E.L.A.Z. Int'l v. HK & Shanghai Insurance

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E.L.A.Z. International Co. v. Hong Kong & Shanghai Insurance Company Limited
High Court of Hong Kong, Court of First Instance: Stone J: Commercial Action No. 4862 of 2001: [2006] HKCFI 406
Nigel Bedford (instructed by Weir & Associates) for the Plaintiff cargo interest
Colin Wright (instructed by Crump & Co) for the Defendant insurer

Where goods in transit from China to Mexico, via Los Angeles, had been stolen at an inland container yard, at which they had been delayed for over five weeks, during which they had been transshipped from the ocean container to a road trailer, the judge held that they were still "in the ordinary course of transit" and therefore remained insured under a policy subject to Institute Cargo Clauses (A) – the ‘All Risks’ clauses. Further, the transshipment did not amount to a breach of the "subject to full container load" warranty in the policy, since that simply meant that the consignment should not be intermingled with other goods and that only the same shipment should be in the container – as was the case here.

DMC Category Rating: Confirmed

This case note is contributed by Crump & Co, the International Contributors to the website for Hong Kong

The Plaintiff had purchased 941 cartons of ladies’ knitwear garments from a factory in Dongguan, China, and resold them to a buyer in Mexico. The goods were carried by sea from Dongguan to Los Angeles via Hong Kong and thereafter, by train and road, to Laredo, Texas. The goods remained there until the necessary customs clearance to import the goods into Mexico could be obtained. On arrival in Laredo, the goods were placed in the custody of the ocean carrier’s agents until 2 October 2000. The goods were then taken to another container yard in Laredo. There the goods appeared to have been unloaded from the container and re-loaded into a trailer. This trailer then went missing from the yard. On or about 3 November 2000, the empty trailer was found by the Laredo police but the goods had been removed.

The Defendant declined the Plaintiff’s claim on the marine policy.

It was the Plaintiff’s case that the goods had been lost/stolen at Laredo whilst in the ordinary course of transit. Therefore, cover remained in place.

The Defendant contended that the cover had been terminated under Clause of ICC(A) before the time of the alleged theft, as the goods had been stored in Laredo for an unusually long period and were no longer in the ordinary course of transit. The Defendant argued that the Plaintiff had failed to establish that the goods were "in the ordinary course of transit". No explanation had been given and no evidence was called to explain the delay of five weeks after the cargo had arrived in Laredo. The court could not therefore, the Defendant argued, conclude that the goods were in the "ordinary course of transit" throughout the time they had remained in Laredo.

The Defendant also claimed that the Plaintiff had breached an express warranty. The policy, it said, had been issued on a "subject to full container load" basis; that meant that cover was subject to a warranty that the goods would be in a container at all times. As the goods had been removed from the container and put into a trailer, there was a clear breach of warranty and cover had terminated as a result.

The court found that, notwithstanding the unexplained delay, the goods were still in the ordinary course of transit whilst at Laredo. The goods were stored in Laredo solely for on shipment to Mexico, with no collateral commercial purpose. The court further held that the Plaintiff had done all it could to arrange the transport of the goods to Mexico. The delay in Mexico was not something within the control of the Plaintiff. Thus, no interruption could be established under Clause of ICC(A) and the cover was still in force at the time of the alleged theft.

As to the container warranty point, the court held that there was no authority for the proposition that the term "subject to full container load" means that there can be no transshipment between containers. The literal meaning of this term is simply that there can be no intermingling with other shipments and that only the same shipment of goods would be in a container. Accordingly, there was no breach of warranty.

18.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit, continues during the ordinary course of transit and terminates either
8.1.1 on delivery to the Consignees’ or other final warehouse or place of storage at the destination named herein,
8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, or
8.1.3 on the expiry of 60days after completion of discharge overside of the good hereby insured frorm the oversea vessel at the final port of discharge,
whichever shall first occur.

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