The Yien Yieh Commercial Bank Ltd. v. Kwai Chung Cold Storage Co. Ltd.
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CACV000147/1987
Headnote 1. Bailment by Attornment. 2. Construction of Exemption Clauses in storage documents.
BETWEEN
_______ Coram: Hon. Cons, V.-P., Clough, J A & Rhind, J. Dates of hearing: 24 - 27 and 31 May 1986 and 1 June 1988 Date of delivery of judgment: 23 June 1988 ______________ J U D G M E N T ______________ Cons, V.-P.: 1. This appeal stems from two consolidated actions tried by Mr. Gilbert Rodway, Q.C., sitting as a Deputy Judge of the High Court. The Plaintiff in each case was the Yien Yieh Commercial Bank Limited ("The Bank"). The Defendant was the Kwai Chung Cold Storage Co. Ltd. ("The Company"). The subject matters of the two actions were respectively the goods of the Wallace Investment Co. Ltd. ("Wallace") and the Shun Lee Co. ("Shun Lee"). Both companies engaged in the purchase and resale of frozen food. It is agreed that the material circumstances in each case were identical, so for convenienc I shall usually refer only to Wallace. 2. The finance for Wallace's trading was provided by the Bank. Security was derived from an agreement made in 1976, which provided that all documents received by the Bank in respect of credits opened or established at the request of Wallace, and the goods represented thereby, should be held by the Bank as security for moneys due thereunder. 3. Goods purchased in bulk by Wallace were stored with the Company pending resale. The Bank's security was then preserved by the direct delivery to the Bank of the Godown Warrant, without which, or a signed Delivery Order, the Company would not release the goods. Wallace thus had to satisfy the Bank before it could effectively resell. 4. All worked well for several years. However during the years 1980 to 1982, because of the dishonesty of Company staff, a considerable amount of Wallace's goods were delivered out of the godown without the Bank's being made aware. When eventually the Bank sought to realise its security the cupboard was virtually bare. Wallace's goods to the value of approximately $4.25 million (and Shun Lee $1.95 million) had disappeared. 5. The Bank claimed against the Company in conversion. The judge below rejected the claim, holding that in the circumstances the Bank had not, at the relevant time, established an immediate right to possession thereof. The judge did not therefore continue to conside the further question of whether the Company could successfully rely upon clauses contained in the Godown Warrant which purported to exclude its liability. That question a introduced into these proceedings by way of a Respondent's Notice. 6. The commendably concise Points of Claim pleaded the basis of the Bank's claim as follows -
7. The principles of bailment by attornment are conveniently to be found in Palmer On Bailment(1) -
8. Many of the cases referred to by the learned author in this part of his book have been referred to us. However I quote from a more recent case(2) to show one particular effect of the attornment. (The facts of the case are not relevant.)-
9. This is a matter of importance for it is upon the true construction of the terms of the bailment that this part of the appeal turns. 10. It is accepted that it was Wallace who put the goods into the Company's godown from time to time. In each case the relevant documentation is identical save that in some instances there was an initial covering letter from the Bank. However no point is taken thereon. 11. The delivery would be entered in the Company's "Log Book". This is a large bound ledger ruled in columns. Starting from the left there is provision for the date, the lot number and the number of the cold storage receipt. The next column is headed "Name". For the goods we are concerned with we find the entries to be "Wallace". Then follows a column dealing with the goods themselves, and then "Dane finished". That presumably is when the last of a particular consignment left the godown. Finally there is a "Remarks" column in this we find from time to time the names of various banks. Whenever there was a storing by Wallace we find in this column the name of "the Bank" entered. 12. The heading of the "receipt" or "tally sheet" given to Wallace indicates that the goods had been received "on account of" Wallace. In some instances there is also a reference to the actual account number, "W52". The body of the document gives details of the goods in question and beneath them in a note that they are "held to the order of 'the Bank'". 13. The Godown Warrant, as I mentioned earlier, was issued directly to the Bank. It is in the name Of Wallace but indicates that the goods are "held to the order of" the Bank. The words "held to the order of" are printed on the form with a blank space left to be filled in. From this I assume that it was by no means uncommon for goods delivered to the Company by one person to be held to the order of somebody else. 14. One of the copies of the Godown Warrant kept by the Company was on stiff cardboard, with provision on both the back and front for recording partial withdrawals. On the reverse of the copy issued to the Bank however was set out in both Chinese characters and in English the "Terms And Conditions For Storage Of Goods Received". There are apparently some differences between the two sets, but fortunately we are only concerned with the English version. The last sentence of the Chinese version, as translated, reads "the Company Recognises this translation of Cold Storage Terms and Conditions as correct and appropriate for the Storing Party's reference. But the English version shall prevail as valid". 15. I have no doubt that the Bank is bound by the Terms and Conditions. That follows from the attornment as a matter of law. It is also implicit in the Lank's acceptance of the Godown Warrant. Clause 13 provides (the emphasis in my own) -
