Yang Ming Marine Transport Corporation and Another v. Shing Lee Engineering Container Co Ltd and Others

HCA 208 / 2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 208 OF 2008

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BETWEEN

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Coram: Before Deputy High Court Judge Au in Court

Dates of Trial:   16 & 17 July 2009

Date of Handing Down Judgment:   11 August 2009

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J U D G M E N T

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A. Introduction

1.This is the trial of the Plaintiffs’ claim against the 1^st and 2^nd Defendants for the sum of US$253,655.50 as their loss in relation to the release of 2 containers of goods (“the Cargoes”) in Hong Kong.

2.It is common ground that the Cargoes were released to the 1^st Defendant without the production of the original bills of lading, but against 2 letters of indemnity signed by the 1^st Defendant in favour of the 1^st Plaintiff. The 1^st Defendant then subsequently passed the Cargoes to the 2^nd Defendant for further handling and disposal.

3.There is also no dispute that on the face the letters of indemnity, each of it was signed and stamped with the 1^st Defendant’s company chop.

4.The Plaintiffs’ causes of action against the Defendants are premised on the letters of indemnity, and alternatively conversion.

5.The 1^st Defendant’s pleaded defence is that it issued the letters of indemnity as an agent for and on behalf of the 2^nd Defendant, and that the Plaintiffs were aware of the same. Thus, the 1^st Defendant is not liable under the letters of indemnity. The 1^st Defendant also denies that there was any conversion of the Cargoes.

6.The 2^nd Defendant’s pleaded case is however that the 1^st Defendant was not its agent in signing and issuing the letters of indemnity. It also denies any conversion of the Cargoes.

7.The issues at trial between the Plaintiffs and the Defendants are thus:

(1) Whether the letters of indemnity were issued by the 1^st Defendant as an agent for and on behalf of the 2^nd Defendant.

(2) If so, whether the Plaintiffs were aware of this agency relationship.

(3) Whether the 1^st and/or the 2^nd Defendant is liable under the letters of indemnity.

(4) Whether there was conversion of the Cargoes by the 1^st and/or 2^nd Defendants.

(5) The quantum of loss and damage suffered by the Plaintiffs.

8.The 1^st and 2^nd Defendants were previously separately legally represented. The 2^nd Defendant has filed a witness statement while the 1^st Defendant has not. Some time before the trial, their respective solicitors have ceased to act for them.

9.The 2^nd Defendant attended the trial through its representative, one Ms Lung Ye Lei[1].

10.The 1^st Defendant however did not attend the trial by any representative. I was satisfied that it should be aware of the trial[2], and ordered the trial to proceed in its absence.

11.There is also a Third Party proceedings issued by the 1^st Defendant against the 2^nd Defendant. By the order of Registrar Au-Yeung dated 16 July 2008, the Third Party claim was ordered to be tried at this trial of the Plaintiff’s action against the Defendants.

12.However, in the absence of the 1^st Defendant at this trial, I will treat the Third Party’s claim as not pursued.

B. The facts as established

B1. The evidence adduced at trial

13.The Plaintiffs have called Mr Yung Shun Hei as their witness to give evidence at trial. Mr Yung is the sales manager of the 2^nd Plaintiff’s Business Department and is familiar with the subject matter transaction.

14.The 2^nd Defendant has called Ms Lung Ye Lei to give evidence at trial. She is the manageress of the 2^nd Defendant and had handled the release of the Cargoes at the material time.

15.Both Mr Yung and Ms Lung have filed their respective witness statements and were adopted as their respective evidence in chief at trial.

16.Both of them also gave oral evidence and were subject to cross-examination. Their evidence was not seriously challenged under cross-examination.

17.Mr Ko (counsel for the Plaintiffs) confirmed in his closing submissions that he was not generally challenging Ms Lung’s evidence, except the assertion that the 1^st Defendant was not the 2^nd Defendant’s agent in issuing the letter of indemnity.

18.Given the above, and having seen the witnesses in Court, and having had regard to the unchallenged documentary evidence, I accept the following evidence of the parties as the relevant facts established at trial.

B2. The proved facts

B2.1 The parties

19.The 1^st Plaintiff is a shipping line established in Taiwan. The 2^nd Plaintiff is the 1^st Plaintiff’s local agency office in Hong Kong, responsible for handling cargoes arrived in Hong Kong and arranging for their delivery locally.

20.The Plaintiffs’ businesses are to provide carriage and transportation services to their customers, mainly by sea.

21.The 1^st Defendant is apparently a forwarding agent in Hong Kong, while the 2^nd Defendant is a trading company.

