Karl Widenmann v. Banque De L' Indochine

HCA001514/1972

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1514 OF 1972

-----------------

-----------------

Coram: Li, J.

Date of Judgment:

-----------------

JUDGMENT

-----------------

1. The plaintiff is an exporter and the defendant a banker both having business premises in Hong Kong. They had had business dealings for some years since 1961 whereby the defendant provided the plaintiff with credit facilities in respect of his export business. In consideration of such facilities the plaintiff deposited with the Dresdner Bank in Augsburg certain shares to the value of DM$190,000 in favour of the defendant as security with the instructions that such shares were not to be released except by consent of the defendant.

2. The plaintiff's case is that in 1967 he sold some woollen goods to a firm in Vienna named Austromercantile to be delivered in Hamburg Germany by 3 shipments. He drew 3 bills in payment for the goods such bills to be payable at sight and documents to be delivered against payment naming the Austromercantile to be the drawee. The plaintiff discounted the said 3 bills. The documents relating to the goods were handed to the defendant on the plaintiff's application for discounting the said bills. The defendant then credited the plaintiff's account with 3 sums to the equivalent, in Hong Kong currency, of the sales value of the 3 shipments of goods. By each of the said applications for discount the plaintiff requested the defendant to carry out the instructions viz:

The said 3 shipments of goods arrived at Hamburg on the 30th July, 10th August and the 17th October of 1967 respectively and the defendant sent the bills and shipping documents to its agent, the Swiss Credit Bank in Zurich for collection. The Austromercantile failed to pay the said bills or for the said goods. The defendant wrongfully failed to inform the plaintiff of such non-payment until February 1968 by which time the Austromercantile had failed and the principal thereof had disappeared. For this reason the plaintiff was unable to recover payment. It is also alleged that by failing to inform the plaintiff of the said non-payment immediately or within a reasonable time the defendant and/or its agent, the Swiss Credit Bank, is estopped from denying that such payment was in fact made.

3. The plaintiff was able to dispose of part of the said goods to the value of DM27,340.80 at the price of DM20,505.60 was credited by the defendant to the plaintiff's account. In October 1968 the plaintiff paid off all sums owing by him to the defendant save and except $96,721.60 representing the value of the said goods less DM27,340.80. However, the defendant refused to instruct the Dresdner Bank to release the shares deposited as security in favour of the defendant. The plaintiff claims for a declaration that the plaintiff is no longer indebted to the defendant in the sum of $93,871.93 or any other sum, for an order that the defendant do all things necessary to instruct the Dresdner Bank to release the said shares and damages for breach of contract.

4. By its statement of defence the defendant admits that in 1967 the plaintiff sold the goods set out in paragraph 3 of the statement of claim but denies that the plaintiff drew any bills. The plaintiff made 3 applications for discount in respect of documents relating to the sales dating respectively 3rd July 1967, 14th July 1967 and 19th September 1967 on certain terms set out in the application. These terms exempted the defendant from liability from any act, omission or default of the defendant's agent or sub-agents. The defendant merely made advances to the plaintiff against the documents enclosed with such applications. The said documents were forwarded to the Swiss Credit Bank in Zurich for presentment to the Austromercantile for payment. The said Swiss Credit Bank was nominated by the plaintiff and as such was the plaintiff's agent. The plaintiff had been informed by letters dated the 5th October 1967 and 8th November 1967 respectively that the said items had not been paid. The plaintiff visited and held discussions with representatives of the Austromercantile on the 23rd November 1967. The defendant was not negligent; and had not misled the plaintiff in anyway and was not in breach of contract. The defendant counterclaims the sum of $120,367.86 being the amount due and owing to the defendant from the plaintiff on the account on the 30th June 1972.

5. The issues are:

6. Neither party called any witness. Both relied on a bundle of agreed documents the authenticity of which were admitted. In the course of the hearing two further documents were produced by consent. I shall refer to the bundle of documents as exhibits by their respective numbers in sequence. Thus document No.1 will be referred to as Exh.1. I shall refer to the other 2 documents as Exh.A and Exh.B.

