Hirdaramani v. OCS

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Hirdaramani Industries Limited and another v. Orient Consolidation Services (HK) Limited
Hong Kong High Court: Stone J.: 18th July 2000
Mr. John Kerr, instructed by Messrs Ince & Co, for the Hirdaramani interests
Mrs. Campbell-Moffat, instructed by Messrs Sinclair Roche & Temperley, for Orient Consolidation
In this case, a cargo consolidator, acting also as a freight forwarder, was held responsible for instructing the ocean carrier to issue bills of lading which were not in conformity with the terms of the Forwarder’s Cargo Receipt that it had issued to the cargo interests. As a consequence of this discrepancy, the buyer of certain consignments of garments had been able to obtain delivery of them without payment. The buyer had subsequently become insolvent. Cargo interests were then able to recover the value of the shipments from the consolidator.

DMC Category Rating: Confirmed

This case note is based upon a note prepared by the website’s former International Contributors from Hong Kong, Koo and Partners/Paul Hastings

The claimants, essentially a group business operated by the Hirdaramani family (‘H’), were two affiliated garment manufacturers in Sri Lanka. One of its customers in the United States, Malu Malu Imports Inc., had, over a long history, been importing H’s garments for sale on the US market.

For many years, Malu’s business with H was conducted on terms that letters of credit would be used as a means of payment and it had been H’s practice to designate Malu’s bank as the consignee of the shipment. The practice was to ensure that the bills of lading would not be endorsed in favour of Malu in the absence of payment.

As from September 1994, the parties were using a liner container operator, NYK Line, to perform shipping services for the goods and the defendant, Orient Consolidation Services (HK) Ltd ("OCS"), a Hong Kong freight consolidator substantially owned by NYK, to consolidate H’s goods. Since OCS was not physically situated in Sri Lanka, where the goods were manufactured, the process of consolidation was handled by its agent there, Maritime Agencies Ltd ("MAL"). As the Malu Malu business was substantial, OCS developed an "Operation Manual" for MAL to follow, containing examples of the standard documentation to be used. One of the key documents was a receipt known as the "Forwarder’s Cargo Receipt", issued by MAL to H. This stated that the ‘buyer/consignee’ was Malu Malu’s bank, and not Malu Malu itself. Unfortunately, the bills of lading issued by NYK for each consignment showed as consignee not "to order [Malu Malu’s] bank", but Malu Malu itself. Relying on the bills of lading, Malu Malu were able to obtain delivery of the goods on their arrival in the US, without first paying for them. This occurred in respect of 10 consignments over the period January/April 1995 and, later in 1995, Malu Malu filed for bankruptcy protection. As there was now no prospect of recouping funds from Malu Malu, H claimed the amounts outstanding from Malu Malu, some US$344,000, from OCS, in contract, bailment and conversion.

The court found in favour of H, under both headings, contract and bailment.

  1. The court accepted H’s evidence that it did not become aware of the vital discrepancy between the terms of the FCRs and those of the bills of lading until it was effectively too late to change the arrangements regarding the ten consignments in question.
  2. MAL (as agents for OCS) were not simply a "conduit", for the receipt of H’s goods in apparent good order and condition. There was (contrary to arguments advanced by OCS) a contractual relationship between these parties and MAL/OCS. Although the title of MAL was ‘freight consolidator’, the court found that it had also acted as a forwarder and had given NYK instructions as to raising the bills of lading in the form in which they were in fact issued.
  3. MAL had control over the garment shipments and therefore a bailment existed, even though the goods in question were never physically in MAL’s possession. They were delivered direct to McClarens Freight Station, but on MAL’s instructions. MAL had, therefore, constructive possession of the goods, in their capacity as agents for OCS. Constructive control was sufficient to found bailment.

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