The "Riau"

HCAJ000215/1984

1984, AJ 215

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

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Admiraltv action in rem against: the ship "RIAU"

BETWEEN

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Coram: The Hon. Mr. Justice Barnett in Chambers

Dates of Hearing: 11 & 14 December 1992

Date of Decision: 31 December 1992

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D E C I S I O N

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1. The plaintiffs' application is to amend the endorsement on the writ and to re-amend their Statement of Claim. Minor corrections apart, the effect of the amendment and re-amendment will be to add claims for damages for deceit or negligent misrepresentation to what is otherwise an ordinary cargo claim for damages for breach of contract or duty. The plaintiffs also apply to amend their reply. The amendments sought, minor corrections apart, would have a two-fold effect. First, to plead new matters by reason of which, it is said, the defendants cannot rely upon a possible defence provided by clause 4 of the relevant Bills of Lading which defines the period of responsibility of the defendants. Second, to plead facts upon which the plaintiffs would rely for saying that the defendants are estopped from relying upon pre-shipment damage.

2. No objection is taken by the defendants to the purposed plea of estoppel. I need say no more about it.

3. For the purpose of this application, I regard the plaintiffs as the owners of consignments of timber shipped under 20 Bills of Lading from Palembang in Indonesia to various ports in Japan. Loading of the timber was completed on 18th March 1984. It then appeared that there was a substantial discrepancy between the quantity of timber loaded on the vessel and the quantity stated in the Bills of Lading. Application was made by the charterers of the vessel to the District Court of Palembang against certain of the shippers. Pursuant to order of that court, was unloaded during a period of three weeks commencing on about 24th April; it was stored on the pier until 20th June during which time, it is said, damage was caused inter alia by rain and moisture. Loading then re-commenced and the vessel sailed on 12th July.

4. On arrival at the various ports in Japan, the timber was found to have been, it is alleged, extensively wet damaged. Much of the timber was stained mouldy and rotten.

5. The plaintiffs issued their writ on 20th July 1984. A Statement of Claim was delivered on 17th October 1985 and a defence served on 26th March 1986. By their defence, the defendants, without admitting that any of the timber was affected by wet damage, averred that a quantity of the timber had been wetted prior to loading. Such an allegation did not, however, coincide with the Bills of Lading which all acknowledged receipt of the timber in apparent good order and condition. It was, of course, in reliance upon such clean Bills of Lading that the shippers were able to obtain payment under the Letters of Credit opened by the plaintiffs.

6. It was not possible for the plaintiffs or their solicitors to tell from the defence which of the six plaintiffs' cargoes had been wet before loading and which of the plaintiffs might be able to maintain a claim in misrepresentation and deceit. Further and better particulars were requested of pre-shipment damage. I note that the request was not made until 23rd September 1987, i.e. 18 months after the defence had been served. At the same time, a reply was also served. On 7th October 1988, the defendants served their list of documents and three weeks later, on 28th October, served the further and better particulars sought.

7. Discovery revealed two matters. First, three mate's receipts noted wet damage. One noted "136 bundles wet prior to loading" out of a total of 912 bundles covered by the corresponding Bill of Lading; a second noted 48 bundles were wet out of a total of 48 bundles in the corresponding Bill; the third noted 182 bundles being wet out of a total of 339 bundles in the corresponding Bill. Second, there was disclosed a survey report of the cargo condition at Palembang in which the surveyor, who had been appointed by the defendants, remarked that on 29th February 1984 a letter of indemnity had been given by one of the shippers because 20 bundles were wet stained prior to loading and 15 crates were wet damaged prior to loading. The two corresponding Bills of Lading represented that the cargo had been received in apparent good order and condition. There has been no discovery of any letter of indemnity. Mate's receipts in relation to this part of the cargo do not mention any damage prior to loading.

8. The further and better particulars given by the defendants then disclosed that 32 bundles of timber shipped under another Bill of Lading were also wet damaged before loading. The relevant Bill of Lading, which relates to 730 bundles of timber, records that the bundles were received in apparent good order and condition. The corresponding mate's receipt bears no record of any damage.

9. Finally, on 6th November 1992, the defendants' solicitors disclosed a document which revealed that four unidentified bundles of timber fell into the water at Palembang. This timber was apparently loaded, but none of the Bills of Lading have been claused.