7. I find the following facts from the aforesaid documentary evidence:

8. On the 3rd May 1966 the plaintiff entered into an agreement - Exh.4 - with the defendant whereby the defendant would grant overdraft facilities to the plaintiff up to the limit of $500,000 at the rate of interest of 7 ½% per annum and subject to repayment on 30 days' written notice. On the 3rd July 1967 the plaintiff applied to the defendant for credit in the sum of DM43,195.74 in relation to a sale of garments by the plaintiff to a firm named Austromercantile in Vienna. The said sum was the sale price of the said garments to be paid by the Austromercantile at sight. This application, Exh.9, contained additional terms to these set out in Exh.4. I shall refer to the additional terms later. Suffice to observe that this application was purely and simply an application for an advance and not for a discount or for collection by the defendant. No bill or draft was attached. The documents enclosed with Exh.9 were commercial invoices, bills of lading, certificate of origin and packing list only. The covering memo, Exh.10, from the plaintiff to the defendant referred to the same documents only and requested the defendant to forward them to a bank in Vienna for negotiation. The sum of $61,708.20 being the equivalent of DM43,195.74 was advanced by the defendant and credited to the plaintiff's account with the defendant.

9. On the 14th July 1967 the plaintiff made a similar application to defendant for DM34,977.04 in the form of Exh.14 in respect of another shipment to Austromercantile. This application (Exh.14) was in identical terms as the application in Exh.9 and was made with the same type of documents. The sum of $49,833.72 being the equivalent of DM34,977.04 was credited on the 17th July 1967 to the plaintiff's account with the defendant. On the 19th September 1967 the plaintiff made a similar application - Exh.23 - in respect of the third shipment of garments to the Austromercantile for the sum of DM6,805.80. The application was also in identical terms as those in Exh.9 and was made with the same type of documents. Accordingly the sum of $9,715.07 being the equivalent of DM6,805.80 was credited to the plaintiff's account with the defendant. The three sums made a grand total of $121,256.99. The documents accompanying the applications together with the plaintiff's instructions contained in the same were eventually forwarded to the Swiss Credit Bank in Zurich for collection from the Austromercantile. This is evident because by two separate acknowledgements dated the 19th September 1967 and the 3rd October 1967 the Swiss Credit Bank acknowledged receipt of the documents - Exh.A and B respectively to the defendant and in view of the 3rd paragraph in the plaintiff's letter Exh.36 dated the 13th March 1968. In both receipts the Swiss Credit Bank informed the defendant that they would account to the defendant after collection and in Exh.B the former Bank added the remark "Please note that the drawees wish to defer payment until the arrival of the goods". In passing I should add that the Swiss Credit Bank was not the original collecting agent. It was nominated by direction of the plaintiff to replace the original agent in Vienna. The three consignments of garments arrived at Hamburg between the 30th July 1967 and the 17th October 1967. They were released to the Swiss Credit Bank in Hamburg and were transported to Zurich where they were stored, insured and retained by the Swiss Credit Bank pending payment by the Austromercantile. There was no direct evidence that the Swiss Credit Bank presented the documents of title to the Austromercantile for payment. However, on the presumption of regularity and in view of the remark in its acknowledgement in Exh.B to which I have already referred I find as a fact that the Swiss Credit Bank did present the document of title to the goods for payment to the Austromercantile which failed to pay. No further communication was received by the defendant or the plaintiff until 1968. However on the 5th October 1967 and the 8th November 1967 the defendant rendered statement of outstanding accounts to the plaintiff showing that the sums of money advanced by the defendant to the plaintiff in respect of the three said shipments of garments were outstanding. There was no further communication from the defendant until the 4th January 1968 by which time the business of Austromercantile had been wound up and the principal thereof had disappeared. The goods were at all time stored, insured and remained in control of the Swiss Credit Bank. There was no evidence whether the Swiss Credit Bank presented the documents of title to the Austromercantile for payment after the arrival of the last shipment of the goods. Nor did the Swiss Credit Bank advised the defendant or the plaintiff of the non-payment until 1968. The Austromercantile never paid for them. The plaintiff took active steps to dispose of them but only succeeded in selling the goods at a substantial loss. When the whole of the goods were sold a large amount of the proceeds of sale were absorbed by the storage and insurance costs.