Delivery orders would be used where only part of the goods stored ware taken out. These would be entered as a running record on the copy of the Godown Warrant kept by the Company. It was only when the last part of the goods stored were to be delivered, or when all were taken out at once, that the actual Godown Warrant would be required. 16. The judge came to the conclusion that "the Party who is for the time being registered in the Company's books as entitled to the goods", - who appears in Clause 5 in the slightly different guise of "the person for the time being entitled to delivery of the goods according to the Company's books", - meant "the owner or the apparent owner", i.e. Wallace. It followed therefore to the judge's mind that without Wallace's endorsement the Bank was not entitled no the delivery of the goods; thus the Bank was not entitled to immediate possession; the claim against the Company had therefore to fail. 17. The judge seems no have based his construction of the phrase in question upon the fact that "in all the Defendant's documents, Wallace or Shun Lee are consistently referred to in terms which could only be construed as the 'owners' or 'storers,' or 'party entitled". Certainly Wallace appear to have been "the owners". Undoubtedly Wallace were also "the storers". But with respect to the Judge below I an unable to read into the Terms and Conditions that Wallace was "the party entitled" under Clause 4. I accept that the Terms and Conditions must be read as a whole. I find then that the word "owner" does not appear until the last clause i.e. Clause 13 which I have already quoted. In Clauses 10 and 11, which deal with goods that have deteriorated so as to cause damage to other goods, there is a reference to "such persons as are registered in the Company's book as having an interest in the goods". The "storer" is introduced in Clause 7, which deals with charges and liens, and is repeated in Clause 8 with regard to special fees. By the last part of Clause 7 the Company's lien for unpaid charges is expressly not affected "as a result of the goods being held to the order of a bank or other third party". For my part I do not find that these references qualify in any way the plain meaning of the words used in Clauses 4 and 5. The "party entitled to delivery", is the party to whose order the goods are held. He is the person who can dictate when and to whom the goods shall be delivered, for it is his order that is required. To hold otherwise would deprive the words "held to the order of", - and which appear so frequently in the Company's documents, - of any meaning other than that the Bank might be required to remove the goods if they had deteriorated so as to cause damage to other goods. 18. I have to mention, because I respectfully feel that it was because of this that those advising the Company were led astray, that the words "held to the order of" would not be lacking in meaning if considered in the context, not of the written terms and conditions, but in that of the system of delivery out actually practised by the Company. In that content too, the otherwise unfounded fear of the Company that it would have been liable to Wallace had it delivered out on the endorsement of the Bank alone, might well have been justified. 19. The evidence of the actual system was given, amongst others, by the Company's Counter Supervisor. He said that Where the documents indicated that a Bank or other party had a financial interest in any goods, he would, before releasing the goods, check with the owner to see if the goods had been redeemed from the Bank and he would demand documentary evidence from the Bank that that was so. Occasionally, in the case of a trusted customer, he would release the goods in advance of receiving confirmation from the Bank, but having been let down once in this respect by Wallace, the was not prepared to trust company again. 20. As a system it would be effective. No merchant whose trade was financed by a bank to whose order the Godown Warrant was made out, would be able to obtain delivery of the goods without the consent, and endorsement, of that Bank. Likewise, no bank, had it been inclined to be fraudulent, could have obtained delivery of the goods without the consent and endorsement of the merchant. As the judge below observed, had the system been faithfully operated the present loss could not have occurred. Unfortunately one Bosco Cheung, officially the Chief Accountant of the Company was dishonest. The judge below was unable to come to a definite conclusion as to the precise ambit of Bosco's duties within the Company, but it is clear that Bosco had sufficient authority to give instructions to the other staff that (as from the end of September 1980) the Bank's endorsement would no longer be nccessary with regard to deliveries to Wallace (or Shun Lee) and that he would himself be responsible for that aspect of the delivery out. Thus was the system easily circumvented and Wallace able to obtain its goods, without first satisfying t the debts due to the Bank. 21. In the light of this System, Mr. Mills-Owens who has appeared throughout for the Company was able to make his submission, accepted by the judge, that without the endorsement of Wallace the bank had no immediate right to possession of the goods, that the Bank's title under Clause 4 had therefore not yet been "perfected". 