Ngai Kwong Suen t/a Boga Trading Co v. Dawin Shipping (Agencies) Ltd and Others

HCMP001486A/1985

No. M.P. 1486 of 1985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

___________

___________

Coram: Hon. Penlington, J. in Chambers

Date of hearing: 11 & 12 September 1985

Date of delivery of judgment: 12 September 1985

___________

JUDGMENT

___________

1. This is an appeal against the Master's decision whereby he granted the 2nd and 4th to 11th defendants herein unconditional leave to defend. It is one of those unfortunate cases where owing to the fraud of one party to a transaction, the loss must inevitably fall on one of other innocent parties, in this case either the manufacturers of goods or the ultimate purchaser.

Background

2. The history of this matter is that during 1985, the 3rd defendant, the Urban Marts Pacific Inc. ("Urban") purchased a large quantity of goods from various manufacturers in Taiwan. These manufacturers are the 2nd and 4th to 11th defendants herein. The goods were all paid for by means of post-dated cheques and it is common to each of the transactions that delivery was made to Urban but that subsequently the cheques were dishonoured. By that time however, the goods had been shipped to Hong Kong on board the M.V. Yi Chun, for which the 1st defendant is agent, consigned to the plaintiff. There were three Bills of Lading, each identical in its terms including that the goods are shipped to the order of Urban. On the 10th of June 1985 the plaintiff presented the Bills of Lading to the 1st defendant paid them the freight, and were given delivery orders. On the 11th of June the goods duly arrived in Hong Kong but the 1st defendant refused to release the goods because the Bills of Lading had not been endorsed by Urban. On the same day a representative of the 2nd defendant arrived in Hong Kong and claimed that the goods, the subject of its contract were still theirs and that property in them had never passed to Urban. On the 4th of July 1985 the 1st defendant took out interpleader proceedings and on the 9th July defendants 4 to 11 joined in the proceedings being all in the same position as the 2nd defendant. On the 23rd of July the plaintiff served a statement of claim and applied for judgment under Order 14. This application was heard by Master Suttil on the 16th of August when the point was taken that as the proceedings had not been commenced by writ, there could not be an Order 14 judgment. However, Master Suttil made an order under Order 28, rule 28 whereby proceedings were to go on as if commenced by writ, and he gave unconditional leave to defend. Subsequently, the plaintiffs paid slightly more than half a million dollars into Court by which means it obtained the release of one container load of goods. After the order made by Master Betts, i.e. the 9th of July 1985, on the 20th of July the Bills of Lading were in fact endorsed by a Director of Urban Marts and the plaintiff argues that that endorsement is perfectly valid whereas the defendants rely on it as evidence of a lack of good faith. The plaintiff now appeals against the order granting unconditional leave to defend.

The contracts

3. Affidavits had been filed by the defendants to which are exhibited the relevant Purchasing Order under which the goods were purchased by Urban from each of them. These naturally differ as to the goods purchased and the amounts payable but they all contained common terms which are that the place of delivery is Keelung, the delivery term is "FOR" that payment is by "post-dated cheque after delivery of goods. Down payment : 10% of 1st lot". There are printed conditions in the contract, one of which is : "4. If there is any disagreement, please give notice in writing within 2 days, otherwise the terms herein set out shall be deemed as accepted". There are shipping marks set out in the contract which are, apart from the actual mark, itself, "Hong Kong C/No. Made in Taiwan". There is nothing in any of the written contract between the defendants and Urban to the effect that property in the goods should not pass until the post-dated cheques had been honoured on presentation.

4. The contract entered into between the plaintiff and Urban Marts were again on Urban's form and they set out a description of the goods, the price, the term of delivery. "FOB Taiwan Port", date of shipment and payment terms - "By remittance before shipment". Payment was in fact duly made by the plaintiff and receipts for payment were issued on behalf of Urban by a Mr Lau in Hong Kong with whom the plaintiffs say they had previously dealt as being the duly authorized Hong Kong Agent of Urban. Payment was made in Hong Kong and there is no evidence of remittance of funds to Urban.

Case for the plaintiff

5. The plaintiff argues that pursuand to the written contract between them property in the goods passed from the defendants to Urban on delivery of the goods to Urban or at the very latest when Urban shipped the goods to the plaintiffs in Hong Kong. They say that there was no reservation expressed in the various contracts as to the passing of ownership in the goods and that if the defendants were to endeavour to adduce evidence of a oral term between them and Urban reserving ownership in the goods until the post-dated cheques had been met, such evidence is not admissible. The contracts, they say, are complete in themselves; they especially provide that in default of complaint in writing the terms set out shall be deemed as accepted. The goods clearly, by their shipping marks, were destined for Hong Kong and that the defendants by delivering the goods to Urban pursuant to these written contracts cannot now deny that the plaintiffs have obtained good title from Urban Marts. The plaintiffs, in particular, rely on S. 27(2) of the Sale of Goods Ordinance which reads as follows:

"Where a person having bought or agreed to buy goods obtain, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if, the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner."

Here they say they had obtained possession of the goods and the documents of title to the goods with the consent of the seller. They receive them in good faith and without notice of any lien or other right of the original seller and are therefore in the same position as if they had dealt with a mercantile agent in possession of the goods with the consent of the owner.

