The majority of the laws surrounding the delivery of goods without production of an original bill of lading were finally settled in the Hong Kong Court of Final Appeal case in the Carewins case. The recent decision handed down by the Hong Kong Court of First Instance on 9 September 2009 by Stone J, explored some remaining yet important issues in this area.
Mau Wing v Ensign Freight is a simple case of delivery of goods without production of an original bill of lading. The plaintiff, as a Hong Kong shipper, contracted the 1st defendant, as a Singaporean contractual carrier, to ship 3 containers of garments from Singapore to Felixstowe. Following the arrival of the goods at Felixstowe, they were delivered to the buyer without production of an original bill of lading. Instead, the buyer provided the delivery agent with a letter of indemnity in exchange for the goods. The buyer became insolvent shortly afterwards.
A preliminary question arose as to who was the actual contractual carrier. The problem was that the bill of lading bore the heading of a 2nd defendant, sister company of 1st defendant. The answer is clear, however, because the 1st defendant signed the bill of lading “as carrier” not “as agent” and because the conduct of the parties was consistent with the 1st defendant in Singapore being the contractual carrier.
The plaintiff thus claimed against the 1st defendant for the invoice value of the goods. The 1st defendant pleaded that its liability was limited pursuant to the provisions on the reverse side of the bill of lading. Clause 11.3 of the bill of lading provides, materially, as follows:-
“For those liability which cannot be exempted or excluded by any other terms in this Bill of Lading, the liability of the Carrier howsoever arising shall in no event exceed a sum of whichever is the lower of:
US$500 per package or unit of; or
US$2 per kilogram of the gross weight of
the goods or any other properties lost, damaged, misdirected, misdelivered or in respect of which a claim is made provided that the Carrier’s liability whatsoever shall in no circumstance exceed a total sum of US$250,000 per event or events arising from a common cause…””
The principal question with which Stone J was concerned was whether the 1st defendant,which was accepted to have breached the contract by delivery of cargo without presentation of an original bill of lading, was entitled to limit its liability by Clause 11.3.
At first glance, it is submitted that clause gives the impression that it is clearly worded, unambiguous and that it can limit the 1st defendant’s liability because the plaintiff’s claim was for goods misdelivered “howsoever arising”. As the defendants’ counsel submitted, even if a limitation clause was read contra proferentem, the words of Clause 11.3 were clear and unambiguous.
Along this line of argument, he further argued that it was not inherently improbable that the parties would agree to limit liability for delivery without production of an original bill of lading. He pointed out some reasonable considerations: freight forwarders subcontracted carriage to third parties for a very small remuneration, but risked themselves potentially liable for unauthorized acts of such agents; the shipper could obtain protection by effecting a marine cargo insurance policy and so on.
The 1st defendant put forward another valid argument; if the plaintiff had wanted a higher limitation amount, it should have declared the value of the goods and paid a higher freight in accordance with another provision. If the plaintiff chose not to declare and to pay a lower freight, it should be left with less protection.
However, these sound reasons were not enough to persuade Stone J, as he decided against the 1st defendant in the gist of the case. He did not think that Clause 11.3 was clear or unambiguous taking when considering the understanding of traders and bankers as to the overarching role of bills of lading in international trade. He was of the view that if Clause 11.3 could be construed in the way submitted by the 1st defendant, it would mean that the carrier could limit its liability from the invoice value of US$283,093.70 to the contractual limitation amount of US$39,875.20 by the entirely advertent misdelivery of the goods against some documents other than an original bill of lading.
The judge clearly preferred the plaintiff’s submission that every shipper expects carriers to release the goods only on the production of an original bill of lading. It is the cardinal obligation of a carrier, for the sake of proper functioning of international trade, and the Court’s attitude towards limitation provisions should not differ from that towards exemption provisions. Furthermore, the judge did not prefer to put the shipper into a position that it would have to sue for the balance of the loss caused by the defendants’ breach of a fundamental term of a bill of lading contract against the insolvent buyer. Such risk should stay with the carrier who had delivered the cargo against an indemnity instead of an original bill of lading.
The decision was thus clearly based on the importance of the role of a bill of lading in the international trade, as emphasized by the Court of Final Appeal in Carewins. It is submitted that the clause should be construed in favour of the carrier if the cargo was damaged or stolen.
The side issue of this case, whether the limitation of liability clause can be invalidated by the provisions of the Control of Exemption Clauses Ordinance (COECO), Cap 71, had been discussed by Stone J without making a binding decision. He noted the observation in Vastfame v Birkhart that, by Schedule 1, the COECO could apply to pre-loading and post-discharge periods, and the carriage by sea should instead be governed by the Hague-Visby Rules. Yet, delivery, and in truth misdelivery, occurs after discharge at the port. His view was, thus, that Clause 11.3 would be subject to the requirement of “reasonableness”. Clause 11.3, being a “catch all” limitation provision, should be considered unreasonable due to its potential breadth and for its attempt to limit liability for a deliberate breach of the carrier’s fundamental obligation.
The Court has however not considered that Section 16 of COECO exempts the reasonableness requirement of that ordinance from contracts, inter alia, (i) under which possession of goods passes; (ii) made by parties in different states (here, Singapore and Hong Kong); and (iii) involves international carriage. A similar section (section 26) in the Unfair Contract Terms Act 1977 was considered in the obiter remarks of Stuart-Smith LJ in Motis Export Ltd v Dampskibsselskabet AF 1912, Aktieselskab & Another decided by the UK Court of Appeal. The case concerns an Asian shipper contracting with Danish carriers to carry goods from Cotonou to Abidjan. It was noted that the Unfair Contract Terms Act 1977 would not affect how the contract of carriage was to be construed because of the above mentioned section. In this case, the Hong Kong plaintiff and the Singaporean 1st defendant entered into a contract under which the possession of the goods would pass during the international carriage. Thus, this side issue of whether COECO is applicable to contracts of carriage, if raised again in the future, must be read together with section 16. At that future time, the carrier could argue that COECO does not apply for the reason stated above.
As a result of this case, the judicial hostility in cases of delivery without an original bill of lading has been extended to the limitation of liability clause, at least in the Court of First Instance. One may consider that the way the court construed the limitation clause might have been stretched the point too far. Nonetheless, it brings a clear message to carriers. Their clauses of limitation and exemption will not be applicable to delivery without an original bill of lading unless it is very clearly set out. We have seen that even a clause such as Clause 11.3 is still not clear enough. In this basis, carriers have to be careful in ensuring that their delivery agents appreciate the importance of complying with the production rule, failing which they risk exposure to liability in full amount.
Mau Wing Industrial Limited v Ensign Freight Pte Ltd and other, HCCL 27/2008 (Hon Stone J, 9 September 2009)
With thanks to Sam Tsui of Tsui & Co solicitors, Hong Kong, for preparing this article.