10. The plaintiffs are now aware that bundles of timber shipped under 6 of the 20 Bills of Lading were wet before loading. They wish to plead that the defendants represented by those 6 Bills of Lading that the goods were shipped in apparent good order and condition, without pre-shipment damage, with the intention that the plaintiffs would rely upon such representations. The plaintiffs say that either the representations were made fraudulently, because the defendants knew they were false and untrue or were reckless as to whether they were true or not; alternatively, that the representations were made negligently, the Bills of Lading having been issued without due care to ensure that they properly recorded the true apparent order and condition of the goods.

11. The defendants' first objection to the proposed re-amendments is that they do not justify an allegation of fraud. Mr. Kerr for the defendants said that fraud must be pleaded specifically. He said that the particulars given could be fraud but that there is no evidence that it was fraud. He said that there is no basis for an inference of fraud to be drawn from the facts which I have outlined other than by way of the interpretation put on those facts by the plaintiffs' solicitor, Mr. Bartlett. He complained that Mr. Bartlett seeks to draw two inferences which are impermissible. First, that some of the timber was wet before loading necessarily gave rise to damage. Second, that of fraud.

12. Mr. Kerr relied particularly upon an affidavit which has been obtained from Mr. Nicholas Paines, a Marine Surveyor experienced in timber. Mr. Paines deposes to the effect that wetness or moisture is an integral part of both green and kiln-dried timber. Therefore, wetness does not necessarily constitute a defect.

13. Mr. Kerr also relied upon the fact that the defendants in their defence have disclosed pre-shipment wetness which, he said, is inconsistent with fraud.

14. In my judgment, Mr. Kerr's objection is a bad one. Having conceded that the facts and matters which the plaintiffs seek to plead can give rise to an action in fraud, it is not permissible to say that there is no evidence that it was fraud. That seems to me to be a matter for trial. In any event, as Mr. Fok for the plaintiffs pointed out, if wetness does not equate with damage, why have the defendants pleaded pre-shipment wetness in their defence, why was an indemnity (which has not been discovered) been provided, and why did the defendants not make the Bills of Lading consistent with the mate's receipts in three cases. In any event, he said, there is evidence in favour of the plaintiffs to be found in a survey report prepared by NKKK which states that the damage to the timber was caused, at least in part, by being wet through rain during loading.

15. I am satisfied that sufficient facts and matters have been pleaded to sustain a cause of action in fraud or deceit and that, insofar as it may be necessary at this stage, there is a sufficient evidential basis for such a plea.

16. Mr. Kerr's second ground for objecting to the re-amendment is that both proposed causes of action are time-barred. His submission is that the action for negligent misstatement has been barred since the first half of 1990 because time began to run from the issue of the Bills of Lading. In relation to the fraud, time began to run from March 1986, when the defence was served on the plaintiffs, and the defendants accordingly obtained a right of defence under the Limitation Ordinance in March 1992.

The plaintiffs rely upon section 26 of the Ordinance, Cap. 347 which reads:-

"26. Where, in the case of any action for which a period of limitation is prescribed by this Ordinance, either -

(a) the action is based upon the fraud of the defendant or his agent or of any person throught whom he claims or his agent : or

(b) the right of action is concealed by the fraud of any such person; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it."

17. There is a proviso which is not relevant.

18. Mr. Kerr argued that once the defendants had served their defence, they could not be said to be concealing any fraudbecause of their plea of pre-shipment wetness. Further, had the plaintiffs exercisedreasonable diligence once they received the defence, they would have been in a position toplead their new causes of action much earlier instead of waiting until 1992 before raisingthe question of these claims. He said that the plaintiffs have proceeded far too slowlywith the action for them to derive benefit from the provisions of section 26.

19. Again, I reject thatsubmission. As Mr. Fok pointed out, upon receipt of the defence the plaintiffs were notaware that they had been deceived, only that there was being raised a defence ofpre-shipment damage. It was not until discovery that the plaintiffs were aware of thedefendants' alleged deceit. Accordingly, time did not begin to run until discovery inOctober 1988, so that the limitation period will not expire until October 1994.

