Carewins v. Bright Fortune (CofA)

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Note: the decision of the Court of Appeal has been upheld by a decision of the Court of Final Appeal given on 12 May 2009. Click here for the note of the Court of Final Appeal decision 

Carewins Development (China) Ltd v Bright Fortune Shipping Ltd
Hong Kong SAR Court of Appeal: Ma CJHC, Barma and Reyes JJ: CACV 328/9/2006: 13 July 2007

Mr Benjamin Chain (instructed by Ho, Tse, Wai & Partners) for the Plaintiff/Appellant
Mr Colin Wright and Mr George Hui (instructed by H H Lau & Co) for the Defendant/Respondent Carriers
The Hong Kong Court of Appeal upheld the judgment at first instance to the effect that the presentation rule (that goods must be released to the consignee only against presentation of an original bill of lading) applied to straight bills of lading as well as to ‘order’ bills. However, the Appeal Court, overruled the first instance judgment in holding that the carriers were not relieved from their liability for misdelivery by an exemption clause in the bill of lading. The Court held that the clause was ambiguous and that the ambiguity had accordingly to be resolved in favour of the cargo claimants

DMC Category Rating: Developed

The Editor has compiled this case note in conjunction with Crump & Co, the International Contributors to the website for Hong Kong

This decision involved two separate actions brought by Carewins, a Hong Kong exporter, against different carriers claiming for misdelivery of goods shipped from Hong Kong to Los Angeles. As the facts in both cases were similar, the cases were heard together.

In each case, Carewins sold items of footwear to its customer, Artist Fashion, and arranged for shipment from the factory in China to Hong Kong and then from Hong Kong to Los Angeles. The carriers on the Hong Kong/Los Angeles leg of the journey issued "straight" bills of lading, naming Artist Fashion as the consignee. The shipments were made in March/April 2003. On arrival at Los Angeles, the containers were to be delivered to Artist Fashion's warehouse by Trans-Union Group ("TUG") acting (as the Court of Appeal found) as agent for Artist Fashion. The warehouse was about an hour’s drive from the port.

However, 23 of the containers in question were delivered to the consignee’s warehouse without Artist Fashion having first presented an original bill of lading. The containers were then seized by US officials acting under a court order in US proceedings brought against Artist Fashion by Burberry Ltd alleging trademark infringements.

The dispute with Burberry was settled, but the terms did not include the return of the seized footwear. As a result, Artist Fashion did not pay Carewins for the goods. The fate of the 23 containers was unknown, but it was likely they had been sold by the port authorities at public auction.

The attestation clause in the bills of lading stated "in Witness Whereof, the carrier by its agents have signed three (3) original Bills of Lading all of this tenor and date, one of which being accomplished and the others to stand void". It did not, however, include the usual following sentence "One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order".

Clause 2(a) provided that the US Carriage by Goods by Sea Act applied to the liability of the carriers "in respect of the Goods during the period commencing with their being loaded onto any sea going vessel and continuing up to and during discharge from that vessel". Clause 2(b) provided that, subject to clause 2(a) "the [carriers] shall be under no liability in any capacity whatsoever for loss or misdelivery of or damage to the Goods however caused whether through negligence of the Carrier, his servants or agents or subcontractos …". Clause 3 provided that, where US COGSA applied, liability would be limited to US$500 per package unless the value and nature of the goods had been declared in writing.

Carewins issued proceedings against the carriers because they had delivered the goods without requiring original bills of lading to be presented. The carriers, however, argued that they had duly delivered the goods to the named consignee. The bills of lading omitted any express requirement for presentation and the so-called "presentation rule" should not be implied into straight bills of lading because straight bills (as opposed to "to order" bills) are not by their nature transferable to anyone other than the named consignee.

At first instance, that argument failed, the court following the rulings of the Court of Appeal in Singapore in Voss v APL Co PTE Ltd [2002] 2 Lloyd's Rep 707 and of the House of Lords in the later case of MacWilliam Co Inc v The Mediterranean Shipping Co SA (The "Rafaela S") [2005] 1 Lloyd's Rep 347. In both these cases, the respective courts had held that a straight bill, though not transferable in the same way as a bill of lading made "to order", was nevertheless a bill of lading, and its production was a prerequisite to delivery, even in cases where there was no express provision to that effect in the bill of lading.

However, the first instance court went on to relieve the carriers from responsibility for the misdelivery, on the basis that the exemption in clause 2(b) of the bills of lading applied. The judge found that the misdelivery had taken place after discharge was complete and the Hague Rules regime had accordingly come to an end. In those circumstances, the wording of clause 2(b) – which referred to misdelivery ‘however caused’ - was wide enough to exempt the carriers from liability.

Cargo interests appealed.

The leading judgment was given by Reyes J.