22.The 2^nd Defendant was incorporated on 11 May 2007, and its “boss” is one Mr Zhang Wei.

23.Prior to the 2^nd Defendant’s incorporation, Mr Zhang had entered into an oral agreement with Ms Siu Po Chu of the 1^st Defendant to engage the 1^st Defendant to handle the cargoes imported to Hong Kong by Mr Zhang and to be delivered at his instruction.

24.Under the above oral agreement (“the Oral Agreement”), the 1^st Defendant would provide the following services:

(1) The 1^st Defendant would deal with and handle all relevant procedures, including customs clearance procedures, required to enable the 1^st Defendant to take delivery of those cargoes.

(2) The 1^st Defendant would deal with and handle all documents necessary for and relevant to taking delivery of the cargoes and the related clearance matters.

(3) Mr Zhang would reimburse the 1^st Defendant of any fees, charges and expenses incurred in discharging its services.

(4) Mr Zhang would also further pay a handling charge of HK$200 for the 1^st Defendant’s services in respect of each delivery of imported cargoes in Hong Kong.

25.Before the incorporation of the 2^nd Defendant, in relation to the cargoes imported to Hong Kong to be dealt with by Mr Zhang’s business, he would use the 1^st Defendant’s name as the consignee under the relevant bills of lading.

26.After the incorporation of the 2^nd Defendant, it would use its own name as the consignee for cargoes to be imported and dealt with by its business. However, for those cargoes that were traded by Mr Zhang before the 2^nd Defendant’s incorporation, the 2^nd Defendant would for convenience continue to use the 1^st Defendant as the consignee in those bills of lading, and would continue to engage the 1^st Defendant to take delivery of those cargoes for it.

B2.2 The transactions involving the Cargoes and their release

27.The Cargoes were 2 containers of copper scrap bars and metal scrap shipped on board the vessel “YM Hiroshima” from Haifa, Israel to Hong Kong on 28 May 2007. The undisputed value of the Cargoes was US$253,655.50.

28.The seller of the Cargoes was Jack Engle & Co (“Jack Engle”) in the United States, and the buyer was System Solding (USA) Inc. System Solding apparently had further sub-sold the Cargoes.

29.Mr Zhang was the in between trader whereby the Cargoes were sold to an ultimate purchaser in the Mainland, and the Cargoes were to be shipped to the port of “三水” in the Mainland after they had arrived in Hong Kong.

30.However, it is the 2^nd Defendant’s own case and evidence (which I accept) that after its incorporation, it had assumed the trading responsibility and obligations in relation to the Cargoes. In other words, it is the 2^nd Defendant’s case that it was the trading entity to with the Cargoes and to ship them to “三水” for the ultimate purchaser there.

31.On the other hand, as the Cargoes were traded just before the 2^nd Defendant’s incorporation, the 1^st Defendant was initially engaged pursuant to the Oral Agreement to take delivery of the Cargoes when they arrived in Hong Kong, and the 1^st Defendant was thus named as the consignee under the relevant 2 bills of lading (“the B/Ls”) relating to the Cargoes.

32.In light of the above, although (as accepted by Ms Lung) it was the 2^nd Defendant which should be named as the consignee under the B/Ls, as it would be too troublesome and costly (according to Ms Lung) to cause the change of the name of the consignee under the B/Ls to the 2^nd Defendant, the 2^nd Defendant decided to retain the 1^st Defendant as the consignee under the B/Ls for convenience.

33.The Cargoes arrived in the Hong Kong port in the end of June 2007.

34.In around the middle of July 2007, under a mistaken belief[3] by Mr Yung that the original B/Ls had been surrendered to the 1^st Plaintiff, he notified a Ms So of the 1^st Defendant (as the named consignee) of the arrival of the Cargoes, and asked her to complete the necessary documentary procedures for their collection.

35.Ms So then contacted Ms Lung, notifying her about the arrival of the Cargoes, and asked Ms Lung to go to the 2^nd Plaintiff’s office to complete the documentary procedures to facilitate the collection of the Cargoes.

36.Ms Lung went accordingly. She brought with her the company chops of both the 1^st and 2^nd Defendants.

37.When Ms Lung arrived at the 2^nd Plaintiff’s office, she was asked to sign, amongst others, the letters of indemnity (which were standard documents prepared by the Plaintiffs) to facilitate the release of the Cargoes.

38.She did so, first with the company chop of the 2^nd Defendant, because she understood that the Cargoes were the 2^nd Defendant’s.

