Carewins Development (China) Limited v Bright Fortune Shipping Ltd & Anor (CACV328/2006 and CACV329/2006)
This is a recent decision handed down by the Hong Kong Court of Appeal on 13 July 2007 by a panel of 3 judges, including the Chief Judge of the High Court, which overruled Stone J’s 1st instance decision on the issue of exclusion clause and the applicability of the Hague-Visby Rules to the facts of the case.
The trunk of the case is simple. The defendants, as freight forwarders, issued 2 sets of the straight or non-negotiable bills of lading, and only one set (“the bills of lading”) is relevant for the present discussion. The defendants delivered the goods to a third party without production of original bills of lading.
The defendants appealed the 1st instance’s finding that they breached the contractual obligation to the plaintiff by delivering the goods to a 3rd party without production of the original bills of lading. The defendants submitted that the presentation rule did not apply to a straight bill of lading and would only give rise to inconvenience as it took time before a consignee could get hold of the original bills of lading from a shipper. In support of their arguments, the Defendants relied on a decision of a High Court case by Waung J, The “Brij”[2001] 1 Lloyds Rep. 321.
The Court of Appeal followed the propositions in The “Rafaela S”[2005] AC 243and concluded that a straight bill of lading is also a document of title and a key to the warehouse. It follows that to obtain the goods, one has first to produce the key. The attestation clause in the bills of lading, on a true construction by the Court of Appeal, required the bills of lading be produced to obtain the underlying goods. The “Brij” in relation to the presentation rule regarding a straight bill of lading was overruled. The defendants lost on this issue.
It is interesting to note that even after the decision of House of Lords The “Rafaela S”, the defendants still forcefully maintained the position that the presentation rule did not apply to the straight bill of lading. It is believed that with this Court of Appeal decision, the issue of presentation of an original bill of lading in a straight bill of lading is more or less settled. Unless in very special circumstances, carriers should expect to be found liable in conversion by the Hong Kong Courts if they release cargo without presentation of the original bill of lading.
However, the more exciting part of the decision is, in fact, found in the construction of the exclusion clauses in the bills of lading. Some of the relevant clauses are set out below.
The relevant exclusion clause 2 (b) at the reverse side of the bills stated to the effect that the defendants should be under no liability whatsoever for loss or misdelivery of or damage to the goods however caused whether or not through the negligence of the defendants or their servants. The Court of Appeal construed these words as follows: The words “however caused” were qualified by the words “whether or not through negligence”. Misdelivery could be committed in ways which did not involve any consideration of negligence or non-negligence, such as a deliberate misdelivery as in this case. The Court of Appeal then held that the exclusion clause did not cover what happened in the case. This overruled Stone J’s 1st instance decision on the construction of the exclusion clause.
The principle of fundamental breach is no longer good law in Hong Kong. The judicial authorities support that even in the case of misdelivery, the parties can sometimes exempt liabilities based on a contractual exclusion clause. However, the Courts always construe an exemption clause of this type narrowly to the specific event stipulated in the clause. In some cases, like The Ines [1995] 2 Lloyd’s LR 144, the word “misdelivery” was missed out from the exclusion clause. It is sensible for the court to construe “damage” or “loss” in an exclusion clause not intending to cover “misdelivery”. The defendants’ exclusion clause was written so wide as to include “misdelivery” howsoever caused, whether through negligence or not. An event might be caused by an accidental, negligent or intentional act. Following the reasoning of Reyes J, sitting in the Court of Appeal, the damage to the goods caused by accidental damage could not be excluded by such a wide exclusion clause as an accidental act involves no concept of negligence. Clearly, this was not the intention of the parties. It is submitted that the words “negligence or not” were only intended to give double assurance that the liability of loss, damage to and misdelivery of the goods however caused would be excluded. The writer submits, with respect, that the Court of Appeal’s interpretation was not the natural and ordinary meaning of the exclusion clause.
The climax of the decision is that by the correlation of clause 2 to the front of the bills of lading, the Court of Appeal used an alternative way to find in favour of the Plaintiff. It is well known that in Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, Devlin J pointed out that the Hague Rules left it open to the parties to define the content of obligations such as “loading” and “discharge” in relation to a carriage of goods. By clause 2(a) of the bills, the defendants accepted liability, subject to the terms of the bills of lading and US COGSA, for what happened to the goods “during the period commencing their being loaded and continuing up to and during discharge” (i.e. the tackle to tackle period). Clause 2(c) referred to the event of misdelivery “between the time that the Goods are received….at the Place of Receipt and the time of delivery at the Intended Place of Delivery”. Clause 2(c) went on to say to the effect that if the plaintiff failed to prove that the loss, damage or misdelivery happened within the tackle to tackle period, the defendants would be exempted from liabilities caused by misdelivery in accordance with the exclusion clause 2(b) discussed above. Like many other bills of lading, the “Port of Discharge”, the “Place of Delivery”, and the “Final Destination” at the front of the bills all described the same place, and in this case, being “Los Angeles, C.A”. The bills further identified the carriage as being “CY-CY” – “container yard to container yard”.