22. With respect no counsel, it seems to we that, other than to explain how the goods came to be misappropriated, the way in which the Company actually operated its godown business is of no relevance. At best it is a way of asking this Court to interpret written terms and conditions by reference to the subsequent conduct of one of the parties thereto, which, as I understand the law, is an avenue of construction not open to us. At worst it is a matter of nihil ad rem. Only the written Terms and Conditions bound the Bank. 23. In my view there was a clear, albeit perhaps simultaneous, attornment to the Bank when the Company endorsed the relevant documents "held to the order of" the Bank; thereafter the written Terms and Conditions applied; the Bank was the party entitled under Clause 4 - (I do not accept the suggestion that it was not registered as such in the Company's books because the "name" in the Log Book was that of Wallace. The "books"comprise the whole of the Company's records); by refusing to deliver the goods when demand was eventually and properly made by the Bank, the Company was guilty of conversion. To that extent I would therefore, for my part, allow the appeal. 24. I turn then to the exemption clauses, that is Clauses No. 2 and 6 of the written Terms and Conditions -
It is commonly accepted that the word "of", where it penultimately appears in Clause 6 is a misprint for "at" and has no material bearing upon the construction. 25. There was a faint suggestion that the reference In Clause 2 to "loss etc. .... whilst the goods are being stored or remain on storage" restricted that clause to loss which did not involve the removal of the goods from the premises. That however would not be easy to reconcile with the inclusion of "robbery or theft" or "misdelivery," in the following line. Be that as it way, it is upon the third sentence of Clause 6 that the Company principally relies and which for convenience I shall set out again -
26. As a matter of first impression the words do appear adequate to relieve the Company of liability in the present circumstances. The requisite Godown Warrant was the one furnished to the Bank. The requisite Delivery Order would have been one signed by the Bank as the party entitled under Clause 4. Neither was surrendered to the Company when Wallace took delivery and the misdelivery in that way was due to the dishonest conduct of Bosco Cheung the Chief Accountant, a servant or employee of the Company. However, Mr. Litton, who has appeared throughout for the Bank, seeks to arrive at a contrary conclusion, firstly by reliance on Tesco Supermarkets Ltd. v. Nattrass(3) and secondly by way of general construction. 27. The first step in the Tesco approach is also one of construction. It is pointed out although the provision relieves the Company from loss resulting from a misdelivery of its Officers, servants etc, it does not relieve the Company from less resulting from the misdelivery of the Company itself. 28. The second step takes us to the case itself, which arose from the conviction of Tescos of an offence under the Trade Description Act 1968 The question ultimately for their Lordships was whether Tescos had taken all reasonable precautions to avoid the commission of the offence, but implicit therein was the further question of whether the acts and omissions of their retail shop manager were the acts and omissions of Tescos, or merely those of the manager himself. We have been referred to passages in the speech of Lord Reid, first at page 170 -
Then later, after his Lordship has referred to Lord Denning's likening of a company to the human body with a controlling brain and nerve centre(4)-
29. Mr. Litton's main submission is that the evidence disclosed that, so far as the operation of the godown was concerned, Bosco Cheung was the company in the sense referred to by Lord Reid. Thus the misdelivery to Wallace was not misdelivery by a servant, for which the Company could perhaps escape liability, but was misdelivery by the Company itself, which was not covered by the exempting provisiosn. 30. The judge below came to no definite conclusion as to Bosco's status in the Company. He said at one stage, after referring to evidence that suggested that Bosco was superior at least to the Counter Supervisor. "in the final analysis, however, I am left in a position o doubt as to how far beyond his immediate accounting duties Bosco's writ ran. "Later he referred to his "being unsure as to how far Bosco's authority ran beyond his immediate duties as Chief Accountant". 31. To be fair to the judge, he was under the impression, shared by Mr. Mills-Owens that the point was no longer pursued after the pleadings had been amended, a matter to which I shall return in a moment. As a result Mr. Litton has taken us in great detail through the transcript of oral evidence with a view to showing, by a process of eliminating all others, that Bosco was the only person within the Company who could have been in a position to act as the company itself. In addition he relies upon an affidavit by William Miao, who was the Manager of the Company at the material time. Mr. Miao, we understand, is now in Australia and was not called as a witness below. 32. To understand this particular argument it is necessary to go to the Amended Defence as it stood when the hearing began. I refer to paragraph 4 -
Particulars