39.However, she was then told by the 2^nd Plaintiff’s staff that, as the consignee under the B/Ls was in the name of the 1^st Defendant, the Cargoes could only be released to the 1^st Defendant and the letters of indemnity had to be signed by the 1^st Defendant.

40.Ms Lung then called Ms So and asked whether she could also sign for the 1^st Defendant with the 1^st Defendant’s company chop. Ms So confirmed that Ms Lung could do so.

41.Ms Lung thereafter crossed out the 2^nd Defendant’s company chop mark and her signature on the 2 letters of indemnity, and initialled on the amendments. She then further stamped the 1^st Defendant’s company chop on the letters of indemnity and signed.

42.After the completion of the documentary procedures, on around 16 July 2007, the Cargoes were first collected by the 1^st Defendant’s staff at the container terminal, and later delivered to the 2^nd Defendant by the 1^st Defendant’s staff. The 2^nd Defendant took control of the Cargoes, and as the shipper, eventually arranged them to be shipped to the port in “三水” in the Mainland in early August 2007.

43.Ms Lung also confirmed that it was the 2^nd Defendant which had settled the extended storage fees of the containers charged by the 2^nd Plaintiff.

44.Later, Jack Engle informed the 1^st Plaintiff that it had not received payment for the Cargoes and threatened to sue the 1^st Plaintiff for the Cargoes’ full value plus other fees and expenses.

45.Mr Yung then contacted Ms Siu of the 1^st Defendant to investigate the matter and to enquire the whereabouts of the Cargoes. Ms Siu orally informed Mr Yung that the 1^st Defendant only collected the Cargoes on behalf of the 2^nd Defendant and had passed them to the 2^nd Defendant.

46.In February 2008, the Plaintiffs brought the present action against the Defendants under the letters of indemnity and for conversion.

47.On 8 July 2008, the 1^st and 2^nd Plaintiffs entered into a settlement agreement with Jack Engle, agreeing on a without admission of liability basis to pay Jack Engle US$253,655.50 (i.e., the full value of the Cargoes) as full and final settlement of all of Jack Engle’s claim as shipper for damages, compensation and costs it may have against the Plaintiffs arising out of or connected with the delivery of the Cargoes.

C. The determination of the issues

C1. Whether the letters of indemnity were issued by the 1^st Defendant as an agent for and on behalf of the 2^nd Defendant

48.The 2 letters of indemnity were made on the face of them in favour of the 1^st Plaintiff and were identical in their terms. The relevant terms are as follows:

“We hereby request you [i.e., the 1^st Plaintiff] to deliver such good to [the 1^st Defendant] without presentation of the original Bill of Lading.

In consideration of your complying with our above request we hereby agree as follows:

1. To indemnify [the 1^st Plaintiff] and hold [the 1^st Plaintiff] harmless in respect of any liability loss or damage of whatsoever nature, which [the 1^st Plaintiff] may sustain by reason of delivering the Cargoes to [the 1^st Defendant] in accordance with our request.

2. To pay [the 1^st Plaintiff] on demand the amount of any loss or damage which the Master and/ or Agents of the Vessel or any other of [the 1^st Plaintiff’s] servant or agent may incur as a result of delivering the Cargoes as aforesaid.

3. In the event of any proceedings being commenced against [the 1^st Plaintiff] or any of [the 1^st Plaintiff’s] servants or agents in connection with the delivery of the Cargoes as aforesaid, in provide [the 1^st Plaintiff] or them from time to time on demand with sufficient funds to defend the same.

…”

49.Given the background of the Oral Agreement, the fact that it was the 2^nd Defendant which had imported the Cargoes to Hong Kong as the trader, the way in which the letters of indemnity were signed by Ms Lung albeit using the company chop of the 1^st Defendant, I am satisfied that it is proved on the balance of probabilities that the letters of indemnity were signed by the 1^st Defendant as an agent of the 2^nd Defendant.

50.This is so because, in my judgment, it is more likely than not that the 1^st Defendant was only (and would have only agreed to) signing the letters of indemnity for and on behalf of the 2^nd Defendant. My reasons are as follows.

51.First, the Cargoes in fact belonged to the 2^nd Defendant. In the premises, I could not see any good reasons why the 1^st Defendant would have agreed to sign the letters of indemnity on its own, thereby assuming potentially significant liability, simply to enable the Cargoes to be released. This is particularly so as the 1^st Defendant was only to be paid a small sum (as per the Oral Agreement) for its service to take delivery of the Cargoes.

