Bee Kay & Co (HK) Ltd v. Wombat Lines Inc. and Another

CACV 74/1987
(Civil)

IN THE COURT OF APPEAL

Headnote

Bill of Lading – subsequent letter from shipper to carrier varying rights and duties of carrier – effect thereof.

1987, No. 74
(Civil)

IN THE COURT OF APPEAL

Coram : Hon. Yang, V.-P., Barker & Power, JJ.A.

Dates of hearing: 27^th and 28^th October, 1987

Date of delivery of judgment: 1^st December, 1987.

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J U D G M E N T

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Yang,V.-P.:

1.  The main question that calls for decision in this appeal is the extent to which the shippers’ letter to the carriers’ agents affect (if at all) the rights and duties of the carriers under two Bills of Lading.

2.  The shippers were Bee Kay & Co. (H.K.) Ltd., the plaintiffs in the court below (“Bee Kay”). The carriers were Wombat Lines Inc., owners of the vessel in question and the first defendants in the court below (Wombat Lines). According to the Statement of Claim, the second defendants were the operators of the vessel, but as they were in the process of being wound up, the action against them was stayed, leaving only the action against Wombat Lines.

3.  This is the appeal of Wombat Lines against Mortimer J.’s judgment in favour of Bee Kay.

4.  The subject matter of the two Bills of Lading, both dated 7^th August 1981, was a quantity of plastic frame mirrors, sold to K. Ajiboye Trading Company (“Ajiboye Trading”) in Lagos. The mirrors arrived in Lagos in about October 1981 and were held by agents of Wombat Lines in Lagos, a company called Ashaye Far East Line, Ltd. (“Ashaye Far East”).

5.  Bee Kay was managed by the Khemani brothers: Bhagwan in Hong Kong and Indru in Lagos. It was Indru who dealt with Mr. Ajiboye of Ajiboye Trading, who provided for him two debit advices in respect of the payment for the mirrors. Both debit advices proved to have been forged. As a result of discussions, Ajiboye Trading made an arrangement with Ashaye Far East whereby the latter would release the goods to Ajiboye Trading on a Bank Indemnity if Bay Kee would also agree to that course.

6.  By a telex from Hong Kong dated 25^th May 1982, Bee Kay requested Ashaye Far East to release the mirrors against a Bank Indemnity. On the following day, namely the 26^th, Indru gave Ashaye Far East a letter marked for the attention of one Mr. Walter Ng, an employee of that company. By this letter, Bee Kay authorized Ashaye Far East to release the consignment of mirrors to Ajiboye Trading on a Bank Indemnity, “provided the same is in order and properly authorized by the Societe Generale Bank of Nigeria, Broad Street, Lagos”.

7.  Following this letter, Mr. Ajiboye obtained from Ashaye Far East a blank Bank Indemnity in the standard form, and after completion it was returned to Ashaye Far East. Now the trial judge found as a fact that forged documents was not an unknown phenomenon in the commercial life of Lagos. Also, the releasing of goods on a Bank Indemnity was not uncommon in Lagos. Thirdly, it was found as a fact that, for reasons not thought necessary to be gone into, there was occasional difficulty in Bills of Lading being made available as expeditiously as in other parts of the world. It is no doubt relevant to view the facts of this case in the light of the special features of commercial activities in Lagos.

8.  The next event that followed was that Walter Ng passed both the completed Bank Indemnity and Indru Khemani’s letter to one Mr. Odubote, another employee of Ashaye Far East. According to Mr. Odubote’s evidence, he took the Bank Indemnity to the Bank at Broad Street where the bank employee, after checking the specimen signatures, pronounced the signatures on the Bank Indemnity genuine. This evidence of Mr. Odubote was rejected by the judge.