The Court of Appeal then said that as an alternative reading, the “Port of Discharge” might refer to the entire of Los Angeles, instead of just the port area of Los Angeles, and therefore the place of “discharge” would be the same as the place of “delivery”. It follows that the terms “discharge from the vessel” at clause 2 (a) would equate to “the time of delivery at the “Intended Place of Delivery” at clause 2(c). On such reading, the defendants would only be excluded from liability, pursuant to clause 2 (c), where loss, damage, or misdelivery occurred before the goods received or after they were delivered. It further follows that the “discharge” in the Hague-Visby Rules must be regarded as covering “delivery” in this particular case. The final result of the reasoning by the Court of Appeal is that Hague-Visby Rules and the package limitation therein shall apply, which was more than the sum of the loss suffered by the plaintiff.
Another interpretation submitted by the defendants is that the delivery took place after the discharge, which ended when the goods were hoisted over the ship’s rail and placed on the quayside. At its lowest, if there is an ambiguity as to which reading was correct, the Court of Appeal said that it construed against the defendants who were seeking to rely on the provisions to exclude liability.
The Court of Appeal used the correlation of clause 2 to the front of the bills of lading to extend the operations of the Hague-Visby Rules up to the stage of delivery in this particular case. It is indeed an innovative interpretation of these clauses and words to fit in with the view of Devlin J in Pyrene on the operation of the Rules. At the 1st instance decision in the case, after reviewing the authorities, Stone J determined that the Hague-Visby Rules did not apply to the post-discharge events. Hence, the Rules did not apply to avoid the exemption clause. Having considered that the exclusion clause was clear and unambiguous, Stone J then concluded that the Defendants succeeded. The Court of Appeal decision did not expressly overrule Stone J’s decision that the Hague-Visby Rules did not apply to the post discharge events. Instead, it sought to define the word “discharge” to cover the events up to “delivery” based on the particular terms of the bills of lading. However, one may ask if the parties intended that “discharge” equated to “delivery”, why the parties did not state so clearly in the bills of lading? The commercial courts always ask this kind of question but strange enough, the Court of Appeal did not do so this time.
The Court of Appeal’s correlation may not have significant impact on freight forwarders’ bills of lading since they often provide services for door to door carriages. Ocean carriers’ responsibilities, however, usually terminate at the port. To avoid being caught by this decision of the Court of Appeal, ocean carriers may wish to consider adding “the port area” next to the city named in the “Port of Discharge” and/or the location of its container yard next to the “Place of Delivery” on the bills of lading. This may be difficult because it creates inflexibility for ocean carriers. Alternatively, the terms of the bills of lading have to clearly state where the responsibilities of the carrier end. Otherwise, it is possible that ocean carriers will be held liable for loss occurring even after the goods are discharged, for example, during port clearance or even the inland transit from the port area to the receiver’s warehouse which may be the jobs to be performed by a third party.
Do the words “CY to CY” cure the above problem? The answer is negative based on the interpretation by the Court of Appeal. Reyes J was of the view that “CY-CY” might concern “discharge” at a container yard somewhere in the port city of Los Angeles with “delivery” taking place at the same yard. Alternatively, “discharge” might be in the port area of Los Angeles with “delivery” ultimately taking place in a container yard somewhere else in Los Angeles. It is correct that in Hong Kong, the container yard of a carrier may not be located near the terminal or the port area. The common understanding is that at the port of discharge, a container yard refers to the place where the loaded containers are delivered by the ocean carrier to the consignee. It is to be contrasted with a container freight station where grouped consignments are unpacked. The writer agrees with the Court of Appeal that nowhere does “CY” or “CFS” state the location of the yard or freight station.
The writer submits that, again with respect, that the determination by the Court of Appeal has flaws. To understand why one has to go back to the Definition section of the bills of lading. The words (Ocean Vessel) were stated next to port of discharge. Businessmen engaged in international trade read “Port of Discharge” as the area where the carrying vessel discharges the goods. It is therefore impossible to read “Port of Discharge” as any place at Los Angeles or the entire city of Los Angeles. The words (Ocean Vessel) were however not found next to “the place of delivery”. The natural meaning of “the place of delivery” was the area where the goods were delivered. The delivery of the goods could take place outside the area where the goods were discharged from the ocean vessel. Only in a case where the delivery of the cargo happened to take place at the same place where it was discharged from the ocean vessel does the port of discharge equate to the place of delivery. This was exactly the purpose of clause 2(c). If the plaintiff has failed to prove that the delivery occurred at the same time as, or before the time when, the goods were discharged from the ocean vessel, the exclusion clause 2(b) would bite.