52.Secondly, Ms Lung in fact signed the letters of indemnity initially with the 2^nd Defendant’s company chop, as the Cargoes belonged to it. It was only because the consignee on the B/Ls was (for historic reasons and convenience) in the name of the 1^st Defendant that the letters of indemnity had to be amended to appear to be signed by the 1^st Defendant to enable the Cargoes to be released. Thus, the 2^nd Defendant intended to sign the letters of indemnity on its own in the first place.

53.I therefore find as a matter of fact that the letters of indemnity were signed by the 1^st Defendant for and on behalf of the 2^nd Defendant.

C2. If so, whether the Plaintiffs were aware of this agency relationship

54.The allegation that the Plaintiffs were aware of the agency relationship between the 1^st Defendant and the 2^nd Defendant, in particular in signing the letters of indemnity, was made by the 1^st Defendant in its pleading. The Plaintiffs deny this.

55.The burden is on the 1^st Defendant to prove the Plaintiffs’ alleged knowledge of the said agency relationship.

56.There is however no evidence from the 1^st Defendant (as it has not filed any witness statement nor attended the trial) to prove this allegation. On this basis alone, the 1^st Defendant has failed to prove the said knowledge on the part of the Plaintiffs.

57.Further and in any event, I accept Mr Lung’s evidence (for the Plaintiffs) that the Plaintiffs were not aware of the alleged agency relationship between the 1^st Defendant and 2^nd Defendant.

58.In the premises, I find that the Plaintiffs were not aware of the fact that the 1^st Defendant signed the letters of indemnity as an agent for and on behalf of the 2^nd Defendant.

59.In other words, I further find that, insofar as the Plaintiffs were concerned, the 1^st Defendant signed the letters of indemnity for an undisclosed principal.

C3. Whether the 1^st and/or 2^nd Defendants are liable to the Plaintiffs under the letters of indemnity

60.The law of agency in the situation of undisclosed principal is clear: both the agent and the principal are liable to the other contracting party. As commented by the learned authors of Bowstead & Reynolds on Agency (18^th ed) at para 9-012:

“Undisclosed principal. Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and he is personally liable and entitled on it. The principal also may intervene to sue, and may be sued, but the latter only subject the general rule that nothing must prejudice the right of the third party to sue the agent if he so wishes. This therefore case where both agent and principal are liable and entitled.”

61.As I have already found that the letters of indemnity were signed without the 1^st Defendant disclosing the 2^nd Defendant as its principal, they are therefore both liable under the letters of indemnity.

62.However, I am of the view that the Defendants are liable to indemnify only the 1^st Plaintiff under the letters of indemnity. This is so because:

(1) The letters of indemnity were issued in favour only of the 1^st Plaintiff.

(2) Even in relation to the 2^nd Plaintiff’s loss as an agent of the 1^st Plaintiff, clause 2 of the letters of indemnity provides expressly that the indemnity is only to pay the 1^st Plaintiff for such a loss.

63.I therefore find that the 1^st and 2^nd Defendants are jointly and severally liable to the 1^st Plaintiff (but not the 2^nd Plaintiff) under clauses 1 and 2 of the letters of indemnity for their loss and damage in relation to the release of the Cargoes.

C4. Whether there was conversion of the Cargoes by the 1^st and/or 2^nd Defendants

64.Conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it. The principal ways in which a conversion may take place can be set out as follows:

(1) When property is wrongfully taken or received by someone not entitled to do so;

(2) When it is wrongfully parted with;

(3) When it is lost by a bailee in breach of his duty to the bailor;

(4) When it is wrongfully sold, even without delivery, so as to pass good title to the buyer;

(5) When it is wrongfully retained;

(6) When it is wrongfully misused or destroyed; and

(7) When the defendant, without physically interfering with it, wrongfully denied access to it to the claimant.

See: Clerk & Lindsell on Torts (19^th ed), paras17-07 – 17-08.

65.“Wrongfully” for these purposes means without the actual permission of the owner. When the owner intends to transfer dominion to the defendant or otherwise to sanction the defendant’s action, there is no conversion, and this remains so even though the defendant or some party is guilty of fraud. Thus, it has been said that obtaining deception is not conversion, where the victim’s proper course is an action in deceit: Clerk & Lindsell on Torts (19^th ed), para 17-08.

66.Applying the above principles, I am not satisfied it is proved that the Cargoes had been converted by either the 1^st or the 2^nd Defendant. My reasons are as follows.

67.The Cargoes were in fact released to the 1^st Defendant with the Plaintiffs’ consent, albeit subject to the letters of indemnity. The Plaintiffs thus intended to transfer the possession of the Cargoes to the 1^st Defendant for its dealing. There is therefore in my judgment no question of the 1^st Defendant obtaining the Cargoes without the permission of the Plaintiffs.

