Yuen Fung Metal Works Ltd v. Kuehne & Nagel (Hong Kong) Ltd
Read the full judgment text of HCA 3472/1977 on BabelCite. This High Court CFI judgment.
1. Yuen Fung Metal Works Ltd. had at one time a good customer in Germany, the Heinrich Berndes KG Aluminiumwerk, whom I will call Berndes for short. They sent their goods to Berndes through Kuehne & Nagel (Hong Kong) Ltd., the defendants in this action. The goods went all the way in containers, first on ships to Russia then by the Trans-Siberian Railway and finally by motor trucks across Poland to Germany to a place called Neheim-Husten where Berndes has its place of work. This kind of transport
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HCA003472/1977
----------------- Coram: Cons, J. Date of Judgment: 21st December, 1978. ----------------- JUDGMENT ----------------- 1. Yuen Fung Metal Works Ltd. had at one time a good customer in Germany, the Heinrich Berndes KG Aluminiumwerk, whom I will call Berndes for short. They sent their goods to Berndes through Kuehne & Nagel (Hong Kong) Ltd., the defendants in this action. The goods went all the way in containers, first on ships to Russia then by the Trans-Siberian Railway and finally by motor trucks across Poland to Germany to a place called Neheim-Husten where Berndes has its place of work. This kind of transport from its very nature is called "intermodal". It is more profitable than simple forwarding and for this reason is popular with companies like the defendants. Yuen Fung were a regular customer. 2. Towards the end of February 1977 Berndes placed an order with Yuen Fung for certain aluminium goods worth all told over DM100,000. They were despatched as usual through the defendants. That was on the 12th April. The defendants issued three original through bills of lading (AB 7) on the 15th. Each acknowledged receipt of the goods from Yuen Fung in apparent good order and condition for conveyance, subject to conditions mentioned therein, from Hong Kong to Neheim-Husten for delivery "to order". It was noted that delivery was to be effected through Kuehne & Nagel (Cologne), which is a German company legally separate from although closely associated with the defendants, and that the party to be notified at the destination was Berndes. The first of the express conditions was "Delivery will be made upon surrender of one original bill of lading duly receipted". 3. Payment for the goods was intended to be by a draft drawn on Berndes by Yuen Fung and payable after ninety days. Two copies of the draft were drawn and sent with the usual documents, including the three original through bills of lading, to the Hong Kong & Shanghai Banking Corporation who were financing this transaction for Yuen Fung. The Bank forwarded the same to the Deutsche Bank in Neheim-Husten who would hand over to Berndes against acceptance of the draft. 4. On the 16th May the goods arrived at Helmstedt which is on the border between Poland and Germany. Final delivery instructions should have been given there to the Russian truck driver. We do not know if any instructions were given, and if so, what they were. All we know is that the next day the goods were delivered to Berndes and that Berndes were not required to surrender a bill of lading. Berndes could not of course at that stage have done so. The bills of lading still remained with the Deutsche Bank. To get the bill Berndes would have had to accept the draft drawn upon them. And once having obtained the goods without being forced to accept the draft Berndes subsequently declined to return or to pay for them. It is not a question, so I understand, of bad faith or inability to pay. Berndes have, so they maintain, a claim against Yuen Fung for a substantial sum and they feel that this claim will be more easily settled by keeping the goods which have so providentially fallen into their lap. 5. Yuen Fung now sue the defendants upon the contract and in conversion. Several points are raised by way of defence. First it is said that the defendants are not carriers in the ordinary sense of the term but merely freight forwarders. This would be an answer under the contract for a freight forwarder is not generally liable for the faults of the carrier. The freight forwarder's duty is no more than to choose a reliable carrier and see that the correct instructions are given. Likewise the freight forwarder does not take possession of the goods. He cannot therefore be liable in conversion. 6. The defendants do not look upon themselves as carriers. They have no means of transport of their own. One of their managers who gave evidence before me referred to them as international forwarders. But I do not think their relationship to Yuen Fung can be decided by the way they look at themselves or by whether they directly own the ships, trains or trucks which actually carried the goods. The relationship must be ascertained from the contract itself. It is substantially contained in two documents, both of them standard forms prepared by the defendants. The first is headed "Shipping Order/Dock Receipt" (AB 10). It has printed notes in the bottom left hand corner. They are marked "Important" and the shipper is requested to read them carefully. They ask him to note "that NO SPECIAL INSTRUCTIONS OR CONDITIONS can be recognized by the Carrier, unless initialled by the Carrier when issuing the Shipping Order." They reserve to the carrier the right to reject packages not in good order. "Neither the Carrier nor its Agents will accept any liability for the consequences of cargo being shut out." The