9.  In due course, the goods were released to Mr. Ajiboye on the strength of the Bank Indemnity. The Bank Indemnity was subsequently discovered to have been forged. It should be noted here that the Bank was holding the two Bills of Lading at the time of the purported Indemnity, and in those circumstances no such Indemnity would have been issued by them. The Bills of Lading, having by then reached the hands of the Societe Generale Bank of Broad Street, were not retrieved on the basis of the Bank Indemnity or at all. Bee Kay having been paid in the meantime on the strength of the Bank Indemnity, had to recover the Bills of Lading from the Bank by repaying the moneys they had earlier received, with interest.

10.  In short, Bee Kay’s claim against Wombat Lines was based on the variation of the terms of the Bills of Lading by means of the telex of the 25^th August 1982, and a letter of the 26^th August 1982 authorizing Wombat Line’s agents in Lagos, i.e., Ashaye Far East, to deliver the mirrors whithout the usual production of Bills of Lading but on the strength of a Bank Indemnity which was “in order and properly authorized by the Societe Generale Bank of Nigeria, Broad Street, Lagos”. The Bank Indemnity being a forgery, Wombat Lines had failed, through their agents in Lagos, to fulfill the terms of the variation.

11.  The appeal is advanced under three headlines:

(i) The first alleges that there was no evidence to prove that the Bank Indemnity was a forgery.  Allied to this contention is the argument that the learned trial judge was wrong in rejecting the evidence of Mr. Odubote: vide Grounds 1 and 2.

(ii) The second heading contends that it was Bee Kay’s obligation and not that of Wombat Lines to ensure that the Bank Indemnity was genuine and/or properly authenticated:  vide Grounds 4 to 7.

(iii) The third heading refers to two alternative arguments.  Firstly, Ashaye Trading having assumed the risk of assuring the fidelity of Ajiboye Trading, Bee Kay’s admitted failure to disclose to Ashaye Trading that Ajiboye Trading had recently forged two debit advices disentitled them from relying on the variation agreed upon.  The second alternative argument is that Wombat Lines’ obligation was only a qualified obligation to use their best endeavours to ensure that the Bank Indemnity was genuine, and this obligation they had in fact discharged.

12.  I now deal with each of the three headings in turn.

(i) The forged Bank Indemnity

13.  The evidence supporting this finding is to be found in the document accepted under a Hearsay Notice, namely, a telex dated 14^th September 1982 from one Mr. R. Deflou of the Bank to the Chartered Bank, Hong Kong, stating categorically that the Indemnity was a forgery. The judge accepted the evidence, as he was perfectly entitled to do. Furthermore, the learned trial judge had had the advantage of seeing and hearing Mr. Odubote, and was therefore entitled to reject his evidence as he did. There is in my view nothing under this heading.

(ii) The effect of the variation letter of the 26th May, 1987.

14.  Under the second heading, it was accepted by counsel for Wombat Lines that the true question for our consideration is the proper construction of Indru Khemani’s letter of the 26^th May 1982 to Ashaye Far East (supra).

15.  We placed great reliance on the decision in Strathlorne Streamship Company Ltd. v. Andrew Weir and Co. (1934) Vol. XL Commercial Cases 168 where Lord Hanworth M.R. followed (at p.178) Tindall C.J.’s proposition that when an act has been done by the plaintiff under the express directions of the defendant which occasions an injury to the rights of third persons, yet if such an act is not apparently illegal in itself but is done honestly and bona fide in compliance with the defendant’s directions, he shall be bound to indemnify the plaintiff against the consequences thereof.

16.  Based on this authority, counsel’s submissions may be summarized as follows:

(a) If the shipper, or anyone else for that matter, asks the carrier to deliver without production of the Bill of Lading he is requesting an act which falls outside the scope of the contract and which, if performed, may cause injury to another party who has a valid claim to possession of the goods.  This exposes the carrier to a liability to that other party if and when an adverse claim is made.

(b) Even if no specific reference had been made in that letter to the indemnity the Wombat Lines would at common law have been entitled to be indemnified by Bee Kay against the consequences of delivering the goods at their request without the Bills of Lading.