It follows from the preceding paragraph that the Court of Appeal could not equate the words “discharge from that vessel” with the words “the time of delivery at the Intended Place of Delivery”. In fact, before making such an equation, it appears that the Court of Appeal had first replaced the “discharge from that vessel” by “the Port of Discharge” (which was the same as place of discharge in the view of Court of Appeal). One could not make this replacement unless it was accepted that the “Port of Discharge” was where the goods were discharged from the vessel in Los Angeles. Once this is accepted, the conclusion is that the “Port of Discharge” could not be the entire city of Los Angeles because it is impossible that at everywhere in Los Angeles could the carrying ocean vessel anchor and discharge the goods. It follows that one could not simply pull out a common factor, namely anywhere in the city of Los Angeles, and then treat “discharge” as tantamount to “delivery”.
Notwithstanding the flaws found above, the carriers should be aware that following at least two Hong Kong Court of Appeal decisions, namely this one andWily Products Company Limited v Hency Shipping Ltd (CACV 61/1995), the Hague-Visby Rules have been held to apply to misdelivery which took place after the goods had crossed the ship’s rail and lay on the quayside and, accordingly, avoided the contractual exemption clause.
With thanks to Sam Tsui of Tsui & Co, Hong Kong, for preparing this article.
See also discussion of the "Rafaela S" decision in Straight Bills of Lading - Do The Hague-Visby Rules Apply?
The relevant clauses in the bills of lading
1. DEFINITION
The term ‘Merchant” means the shipper, consignee, the holder of this Bill of Lading and or the receiver or the owner of the goods.
The terms ‘Place of Receipt’ ‘Intended Port of Loading’ Intended Port of Discharge’ and “Intended Place of delivery’ mean respectively the place of receipt, port of loading (Ocean Vessel), port of discharge (Ocean vessel), and place of delivery nominated on the front hereof, and
The terms ‘Goods” means the cargo received from the Shipper and includes any Container(s) supplied by or on behalf of any other than the carrier.
2. CARRIER’S RESPONSIBILITY
(a) Subject to Clause 8 and 9 hereof [relating to containers packed by the Merchant and the Carrier’s containers] the liability (if any) of the carrier in respect of the Goods during the period commencing with their being loaded onto any sea going vessel into which vessel or from another sea going vessel and continuing up to and during discharge from that vessel or from another sea going vessel into which the Goods shall have been transshipped shall be determined in accordance with the provisions of the Carriage of Goods by Sea Act of the United States of America approved April 16, 1936 which shall be deemed to be incorporated herein and in accordance with the terms and conditions of Bill of Lading or other contract of carriage of the sub contractor responsible for the carriage of such Goods by sea, all of which terms and conditions to the extent that they are not in conflict with the express provisions of this Bill of Lading, are incorporates herein.
(b) Save as provided in (a) hereof the Carrier shall be under no liability in any capacity whatsoever for loss or misdelivery of or damage to the Goods however caused whether or not through the negligence of the Carrier, his servants or agents or sub contractors or for any direct or indirect loss or damaged causes by delay or for any indirect or consequential loss or damage.
(c) In the event of any loss or misdelivery or delay in deliver[y] of or damage to the Goods occurring between the time that the Goods are received by the carrier at the Place of receipt and the time of delivery at the Intended Place of delivery the onus of proving that such loss misdelivery delay in delivery or damage (or any part thereof) occurred during the period specified in Clause (a) hereof shall be upon the Merchant. In the event that the Merchant is unable to discharge such onus of proof the Carrier shall be under no liability for such loss misdelivery delay in delivery or damage to the Goods (or any part thereof) in accordance with (b) hereof.
(d) INSURANCE WILL NOT BE ARRANGED BY THE CARRIER EXCEPT WITH THE EXPRESS INSTRUCTIONS IN WRITING [OF] THE CONSIGNOR AND THEY ONLY AT HIS EXPENSE AND LODGEMENT OF A DECLARATION AS TO VALUE PRIOR TO SHIPMENT.
3 LIMITATION OF LIABILITY
Insofar as loss of or damage to or in connection with the Goods is caused during the part of the custody or carriage to which US COGSA applies (1) the Carrier shall not be liable for loss of or damage in an amount exceeding the minimum allowable per package or unit (US$500), unless the value (and nature) of the Goods higher than this amount has been declared in writing by the Merchant before receipt of the Goods by the Carrier and inserted on the face of this Bill of Lading and extra freight has been paid as requires. If the actual value of the Goods per package or unit exceeds such declared value and the Carrier’s liability, if any, shall not exceed the declared value. Any partial loss or damage shall be adjusted pro rata on the basis of such declared value. If the declared value has been willfully misstated or is markedly higher than the actual value, the Carrier shall not be liable to pay any compensation. (2) If the Goods have been packed into Container (as defined in Clause 1) or utilized into a similar article of transport by or on behalf of the Merchant it is expressly agreed that the number of such Containers or similar articles of transport shown on the face of this Bill of Lading shall be considered to be the number of package units for the purpose of the application of the limitation of liability provided for in this clause.
