polices are not entirely clear : for one thing, not all the relevant confirmation notes/invoices appear to be in the appeal bundle. There is also some doubt as to whether they were all c.i.f. contracts in that some of the invoices contained references to "CNF and "C & F". It was never clarified with Mr Teckchand whether these were mere typographical errors. Moreover, only in a few instances were the payments terms stated to be "D/P". In these circumstances, extrapolation from the prior policies do not appear to be either warranted or appropriate. The judge was plainly right in declining to embark on such an exercise. 23.To make good a case of election, there has to be sufficient evidence to support such a finding. See, for example, Leaders Shoes (Aust.) Pty Ltd v Liverpool & London & Globe Insurance Co Ltd. [1968] 1 NSWR 279 at 282 where "on or before the arrival of the goods, the assured had delivered to the agent the bills of lading, particulars of the number of packages and distinguishing marks, instructions for delivery and also invoices prepared by the assured consistently with the delivery instructions addressed to each of the persons intended to receive the goods." Those documents were held to have sufficiently communicated and evidenced the assured's intention that the goods should be taken by the transport company to its warehouse after collection from the wharf for distribution to its customers. That constituted an election within clause 8.1.2 and a subsequent theft from the transport company's warehouse before distribution to the ultimate buyers was thus not covered by the policy. 24.What evidence of election is there in the present case? The defendant sought to rely on the prior policies but, as explained above, extrapolation is problematic. Mr Sussex then submitted that because the contracts underlying the 8 policies were c.i.f. contracts, Dansun's obligation was to pay for the goods upon receiving the documents representing the goods which was well before the arrival of the relevant shipment. The judge was said to have misunderstood the nature of a D/P transaction. Mr Sussex referred to the following passage (at paragraph 27) in the judgment which read:
But as noted in paragraph 7 above, the contractual arrangements do not appear to have reflected standard D/P terms. Mr Teckchand's evidence which was not challenged was that:
But the precise contractual arrangements were never established at trial. 25.In the present case, given the less than clear terms of the underlying contracts, there is no basis for the view that Dansun was under a clear obligation to pay for the goods prior to the arrival of the relevant vessel. On the facts, any conscious decision on the part of the assured was therefore unlikely to have arisen prior to the arrival of the vessel. Since the defendant's case was premised on election for the purposes of clause 8.1.2. having taken place prior to delivery of the goods to the warehouse, such that cover ceased upon the goods going into the warehouse, it has failed to make good its case. 26.I should mention that although Mr Sussex stated that the assured had an option to recall the goods when it did not receive payment, this aspect received no further elaboration. It is wholly unclear when it is said the assured should have done so. It is to be noted that several of the shipments were released within a few days after discharge. In any event, in the absence of an obligation to recall the goods, it can hardly be suggested that the failure to do so could have constituted an election. In my view, the judge was correct in rejecting a defence based on there having been an election within clause 8.1.2.
27.There is a respondent's notice (which should have been by way of a cross-appeal) relating to the rejection of the plaintiff's claim in respective of policy no. 7. The defence raised in respect of that policy was that the plaintiff was in breach of clause 16.1 of the ICC and section 78(4) of the Marine Insurance Act. The allegation was that the plaintiff had failed to take necessary steps to prevent the unauthorised release of the cargoes and that it was a consequence of such failure that the cargoes had been lost. The plaintiff's complaint is that the judge never addressed the issue of causation at all. 28.Mr Smith submitted that the judge had treated the failure to comply with clause 16.1 as a breach of a contractual warranty, such that any breach had the effect of discharging the insurers from all further liability under the cover. The law is clear that a failure on the part of the assured to comply with clause 16.1 is not to be equated with a breach of warranty. See Noble Resources Limited and Unirise Development Limited v George Albert Greenwood (the "Vasso") [1993] 2 LL. Rep 309, 313 and Strife Shipping Corporation and Another v Hellenic Mutual War Risks Association (the "Grecia Express") [2002] 2 LL. Rep 88 at 162. It is not sufficient for the insurers merely to show the failure of the assured to take reasonable steps to avert or minimise the loss: they have to go further and show that the measures that had not been taken, if taken, would have been the dominant cause for the loss. 29.Mr Sussex accepted that the legal principle was correctly set out in The Vasso and The Grecia Express. However, Mr Sussex contended that, factually, the judge was justified in his conclusion in that there were differences in timing between policy nos. 2 and 7. The goods covered by policy no. 2 were released on 29 August 1995 when, on 24 August, the plaintiff had sent a fax to the shipping company as follows:
The judge held that it was not clear whether the release had taken place notwithstanding that instruction or whether the telex had not arrived in time for it to be acted upon. The judge also rejected the suggestion that some court application ought to have been made in Paraguay to prevent the release. 30.It was suggested that as the goods covered by policy no. 7 were not released until 6 September 1995, that would have afforded ample time for the instruction to be acted upon had a similar instruction been sent to the shipping company in relation to policy no. 7. That, of course, assumes that the latter of the two possibilities postulated by the judge was the reason why the attempt to prevent the release of the goods under policy no. 2 had been unsuccessful when, in fact, the judge did not feel able to make a finding one way or the other on the evidence before him. Mr Sussex's submission might have more force had the judge made a finding in respect of policy no. 2 that the telex had not arrived in time to be acted upon by the shipping company. But if the real reason for the release of the goods under policy no. 2 had been that the telex had no effect, I do not see that the defendant could seriously argue that a similar telex sent in respect of policy no. 7 would have had any different effect. 31.Given the uncertainty of the reason for the release of the cargo under policy no. 2, I do not see that the defendant can overcome the causation hurdle in respect of policy no. 7. The judge never addressed the issue of causation which must be made out for a defence under clause 16.1. For these reasons, the judge's ruling in respect of policy no. 7 cannot be sustained. Conclusion 32.I would dismiss this appeal and allow the cross-appeal. The order below should therefore be varied by adding to it the amount of the plaintiff's claim under policy no. 7. I would also make an order nisi that the costs of the appeal and cross appeal be to the plaintiff. Hon Yuen JA: 33.I agree. Hon Rogers VP: 34.There will therefore be an order in terms of paragraph 32.
Representation: Mr Clifford Smith SC, instructed by Messrs Deacons, for the Plaintiff/Respondent Mr Charles Sussex SC, instructed by Messrs Dibb Lupton Alsop,for the Defendant/Appellant |
Cases cited in this judgment
Further hearings and rulings under CACV 3937/2001