20. I do not wholly accept thatsubmission either, but I accept it sufficiently for the plaintiffs' purposes. From thechronology which I set out earlier, it will be seen that the plaintiffs took no stepsfollowing service of the defence for a period of 18 months. I am satisfied that, had theyacted with reasonable diligence, they would have discovered the fraud at least 12 monthsearlier. Further and better particulars should have seen sought within six months ofservice of the defence rather than 18 months. In my judgment, therefore, the cause ofaction in fraud will become time-barred no later than 28th October 1993.

21. I take into account, as Mr.Kerr submitted, that the plaintiffs have been more diligent in proceeding with thisaction. I also take into account the obvious difficulty which the defendants say they willhave in tracing witnesses and documents so long after the event if the new causes ofaction are permitted. The difficulty is compounded by the fact that the defendants areeffectively no longer in existence. They were a joint partnership between Japanese andIndonesian companies. The Indonesian company bought out the Japanese cmpany. Subsequently,on 5th October 1991, an Indonesian court pronounced the defendants bankrupt.

22. I am satisfied, however, thatI should exercise my discretion in favour of the plaintiffs. The position is analogous tothat of an application to strike out for want of prosecution. The court will generally notstrike out an action which is not yet time-barred. As I have found the plaintiffs not yetto be time-barred in relation to their proposed action in deceit, I see no point in notallowing the proposed re-amendment when it will be open to them to commence a new actionbased on the same cause of action.

23. The proposed cause of actionbased on negligent misrepresentation is, prima facie, time-barred. Mr. Fok argued that Ishould exercise my discretion under Order 20 rule 5(5) because the new cause of actionarises out of the same facts or substantially the same facts as a cause of action inrespect of which relief has already been claimed in these proceedings. Insofar as itarises out of the same facts as the action based on fraud, which I have said I am preparedto allow, I agree that there is a basis for the exercise of my discretion. I am not,however, prepared to exercise my discretion in favour of the plaintiffs. The cause ofaction based on deceit may fail. If it does, the action based on negligentmisrepresentation will, in effect, have been allowed in by the backdoor.

24. I turn to consider, therefore,Mr. Fok's second submission. The argument is that in order to obtain relief from theprovisions of section 26(b), the plaintiffs need only show deliberate as opposed tofraudulent concealment. To follow this argument, it is first necessary to note that theLimitation Ordinance, which is based on the1939 English Act, was in 1991 amended so that anew subsection (1) reads as follows:-

"(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either -

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it."

25. Sub-paragraph (b) is derivedfrom amendments to the 1939 Act introduced in England in 1980. Mr. Fok submitted that itis not necessary- for me to resolve the question of whether the 1991 amendment to theOrdinance has retrospective effect and is therefore applicable to this application. Heargued that the 1991 amendment did little more than give effect to judicial interpretationof section 26 or its. English equivalent section 32. For this proposition, he referred meto Limitation Periods by Andrew McGee, a work published in 1990 where at page 310,the author said :-

"Section 32(1)(b) extends the limitation period where "any fact relevant to the plaintiff's cause of action has been deliberately concealed from him by the defendant". This form of words dates from 1980, the 1939 Act having required that the cause of action be fraudulently concealed. This wording, on which many of the cases considered here were decided, was very broadly interpreted. Indeed, it was said that the interpretation had become so liberal that fraudulent concealment required neither concealment nor fraud. Some confusion is also caused in pre-1980 cases by references to this provision as the "concealed fraud" rule. The wording introduced by the 1980 Act appears to reflect the interpretation which the, courts had put upon section 26 of the 1939 Act, and it is for this reason that the pre-1980 cases are still a useful guide in this area. Indeed the present state of the law is perhaps best understood by an examination of the cases on the 1939 provision.

Wide meaning of fraud In Re McCallum, which was a case decided under the pre-1939 equitable jurisdiction to extend time in cases of fraudulent concealment, a mother executed a conveyance of her house in favour of her daughter, but omitted to notify the latter of the fact. The Court of Appeal held that this amounted to fraudulent concealment of the daughter's rights over the house so as to postpone the running of time against the daughter in respect of adverse possession. Whilst there is no doubt that the daughter's right of action had been concealed, it is hard to see how that concealment can properly be described as fraudulent, and the case must be regarded as an early example of the extreme breadth of the notion of fraudulent concealment. In Beaman v. A.R.T.S. Ltd. the defendant bailees had wrongfully disposed of goods belonging to the plaintiff. As was explained at page 309 the Court of Appeal held that the plaintiff's action in conversion was not "based on fraud"within section 32(1)(a) since it was unnecessary for her to allege fraud in order to succeed. They went on to hold that the plaintiff's right of action had been fraudulently concealed within section 32(1)(b). The defendants here had taken no positive step to hide the existence of the cause of the action from the plaintiff, but the Court of Appeal held that this did not matter. The notion of fraud in this paragraph extends to any case where the defendant may be said to have acted dishonestly or unconscionably, and this can include the situation where the wrongful act is committed surreptitously."