10. The special terms of the contract between the plaintiff and the defendant are to be found in Exh.9, Exh.14 and Exh.23 - the plaintiff's applications. The terms of all three documents are identical. When I consider the rights and duties between the parties I shall refer to Exh.9 the terms of which apply equally to the transactions under Exh.14 and Exh.23. Under Exh.9 the defendant's duty was to forward the documents of title to its agent or sub-agent abroad for the purpose of collecting payment from the Austromercantile together with the plaintiff's instructions contained therein. In this respect the defendant was the plaintiff's agent. This is evident in view of the contents of the second paragraph in the defendant's letter dated the 2nd April 1968 to the Swiss Credit Bank - (Exh.40) in which the defendant referred to the plaintiff as its principal. The nature of the contract was such that once a sub-agent was appointed by the defendant the collection should be effected by the sub-agent. However, the defendant was obliged to pass on any information to the plaintiff should there be non-payment. I have found as a fact that as soon as the defendant received the instructions from the plaintiff he forwarded them to the Swiss Credit Bank which was nominated by the plaintiff. In the 3rd paragraph of the plaintiff's letter dated the 13th March 1968 to the defendant (Exh.36) it was conceded that the defendant informed the plaintiff of the situation on receipt of Exhibits A and B from the Swiss Credit Bank in October 1967. The plaintiff was put in the picture that the Austromercantile wished "to defer payment until the arrival of the goods". No contrary instruction was given by the plaintiff to the defendant. Further the defendant had rendered the outstanding accounts to the plaintiff in October and November 1967 (Exh.25 and Exh.26) clearly indicating that the Austromercantile had not paid for the goods up to early November 1967. By that time the first two shipment of the goods had arrived at Hamburg. The plaintiff raised no objection. The plaintiff was in Vienna on the 23rd November 1967 and met the partners of Austromercantile. He did nothing to enquire or enforce his right under the contract of sales. For these reasons I am of the opinion that the defendant had performed its obligations in its contract with the plaintiff and had not been negligent in the performance of its duty.

11. As to the question whether the Swiss Credit Bank was the sub-agent of the defendant I am of opinion that it was the sub-agent at all material times. This was so even though the plaintiff nominated the Swiss Credit Bank as the collecting agent. The plaintiff's instructions plus the documents of title to the goods were forwarded to the Swiss Credit Bank by the defendant. There was no evidence to support any privity of contract between the plaintiff and the Swiss Credit Bank.

12. With reference to the third question whether the Swiss Credit Bank had committed a breach of contract or been negligent I have to refer to the terms of instructions contained in Exh.9. These were forwarded to the Swiss Credit Bank and were as follows:

"We enclose the undermentioned draft(s) for discount subject to the terms and conditions as stipulated in our Letter of Hypothecation to your Bank:-

13. The Swiss Credit Bank had cemplied with practically all the instructions except one viz: to advise the plaintiff by airmail in the event of non-payment. The instructions were that payment was to be made at sight. On the first presentation they advised the plaintiff through the defendant in Exh.B that "the drawees wish to defer payment until arrival of the goods". On arrival of the last shipment of the goods the Austromercantile still failed to pay for them. Although the Swiss Credit Bank retained control of the goods they failed to advise the plaintiff of such non-payment. This was clearly negligent.

14. So far as the defendant was concerned the Swiss Credit Bank was negligent. In its letter to the said Bank - Exh.40 - the defendant wrote:-

"We are inclined to think that both of his complaints are not without grounds. It was true that had he been informed earlier, he could have made some other arrangement when he visited the drawees in Vienna on 23rd November 1967 during his business tour in Europe. Austromercantile was then still carrying on business in Vienna and the season for woollen wear was still on, but now the situation must be said to have completely changed."