6. S. 3(9) of the Factors Ordinance provides as follows:

7. Furthermore the plaintiff say the allegation made by the defendants of lack of good faith on their part is net born out by evidence. They rely on the dicta of Megarry V.C. in Lady and Tennant v. Associated Newspapers Group Ltd. (1979) F.S.R. 298.

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot separately or together amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism."

Here the plaintiffs argue the defendants seek to show a lack of good faith on their part only because they have obtained an endorsement of the Bills of Lading after the Court hearing before Master Betts when the plaintiffs were naturally aware of the defendants claims and because a Director of Urban, one Wong Kek Mie is a shareholder of a company called Homex Weaving which is controlled by another company, Homex Holdings of which the proprietor of the plaintiff firm is also a Director. There is no evidence they say that Homex was in any way concerned with this transaction. Here, the plaintiffs say they ordered the goods in perfectly good faith from a dealer in Taiwan, they have paid that dealer's agent in Hong Kong the full purchase price, they have paid the freight, they must have good title to the goods. The plaintiff further says that the defendants are estopped from denying the plaintiffs right to possession on the principle set out in Henderson v. Williams (1895) 1 QB 521. There Lord Halsbury said, at 528:

The case for the defendants

8. The defendants rely on various authorities but in particular, Heap v. Motorists Advisory Agency Ltd. (1922) 1KB 577 for the proposition that if they had reserved right of property in the goods until the cheques issued by Urban had been met, then Urban had no property in the goods which they could pass on to the plaintiffs. Furthermore S. 21(2) of the Sale of Goods Ordinance provides -

"Where goods are shipped and by the Bill of Lading, the goods are delivered to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal".

Here the defendants say the goods were shipped under Bills of Lading, deliverable to the order of the seller and therefore there was this reservation of the right of disposal and there is at present no evidence of it being waived. The subsequent endorsement is invalid as it was made after notice of the defendants claims. They furthermore argue that oral evidence is admissible to show that there was a reservation of property in the goods as this is not to vary or contradict the terms of the written contracts between them and Urban. Furthermore there were contracts net between them and the plaintiff but between them and Urban and the plaintiff was a stranger to that contract. They therefore rely on Davids v. Brooklands Car Sales (1955) CPD 745, a decision of the Cane Provincial Division in South Africa which concerned the question of ownership of a motor car which had been purportedly sold while subject to a hire purchase agreement. It was held that extrinsic evidence to contradict or vary the written agreement was not excluded in proceedings between a party and a stranger. They also rely on the general principles relating, to the admission of evidence of an oral supplemental term expressly agreed between the parties at the time of executing the contract if it is not inconsistent with the documentary terms. See Phipson 13th Edition, paragraph 38/11.

Decision

9. This is an application under Order 14 and it is not for the Court to decide at this stage if the oral evidence is admissible and what its effect would be if so admitted. The question is whether 'there is a fairly arguable point to be argued on behalf of the defendant' to use the well-known words of Gessel M.R. in Anglo-Stalian Bank v. Wells, 1878, 38 L.T. 197. Here Mr Kwok for the defendants concedes that his case will depend on the admission of oral evidence to add to the written contracts. That in itself will be no easy task and even if that hurdle is overcome there is much to be argued as to its effect. However I do not feel I can say that there is no defence and I am satisfied that the defendants should be given leave but it will be conditional on their paying $100,000 Court within 21 days.

Security for costs

10. As the defendants are overseas, plaintiffs seek security for their costs, as do the 1st defendant, the shipping agents, who have actual physical possession of the goods. Skeleton bills of cost have been tendered and this application is not opposed by the 2nd and 4th to 11th defendants. I order that they, 2nd and 4th to 11th defendants provide the security for the plaintiff's and 1st defendant's costs in the sum of $200,000, such security to be as approved by the Registrar. The security to be in the. sum of $160,000 in respect of the plaintiff's costs and $40,000 in respect of the 1st defendant's costs.

11. In default of such payment into Court and providing of security for costs the plaintiffs to have an order for delivery of all goods the subject of these proceedings, by default.

12. The plaintiff further applies for an order that, on payment into Court by the plaintiff the sum of $800 per day from the 20th of June 1985, there be an order that the 1st defendant release to it all goods shipped on the vessel Yi Chun under Bill of Lading No. KEHKC008, that the same shall be delivered by the plaintiff to the Safety Godown Company Ltd. for storage in the name of Messrs.  LIU, CHAN & LAM Solicitors. That will enable the 1st defendant to recover its containers and reduce storage charges. That application is also not opposed and I make such an order.

13. The costs of the hearing before Master Suttil and here are to be costs in the cause.   There will be certificate for two counsel.

14. In order to avoid any further delay in this matter, there will not be an order, staying proceedings. The defence is to be filed within 28 days, the reply, if any, within 7 days thereafter. There is to be discovery by lists supported by affidavit, 14 days after the close of pleadings and inspection within 7 days thereafter. There will be general liberty to apply.

Representation:

Deni  Chang, Q.C. & Edward Chan (Liu, Chan and Lam) for Plaintiff

Miss Susan Liang of (Susan Liang & Co.) for 1st Defendant

Mr W.K. Kwok (H.C. Yeung & Co.) for the 2nd, 4th to 11th Defendants