general tenure of this notice would seem to indicate that the word "carrier" is used in reference to the defendants themselves. The last sentence puts it beyond doubt: "Carriage of cargo is subject to the terms and conditions of the Carrier's Through Bill of Lading and the applicable tariff as well as our shipping trading conditions printed on the reverse side." The only carrier's through bill of lading to be issued was the defendants'. The pedant may criticise the mixed use of the first and third person, but the meaning is abundantly clear. Furthermore the through bills of lading were issued in the defendants' own name. By then the defendants undertook to convey the goods to Neheim-Husten. They left blank the space which provided how they proposed to do that but both sides were aware that they would not do it personally, that they would have to employ actual carriers of one kind and another. "Carriers" is perhaps a confusing word to use. Nevertheless in the circumstances I am satisfied that is what the defendants became in law when they issued the through bills of lading. The actual carriers were their agents and not the agents of Yuen Fung. 7. Then it is said that it was not a condition of the contract that the surrender of the bill of lading should be an essential prerequisite of delivery; that the simple words "Delivery will be made upon surrender of one original of this Bill of Lading, duly receipted" (AB 7) do not in their plain meaning imply a promise. Comparison was made with the consignee of goods sent by air who may by statute demand on arrival of the cargo that the carrier hand over both the airway bill and the cargo to him: see Shawcross & Beaumont "Air Law" 4th edition p.478 at p.479. The short answer to any analogy of this kind is that the present goods were not consigned by air; there was no airway bill; there was a bill of lading. And in any event Berndes was not the consignee. The bill of lading was to order. In my view the term of the bill could not be more plain. It promises Yuen Fung that delivery will be against surrender of the bill of lading. Yuen Fung were entitled to rely upon that when they made their financial arrangements. It may even be that an express term was not necessary. In Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd.(1) Lord Denning said this:
I would find it hard to distinguish a shipowner from the defendants in the present circumstances. 8. The third and most important line of defence rests upon three of the clauses endorsed on the reverse of the bill of lading. I do not propose to set them out. It is sufficient to say that, if they apply, two of them afford a complete defence to this action and the third would limit Yuen Fung's claim to HK$1,600. Whether they apply or not depends upon whether delivery without production of the bill of lading was a fundamental breach of the contract. 9. I was taken through many decided cases to illustrate how this doctrine has come to be applied in recent times. I need not refer in detail to them all. I should refer to three. Smackman v. General Steam Navigation Co.(2): A shipowner, by a bill of lading, undertook to carry a load of plums from Hamburg to the port of London and thereafter to forward them to a named person in Covent Garden. Due to the negligence of wharfingers employed by the shipowner most of the plums were lost. The forwarding was expressly made subject to the clauses and conditions of the bill of lading which contained a clause excepting negligence. The shipowner was held to be protected. The plaintiff tried in vain to exclude the clause by a strict construction of its actual words. He did not raise fundamental breach. If he had done so he might well have failed in that as well. At the time of the loss the shipowner was carrying out the contract in precisely the way contemplated and intended by the parties. Midland Rubber Co. v. Robert Park & Co.(3): The material facts of this case are identical to those of the present. The defendant agreed with the plaintiff to forward a parcel of bicycle tyres to the plaintiff's customer in Germany. Transport was to be by rail and steamer. Delivery to the customer was to be made only against surrender of the through bill of lading issued by the defendant. That was in the hands of the plaintiff's bank in Zurich who would release it only against the customer's signing a sight draft. However, the defendant's agent in Zurich allowed the customer to obtain delivery of the goods without presenting the bill of lading, that is without paying the purchase price. When subsequently asked to do so the customer raised questions as to the quality of that and earlier deliveries and eventually refused to pay at all. The plaintiff failed in its action against the defendant. The defendant was held protected by exclusion clauses. 10. It is suggested that a distinction may be drawn in that delivery there was to be made to a specified customer whereas in the present case the bill is "to order". I do not think that distinction has any effect. An endorsed bill of lading is a good order to a carrier. The important distinction so far as I am concerned is that again the possibility of fundamental breach was not raised. Counsel for the plaintiffs limited his argument to the actual wording of the clauses. Perhaps it was too soon to appreciate the effect of the Court of Appeal's decision in The Cap Palos(4) which had been given only the previous year. Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd.(5): A bicycle manufacturer shipped bicycle parts to his customer in Singapore. By the bill of lading the parts were to be delivered to the order of the manufacturer or his assigns with instructions to the shipper to notify the Singapore customer of the goods' arrival. Meanwhile the manufacturer sent the bill of lading and other documents to his bank which, through its branch in Singapore, would release them to the customer on payment of the purchase price. The customer, however, was anxious to get the goods without payment of the price at that time. He therefore obtained a letter of indemnity from his own bank and the shipping company released the bicycle parts to him against that indemnity and without production of the bill of lading. The question was whether the shipping company could in those circumstances rely upon a clause in the bill exempting them from liability. The Judicial Committee of the Privy Council held that it could not. The company had "deliberately disregarded one of the prime obligations of the contract" (to deliver against production of the bill of lading). "No court can allow so fundamental a breach to pass unnoticed under the cloak of a general exemption clause" (p.587). 11. Counsel for the defendants submits that two distinct threads run through all the cases. The first is that a breach is only fundamental if the effect is to make performance of the contract something entirely different from that which is contemplated by it. With that I would respectfully agree, at least so far as it goes. It is one of the possibilities set out by Lord Wilberforce in the Suisse Atlantique Case(6). The other is a breach more serious than one which would entitle the other party merely to damages and which (at least) would entitle him to refuse performance or further performance under the contract. Counsel then suggests that performance in the present case is exactly what the contract contemplated. With that I would respectfully not agree. To my mind the contract contemplated delivery to the person entitled to receive. That did not happen. The goods were delivered to a person not entitled to receive. 12. The second thread suggested is that negligence alone cannot amount to fundamental breach; there must be a deliberate disregard of the contractual obligation. This is most clearly stated by Lord Denning in the Sze Hai Tong Bank Case at p.588:
His comments were followed by Sachs J. in Hollins v. J. Davy Ltd.(7). Yet they may perhaps set the rule too narrowly. In the Suisse Atlantique Case Lord Wilberforce took the view that "deliberateness" is no more than a factor that may have to be considered (at pp. 434/5). He would have upheld the decision in the Sze Hai Tong Case without its presence. I appreciate that I am bound by the Privy Council decision. But it must be remembered that their Lordships were concerned with a clearly deliberate act. They allowed negligent breach only one small comment right at the very end. "It might have been different if the (act) had been merely negligent or inadvertent" (p.589). Even then they did not say "it would have been different". In the circumstances I feel myself free to follow the comments of Lord Wilberforce. 13. If I should be wrong in this approach I would nevertheless still find for Yuen Fung. Levison v. Patent Steam Carpet Cleaning(8) is authority for the proposition that in circumstances such as the present, where it is not clear how exactly the fault occurred, it is for the defendant to prove that it was not a fundamental breach. The defendants have not done so. They cannot therefore rely upon the exemption clause. 14. As a final line of defence counsel submits that Yuen Fung has in fact suffered no loss, either because the defendants were not obliged under the contract to hand over the bill of lading after it had been surrendered or because Berndes has already credited Yuen Fung's account with the value of the goods received. I do not see merit in either of these points. The object of requiring the surrender of a bill of lading is not to hand it back to the consignor, it is to ensure that the person who is taking the goods is entitled to do so. It provides at the same time the foundation on which financial arrangements may be built. If that foundation is removed the financial arrangements may go astray. If then the consignee refuses to pay the consignor will suffer a loss equal at least to the purchase price of the goods: see the Midland Rubber Case at p.261. And I am unable to see that an entry in the books kept by Berndes will compensate Yuen Fung for that loss. Those entries have no practical value in Hong Kong however reputable Berndes may be in Germany. 15. Yuen Fung have laid their claim in Deutschmarks. That was the currency of their sale of Berndes. Otherwise the Deutschmark has no connection with this action. The question has been only briefly argued before me but it seems to me that the proper currency in which to award damages is the Hong Kong Dollar. That was the usual currency of the dealings between Yuen Fung and the defendants and is the currency which most truly expresses their loss. Document AB 74 shows that all told this affair cost Yuen Fung HK$222,817.92. That is the amount they should recover. Judgment is accordingly entered in their favour for that amount with costs. Representation: Mr. Edward Chan (Johnson, Stokes & Master) for the plaintiffs. Mr. C. Mumford (Baker & Mckenzie) for the defendants. (1) [1959] A.C. 576 at 586 (2) 98 L.T. 396 (3) [1922] 11 Ll. R. 260 (4) [1921] P. 458 (5) [1959] A.C. 576 (6) [1967] A.C. 361 at 431 (7) [1963] 1 Q.B. 844 (8) [1977] 3 All E.R. 498 |