15. There remains the question whether the defendant can be made liable for the negligence of the Swiss Credit Bank, their sub-agent. This is again governed by the terms of contract between the plaintiff and the defendant and signed by the plaintiff. The terms of the contract were contained also in Exh.9 which read as follows:-

"It is understood and agreed that, in the selection of any correspondent to whom the above mentioned item(s) may be sent for collection, you shall not be responsible for any act, omission, default, suspension, insolvency or bankruptcy of any such correspondent, agent or sub-agent or of any drawee bank, or for any delay in remittance, loss in exchange or loss of item or its proceeds during transmission or in the course of collection. Until such time as actual payment shall have come into possession, we engage to reimburse you for any advance made in anticipation of collection as well as all disbursements made in effort to effect the same. We further undertake to reimburse you for all commission and charges which may be incurred if not paid by drawees."

16. It is quite clear that but for the exemption clause the defendant would have been liable for the negligence of its sub-agent. Mr. Ching for the plaintiff contended that the exemption clause was so wide that it must be given a reasonable and restricted interpretation. He further contended that such a clause should be interpreted as exempting the defendant from liability for breach of contract on the part of the sub-agent but not negligent acts of the sub-agent. My attention was drawn to a number of authorities on the subject and I shall consider them.

17. In the case of J. Spurling Ltd. v. Bradshaw⁽¹⁾, it was held that a clause exempting the plaintiffs from liability "for any loss damaged or detention in respect of goods entrusted to them in the course of their business occasioned by the negligence, wrongful act or default of themselves their servants or agents" only availed to exempt the plaintiffs when they were carrying out their contract and not when they were deviating from it or breaking it in a radical respect. It was also held that the exemption in that case was sufficient to exempt the plaintiffs from liability for negligence. But Mr. Ching's contention in the present case was that the words in Exh.9 were not wide enough to exempt liability for negligence which was not expressly mentioned. It was not seriously contended that the Swiss Credit Bank was deviating from the contract or breaking it in a radical aspect. Its failure to present the document to Austromercantile again after the last shipment of the goods had arrived should be regarded as yet another instance of negligence. In previous dealings the Austromercantile had been known to have delayed payment after the documents were presented for as long as three months. This was evidence in the plaintiff's letter dated the 19th April 1968 (Exh.45) in which he wrote:-

"For an example I draw your attention to five documentary collections on Messrs. Austromercantile, handled by the Swiss Credit Bank during 1967, with the following results:

You will learn from this facts that the longest peried between presentation and payment was 3 months and the shortest was ½ month. Therefore, it is wrong and misleading, if the Swiss Credit Bank affirms 'it was known to us by experience that the settlement of such collections always took a considerable time'."

18. In the case of Rutter v. Palmer⁽²⁾, it was held that an exemption clause to the effect that "customers' cars are driven by your staff at customers' sole risk" was sufficient to exempt the garage proprieter from liability for the negligence of his regular drivers. Bankes L.J. said:-

"..... A common carrier is liable for the acts of his servants whether they are negligent or not; an ordinary bailee is not liable for the acts of his servants unless they are negligent. If a common carrier would protect himself from responsibility for all acts of his servants he must use words which will include those acts which are negligent; because words which would suffice to protect him from liability for acts properly done by his servants in the course of their service may fall short of protecting him from their negligent acts ....."

In the same case, Scrutton L.J. said:-

"..... In construing an exemption clause certain general rules may be applied: First the defendant is not exempted from liability for the negligence of his servants unless adequate words are used; secondly, the liability of the defendant apart from the exempting words must be ascertained; then the particular clause in question must be considered; and if the only liability of the party pleading the exemption is a liability for negligence, the clause will more readily operate to exempt him ....."

The aforesaid principle was repeated in the judgment of Lord Greene M.R. in Alderslade v. Hendon Laundry, Ltd.⁽³⁾ in which he said:-

"..... The effect of those authorities can I think be stated as follows: where the head of damage in respect of which limitation of liability is sought to be imposed by such a clause is one which rests on negligence and nothing else, the clause must be construed as extending to that head of damage, because it would otherwise lack subject-matter. Where, on the other hand, the head of damage may be based on some other ground than that of negligence, the general principle is that the clause must be confined in its application to loss occurring through that other cause, to the exclusion of loss arising through negligence ....."