In the case of Beamanreferred to in that passage, the plaintiff entrusted 4 packages of her belongings to theplaintiff defendant for and intimated value to her. The plaintiff was abroad and wasprevented by the Second World War from returning to England and from paying storagecharges. In 1940, the defendant wished to close down its business and, without making anyattempt to contact the plaintiff or to value the packages, disposed of them and made asimple note in its records that the ' packages had been given away. In 1946, the plaintiffreturned to England and claimed her belonings. After reviewing the law and the evidence,Lord Greene, MR said at page 470:-

"I am of opinion that the conduct of the defendants, by the very manner in which they converted the plaintiff's chattels in breach of the confidence reposed in them and in circumstances calculated to keep her in ignorance of-the wrong that they had committed, amounted to a fraudulent concealment of the cause of action. When she came to claim her goods she expected to find them waiting for her. The fact that she did so expect was due to the manner in which the defendants had chosen to act. This, in the circumstances, can, in my opinion, only be described as furtive and surreptitious."

26. In relation to the presentcase, Mr. Fok said that the Bills of Lading were clean. Only the mate's receipts and theletter of indemnity showed that the bills did not truly represent the state of the timber.Those- documents are not documents which usually reach the receivers of cargo unless thereis some reason for legal proceedings and discovery therein. Accordingly, he said that heis entitled to rely on section 26(b).

27. As I have set out above, somecargo was sufficiently wet to warrant noting on three mate's receipts. Other timber wassufficiently wet to warrant the issue of letters of indemnity. Some timber fell in theriver, a fact that must have been regarded as sufficiently important to be recordedsomewhere by somebody thus enabling the defendants to notify the plaintiffs' solicitors ofthis some 8 years after the event. None of these matters were drawn to the attention ofthe plaintiffs by clausing the Bills of Lading or otherwise at the time. There was noindication that all was not as it seemed until the defence was served in March 1986. 1find it difficult to resist the inference that there was deliberate or surreptitousconduct on the part of the defendants.

28. In the circumstances, I amsatisfied that time did hot begin to run in relation to negligent misrepresentation untilthe same time as in relation to deceit. For the same reasons that I have alreadyexpressed, I see no reason not to exercise my discretion in favour of the plaintiffs.

29. There remains the issue ofwhether proposed paragraph 16 of the reply should be allowed. It is a reply to paragraph24 of the defence which pleads that if any goods became damaged after being dischargedfrom the ship at Palembang, the defendants are not liable by virtue of clause 4 of theBills of Lading which provides that the carrier shall not be liable during the periodbefore loading and after discharge from the vessel. Proposed paragraph 16 asserts that thedefendants remained liable for the proper care and custody of the timber even afterdischarge pursuant to the order of the Indonesian court because that order appointed themaster of the vessel bailee of the goods and deemed the goods to remain on board thevessel. Mr. Fok argued that this does not set up a new cause of action but merely deniesthe defendants' right to rely upon clause 4 of the Bills of Lading so as to avoid theliability originally imposed upon them upon loading of the timber.

30. I am persuaded that theplaintiffs are not setting up a new cause of action which, in any event, would  beinapposite in a reply. Further, Mr. Fok having expressly disclaimed setting up a new causeof action, which disclaimer I have now recorded, the plaintiffs would not be able to relyupon paragraph 16 as a cause of action at trial.

31. Accordingly, I grant leave tothe plaintiffs to make the amendments or re-amendments as the case may be to theendorsement on the writ, the amended Statement of Claim and the reply. Service isdispensed with. I make an order nisi that the costs of and incidental to this applicationbe to the plaintiffs in any event.

Representation:

Mr. J. Fok instructed by Clyde & Co. for thePlaintiffs.

Mr. J. Kerr of Crump & Co. for theDefendants.