The Court held that the case gave rise to two main issues of dispute, as follows:
1. Did the defendant carriers breach their contractual obligations to Carewins by delivering the relevant goods to Artist Fashion without production of the bills of lading?
2.. Can the defendants rely on clause 2 of the bills of lading to exclude their liability to Carewins arising from the misdelivery of goods to Artist Fashion?

Issue 1
The Court examined at length the decision of the House of Lords the Rafaela S case and drew the following conclusions from it, with which it agreed.
"(1) From at least 1873 (if not earlier) mercantile practice treated straight bills as bills of lading having the characteristic of documents of title.
(2) In the 1920s, the drafters of the Hague Rules must have been aware of this practice and would have intended the expression "bill of lading or any similar document of title" in Art.I(b) to reflect such established commercial usage.
(3) It follows that the expression "bill of lading or any similar document of title" in Art.I(b) includes straight bills of lading.

The court went on to say:
"Once it is accepted that a straight bill is a bill of lading, it must be that a straight bill is a document of title in the same way that an order bill is a document of title. It must also follow that, as a document of title, a straight bill has be produced before the named consignee can obtain delivery of the goods. This is because, just as with an order bill, a straight bill is a key to the goods or, as it is sometimes described, the key to the warehouse. To obtain the goods, one has first to produce the key. This function of serving as a document of title or "key" distinguishes a straight bill at common law from a sea waybill."

Similarly, the court followed the House of Lords in holding that in this case too, the wording of the attestation clause clearly indicated that the bill of lading was a document of title which needed to be produced to obtain the underlying goods. The clause was not to be ignored as being meaningless or inapposite in the case of a straight bill.

The court then went on to overrule the decision in the Hong Kong High Court in The Brij [reference] where Mr Justice Waung had held that "under a straight bill of lading a carrier is entitled and bound to deliver the goods to the originally named consignee without production of the bill."

Accordingly, the appeal on this point failed.

Issue 2
After setting out at length the relevant provisions of the bill of lading, the court noted the general principle that:
"(a)ny limitation or exclusion clause must, of course, comply with the common law requirement of clarity. It must be clear and unambiguous what liability is to be limited or excluded by a clause. If not, any ambiguity in a clause will be construed against the party seeking to rely on the alleged limitation or exclusion."

In its analysis of clause 2 in particular, the court found at least two ambiguities which had to be resolved against the respondent carriers. The first related to the inclusion of the words "whether or not through negligence" after the words "however caused". Whereas the latter words might have been sufficiently clear to exempt any misdelivery whatsoever from liability, the introduction of the words "whether or not through negligence" had the effect of limiting the exclusion to "misdelivery however caused through negligence or misdelivery however caused not through negligence." Misdelivery, the court pointed out, can be committed in ways which do not involve any consideration of negligence, such as, as here, the deliberate or intentional misdelivery of goods to a party despite the non-production of a bill of lading. In the court’s view, such words lacked the crystal clarity necessary to exclude liability for an intentional disregard of an actual term of the contract of carriage [namely, the requirement to be inferred from the wording of the attestation clause that a bill of lading was to be produced in order to obtain delivery].

The second related to the correlation of clause 2 and the front of the bill of lading. The bill provided that the port of discharge, the Place of Delivery and the Final Destination were all described in the same way as "Los Angeles, CA". The court found the reference to Los Angeles ambiguous; it could mean the port area of the city or the entirety of Los Angeles as a port city. In the latter case, the place of delivery would be the same as the place of discharge.

The evidence showed that the cargo was "fully discharged before clearance by US Customs, at which point TUG… appeared and took possession of the goods –from a port area terminal - without production of a bill of lading." If these were the facts, they corroborated, in the view of the court, a reading of clause 2 in which – the port of discharge and the place of delivery being in fact the same – the parties contractually regarded "discharge" and "delivery" as equivalent operations. On this basis, delivery would have taken place in the Hague Rules period of clause 2(a) and there was no room left for the exculpatory provisions of clause 2(b).

In conclusion, the court held that "at its lowest, there is an ambiguity as to which reading is the correct one and clause 2 must accordingly be construed against the defendant carriers who are seeking to rely on the provision to exclude liability." Judgment was accordingly given in favour of the cargo claimants.

Whilst it is understandable that the Appeal Court did not wish to exonerate the carriers from the consequences of an assumed deliberate decision to deliver cargo without production of the relevant bills of lading, the grounds on which it held the exculpatory clause in the bill of lading to be ambiguous and therefore unenforceable seem highly tenuous. In the practice of the trade, it makes little sense to equate the operation of discharge with that of delivery. The first takes place when the cargo is landed from the ship; the second takes place when the cargo is handed over at the container yard to the representatives of the consignee. The terms of carriage in this case were "CY (Container Yard)/CY".

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