In that case an exemption clause to the effect that "the maximum amount allowed for lost or damaged articles is twenty times the charge made for laundering" was sufficient to limit the lanndry's liability for negligence.

19. It was for this reason that in White v. John Warwick & Co. Ltd.⁽⁴⁾ a clause "Nothing in this agreement shall render the owners liable for any personal injuries" did not exempt the defendant in that case for negligence. Having cited the principle in the case of Donoghue v. Stevenson Singleton L.J. said:-

"..... It is clear from those words of Lord Macmillan that there may be, arising from the same set of facts, an action for damages for breach of contract and an action for a tort. It is said that that position arisex in this case, and that though an action for damages for breach of contract may be said to be barred by clause 11 of the contract, it cannot be said that the words of that clause operate to shut out the plaintiff from that which he would normally have, namely, an action for damages for the tort of negligence."

The words "nothing in this agreement" might be wide enough to exempt liability for a breach of contract but it was not specific enough to exempt liability for negligence. It is of interest to note that in the contract for hire in that case the owner agreed to maintain the cycle in working order and the plaintiff in that case sustained injury as a result of negligence in the repair of a cycle supplied by the defendant.

20. The principle, as I can gather from these autherities, is that where the words in an exemption is so wide as to be capable of exempting from all liabilities they will be construed as exempting liabilities for causes other than those for negligence unless they refer, expressly or by implication, to acts for negligence. Further, in aid of the construction of an exemption clause it is necessary to consider the nature of the contract and the parties thereto. The words in the exemption clause in this case are:-

"You shall not be responsible for any act, omission, default, suspension, insolvency or bankruptcy of any such correspondent, agent or sub-agent."

While the words "act or default" may be interpreted as wilful or deliberate act of non-feasance the word "omission" clearly refers to and include acts of negligence. From the nature of the contract and the conduct of the parties it was clearly the intention that the defendant agreed to provide finance facilities to the plaintiff, that the collections of the proceeds of sales was to be effected by a banker in Europe and that defendant would be free from any involvement from acts and/or negligence of its collecting agent. Hence the plaintiff gave a further undertaking in Exh.9 that:-

"Until such time as actual payment shall have come into possession, we engage to reimburse you for any advance made in anticipation of collection as well as all disbursements made in effort to effect the same."

In the circumstances I am of opinion that the defendant is protected from liability for the negligence of its sub-agent in the present case.

21. It was contended on behalf of the plaintiff that since the defendant and its sub-agent did not advise the plaintiff of non-payment and as a result the plaintiff acted on the basis that payment had been made the defendant and its sub-agent were estopped by denying that payment had been made. If I understood this contention properly it amounted a plea of estoppel by negligence. I have found the defendant not negligent and not liable for the negligence of its sub-agent. Thus this contention also fails. There was no allegation of fraud. It was not a deliberate misrepresentation.

22. In the circumstances the plaintiff is not entitled to a declaration absolving his indebtedness to the defendant or an order that the defendant do all things necessary to inform the Dresdner Bank that the defendant is no longer entitled to the plaintiff's shares deposited as security.

23. I now come to the counter-claim. This is founded on the plaintiff's undertaking contain in Exh.6 and Exhs.9, 14 and 23. Once I have found that the plaintiff is not absolved from his debt to the defendant the plaintiff is liable to reimburse the defendant of the money so advanced pursuant to the contract between the plaintiff and the defendant. The counter-claim must succeed. In the course of the hearing it was agreed between the parties that as from the 30th June 1972 the outstanding debt was $120,000 of which $97,871.93 represented principal and the balance represented interest.

24. The judgment of this court therefore is that the plaintiff's action is dismissed, with judgment to defendant on its counter-claim in the sum of $120,000 plus interest at 7 ½% per annum on the sum of $97,831.93 as from the 1st July 1972.

Representation:

(1) (1956) 1 W.L.R. 461

(2) (1922) 2 K.B. 87

(3) (1945) 1 K.B. 189

(4) (1953) 1 W.L.R. 1285