(c) The letter should be seen as a mere request, which might expose Wombat Lines to an adverse claim.  The letter therefore should not be taken as imposing on Wombat Lines any obligation to obtain any Bank Indemnity.  The word “provided” in the letter should be construed as recognizing that Wombat Lines would not be willing to deliver the mirrors without production of the Bills of Lading unless an indemnity were given and should not be considered as imposing a condition precedent on their right to release the cargo.

(d) Bee Kay’s approach would lead to the conclusion that Wombat Lines had waived their right to a complete indemnity under the Bills of Lading and had opted instead to bear the risk that a document purporting to be an indemnity issued by the Societe Generale Bank might in fact be a forgery.  If it was a forgery Wombat Lines would, on this approach, be left without a remedy.  Wombat Lines had in effect become insurers, or guarantors, of the payment to Bee Kay of the value of the mirrors and thus of Bee Kay’s right to be paid.  Moreover, on that approach, Wombat Lines would have assumed such onerous and absolute obligations with no discernible benefit to themselves.

(e) The Court should be especially wary of coming to the conclusion that a carrier has waived the right to an indemnity, or has agreed to unusual or onerous terms attaching to the indemnity, or has agreed to bear a risk of forgery which would vitiate the indemnity, unless it is clear that the carrier had expressly consented to such an arrangement.

(f) The learned judge should have held that in agreeing to deliver the said cargo without production of the Bills of Lading, Wombat Lines were entitled to be indemnified by Bee Kay against the consequences of so doing. In the premises it was the obligation of Bee Kay and not that of Wombat Lines to ensure that the letter of indemnity addressed to Wombat Lines was genuine and/or properly authenticated.

17.  With respect to counsel for Wombat Lines, the facts in the Strathlorne Case (supra) are very different from that in our case. There the letter comparable to our letter of the 26^th May 1982 said, “If the charterers cannot produce bills of lading to get delivery of their cargo, they must satisfy your good selves with their guarantees”. So the obligation was placed squarely upon the charterers to produce such guarantees as would satisfy the shipowners.

18.  On the construction of the plain wording of the letter in the present case, Wombat Lines accepted, on the request of Bee Kay, the obligation of obtaining a valid Bank Indemnity. It would be stretching the language to impose an implied qualification to the letter authorizing the release of the mirrors to Ajiboye Trading on a Bank Indemnity “to be obtained by the shippers” and provided that the same is in order, etc. The words in quote do not come naturally into this part of the letter no matter how hard one tries to put them there.

19.  Having given the authorities cited and counsel’s arguments the most careful consideration, I nevertheless feel quite unable to come to the conclusion argued for.

(iii) The alternative arguments

20.  Both the Khemani brothers admitted that they were aware that at least one of the Debit Advices received from Mr. Ajiboye had been forged and that they did not bring it to the notice of Wombat Lines or Ashaye Far East or saw no reason so to do. It is submitted on behalf of Wombat Lines that if they are to be treated as having waived their right to insist upon releasing the mirrors only upon production of the Bills of Lading, they are in effect themselves insurers of Bee Kay’s right to be paid the price of the goods, or alternatively they are in an analogous position to sureties for the fidelity of Mr. Ajiboye or Ajiboye Trading. That being the case, it is argued that Bee Kay came under a corresponding duty to make full disclosure of their knowledge as to the forgeries.

21.  No authority has been cited for this novel proposition and we find no merits in the first alternative argument.

22.  In the light of what has been said under the first and second headings (viz., Grounds 1 and 2; Grounds 4 to 7) the second alternative argument is of academic interest only and does not call for further comments.

23.  For the reasons discussed above I would dismiss the appeal.

Barker, J.A.:

24.  I agree.

Power, J.A.:

25.  I concur.

Clifford Smith (Messrs. Holman, Fenwick & Willan) for Appellant/1^st Defendant

R.J. Faulkner (Messrs. Lo, Wong & Tsui) for Respondent/Plaintiff