68.In the circumstances, I am also not satisfied that it is shown that the 1^st Defendant had deliberately dealt with the Cargoes with an act inconsistent with the Plaintiffs’ right over them:

(1) There is no evidence to show that the 1^st Defendant knew or ought to have known that the purchase price of the Cargoes had not been paid.

(2) Further, as I said, the 1^st Defendant obtained the possession of the Cargoes with the permission of the Plaintiffs, and the Plaintiffs consented to the 1^st Defendant’s unrestricted dealing with the Cargoes as the consignee.

69.There is thus no conversion of the Cargoes by the 1^st Defendant.

70.The same applies to the 2^nd Defendant.

71.It had obtained possession of the Cargoes from the 1^st Defendant knowing that they were released with the permission and consent of the Plaintiffs. There was no restriction on the release that the 1^st Defendant could not part possession of the Cargoes to another party. In fact, the reverse was more likely to be correct, since the Cargoes were released to the 1^st Defendant as the consignee and it must be intended in the release that the 1^st Defendant could deal with them freely.

72.As such, in my view, the 2^nd Defendant must be seen to have obtained possession of the Cargoes also with the consent and permission of the Plaintiffs.

73.Further, there is similarly no suggestion that the 2^nd Defendant knew that the purchase price of the Cargoes had not been paid.

74.In the circumstances, it is not proved that the 2^nd Defendant had obtained the Cargoes without the permission of the Plaintiffs or that it had deliberately dealt with the Cargoes in a manner inconsistent with the Plaintiffs’ rights.

75.There is also no conversion of the Cargoes by the 2^nd Defendant.

C5. Quantum

76.The undisputed value of the Cargoes is US$253,655.50.

77.The Plaintiffs settled with Jack Engle in relation to the latter’s claim in relation to the misdelivery of the Cargoes. The settlement sum was US$253,655.50. The settlement was evidenced by a written Receipt and Release/Settlement Agreement dated 8 July 2008, prepared by the Plaintiffs’ solicitors and signed by the Plaintiffs and Jack Engle.

78.None of the Defendants have challenged the above, and I accept them to be proved.

79.In my view, it was reasonable for the Plaintiffs to settle the claim by Jack Engle in the said settlement sum. This is so because the Plaintiffs, in delivering the Cargoes without the production of the original B/Ls albeit subject to the letter of indemnity, does not appear to have a good defence to Jack Engle’s claim as shipper. See: “The Stone Gemini” [1999] 2 Lloyd’s Rep 255, paras 27, 33, 51-56 per His Honour Justice Tamberline; Sze Hia Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 at 586 per Lord Denning; The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266 at 274 perClarke J.

80.The settlement sum therefore represents the 1^st and 2^nd Plaintiffs’ loss and damage in releasing the Cargoes against the letters of indemnity.

81.The 1^st and 2^nd Defendants should therefore be jointly and severally liable to indemnify the 1^st Plaintiff the sum of US$253,655.50.

D. Conclusion

82.For the above reasons:

(1) The 1^st Plaintiff succeeds in its claim against the Defendants, and there should be a judgment that the 1^st and 2^nd Defendants be jointly and severally liable to pay the 1^st Plaintiffs the sum of US$253,655.50, with interest on the sum at 1% above the prime rate as from time to time quoted by the Hongkong and Shanghai Bank from 8 July 2008[4] until today, and thereafter at judgment rate until payment.

(2) I dismiss the 2^nd Plaintiff’s claim.

83.As I have mentioned in the beginning of this judgment, I treat the Third Party’s proceedings as not pursued by the 1^st Defendant, and dismiss the same.

84.There is no reason why costs should not follow the event. I further make an Order nisi that:

(1) The 1^st Plaintiff’s costs in the action are to be paid by the 1^st and 2^nd Defendants, to be taxed if not agreed.

(2) Half of the 1^st and 2^nd Defendants’ costs[5] in the action are to be paid by the 2^nd Plaintiff, to be taxed if not agreed.

(3) The costs of the Third Party’s proceedings be paid by the 1^st Defendant to the 2^nd Defendant as the Third Party.

85.Unless any of the parties applies to vary the same by Summons, this nisi Order shall be made absolute 14 days from today.

Mr. Tony T.L. KO, instructed by Messrs Holman Fenwick Willan, for 1^st & 2^nd Plaintiffs.

1^st Defendant, acting in person, absent.

2^nd Defendant (and the Third Party), acting in person, represented by Ms Lung Ye Lei, present.