33. In opening the action below mr. Litton relied upon the words I have emphasized as an admission sufficient to support his argument based on Tesco. However during the course of the hearing, if I remember rightly even before Mr. Litton had concluded his opening, the Company successfully applied for leave to re-amend the pleading by replacing the words "an employee" with " the Accountant" and by deleting the words "and generally the person in charge of the operation of the Defendant's said cold store". Nevertheless an affidavit sworn by Mr. Miao in defence of Order 14 proceedings was accepted as an exhibit into evidence. Contained therein is a statement that "the facts and matters alleged in the said draft Defence and Counterclaim (identical to paragraph 4 of the Amended Defence) are true to the best of my knowledge, information and belief". Mr. Litton contends that removing the offending words from the subsequently amended pleading had no effect upon the affidavit itself and that the Company is still bound by that admission. 34. I should interpose that Mr. Albert Yeung, the present Manager of the Company, and the Assistant Manager at the material time, to whom the affidavit was put in cross-examination, attempted under re-examination to explain that the admission had been made as a result of a misunderstanding by the Plaintiffs solicitors. 35. Be that as it may, and taking those words at their face value, I have to bay that neither they, nor anything to which we were referred in the transcript of evidence, comes near to persuading me that Bosco was allowed to act, or could be taken to have acted, in the operation of the Cold Store Godown as the Company itself in the sense envisaged by Lord Reid. In no way do I find that the Board of Directors, by-passing the Manager and the Assistant Manager, "delegated some part of their functions of management, giving (to Bosco) as their delegate, full discretion to act independently of instructions from them". Such delegation as there was went no further than to the Manager and the Assistant Manager, and is contained in an undated document apparently signed by some nine of the Company's directors to the effect that -
36. An alternative contention under the banner of Tesco is that Line misdelivery was the result of the Company's own act, or rather its own omission, in failing to provide an effective system to control the delivery. This submission comes dangerously close to a plea in negligence or in breach of contract. Indeed we were referred to Spriggs V. Sothebys(5) and the suggestion was made more than once of an implied term in the bailment. However, with every respect, the contention to my wind is untenable. The Company did provide a system, and a system which, if properly adhered to, would have been effective. It does not cease to be a system because a dishonest servant circumvents it with regard to two only of its many customers, even if he manages to do so successfully for a considerable period of time. In my judgment both approaches relying upon Tesco must fail. 37. The volumes of law reports contain a vast number which deal with the construction of particular exemption clauses. We were taken to several during the course of argument, and in particular through the well mown cases of Photo Production Ltd. v. Securicor Transport Ltd.(6) and Suisse Atlantique Societe D'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale(7). 38. I do not think it necessary to refer to either authority in detail, but it may be apposite to set out two passages from the latter which restate the appropriate principles. At page 410 Lord Hodson said -
At page 432, Lord Wilbenforce -
39. Mr. Litton argues that if the construction favoured by Mr. Mills-Owens is accepted that would in effect deprive the Company's stipulations of all contractual force, that the Company would be able, if it so wished, instead of storing the goods to throw them into the sea with impunity. For my part I do not think the clauses would go that far. Lord Hodson at page 412 gave as an example that if a -
However that is not the situation which faces us here. We are concerned only with misappropriation by a dishonest servant. 40. I accept without reservation that the exemption clauses must not be looked at in isolation. In the same ease Viscount Dilhorne at page 392 said -
Mr. Litton suggests that a reasonable businessman, reading the whole of the Terms and Conditions, could not possibly suspect that the Company was absolving itself from all responsibility for misdelivery. I regret that I am unable to agree. In my view a careful businessman - and this is a commercial, not a consumer, contract - would appreciate that the risks did remain with him and would probably have taken steps to insure his interest. That would have presenced no difficulty. Indeed Wallace's agreement with the Bank provided that it should do so, and perhaps that part of the agreement has been kept. 41. For my part I see no reason why the provision in Clause 6 should not be ghiiven what seems to me its natural and clear meaning. I would dismiss the appeal. 42. As I understand my brothers take the same view it is not necessary to consider a third question which was argued before us, namely would the Company be able to set off against damages awarded for conversion an agreed figure of $190,000 in respect of unpaid storage charges.
Clough, J. A. : 43. I agree with what my Lord has said and I would also dismiss the appeal.
Rhind, J.: 44. I too agree.
(1) 1979 Ed. at pages 846, 847 and 848 (2) Leigh and Sillavan Ltd. v Aliakmon Shipping Co. Ltd. (1986) 1 A.C. 785 at 818 per Lord Brandon (3) [1972] A.C. 153 (4) Bolton (Engineering) Co. Ltd. v. T.J. Graham & Sons Ltd. [1957] 1 Q B 159 at 171 (5) [1986] 1 LI.L.R. 487 (6) [1980] A.C. 827 (7) [1967] A.C. 361 Representation: Henry Litton, Q.C. & Miss Vivien Vibert (M/S Tsang Chan & Co.) for Plaintiff/Appellant Richard Mills-Owens, Q.C. & Ronny Tong (A/s T.S. Tong & Co.) for Defendant/Respondent |
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