The Hong Kong Court of Appeal issued a Judgment on 17/7/2014 holding a Hong Kong forwarder liable to pay US$852,339 plus costs and interest (as damages for conversion) to an Indian bank in an air cargo misdelivery case. [CACV 282/2012]
This was an appeal against the judgment of the High Court dated 4/12/2012 by which the High Court dismissed the claims of the Indian bank against the Hong Kong forwarder for damages for conversion (by misdelivery) of a cargo of diamonds, on the ground that the Indian bank did not have the requisite title to sue to enable it to maintain a claim in conversion.
The factual background to the claim can be summarised as follows:-
The India bank provided banking facilities in India to an Indian diamond supplier. Such facilties were evidenced by a Working Capital Consortium Agreement dated 23/10/2006, and a Joint Deed of Hypothecation of the same date.
Pursuant to the first of these agreements, the Indian bank made finance available to enable the diamond supplier to acquire diamonds and other raw materials for the manufacture of finished diamonds for export.
With the Indian bank’s consent, the diamond supplier sold three batches of diamonds (“the Diamonds”) to a buyer in Hong Kong. The payment terms were documents against acceptance 120 days after sight – i.e. the Indian bank (through its Hong Kong agent) would present drafts of 120 days’ tenor (drawn by the diamond supplier on the buyer) to the buyer for acceptance, and that the buyer would only be entitled to take delivery of the goods after having accepted the drafts drawn on it.
The Diamonds were shipped to Hong Kong by air. The diamond supplier engaged an Indian freight forwarder to make arrangements for the shipment. The shipments were effected under three House Air Waybills issued by the Indian forwarder, respectively dated 28/7/2008, 6/11/2008 and 12/11/2008. The House Air Waybills recorded the diamond supplier as the shipper, the Bank of East Asia (“BEA”) (the Indian bank’s agent and receiving bank in Hong Kong) as the consignee and the buyer as the notify party.
The House Air Waybills were given by the Indian forwarder to the diamond supplier, who in turn handed them over to the Indian bank. The Indian bank sent them on to BEA, but later received them back, and remained in possession of them.
According to the House Air Waybills, the Hong Kong forwarder was the contracting party in respect of the contract for carriage of the goods covered by the House Air Waybills.
The diamonds were actually carried from India to Hong Kong by Jet Airways, under Master Air Waybills issued by Jet Airways showing the Indian forwarder as the shipper and the Hong Kong forwarder as the consignee.
When the Diamonds arrived in Hong Kong, they were collected from Jet Airways by the Hong Kong forwarder, who subsequently released them to the buyer without having first obtained the consent of the Indian bank or BEA, and without the buyer having accepted the drafts drawn on it. As a result, the buyer was able to obtain of the Diamonds without paying for them, resulting in the Indian bank losing such security as it had over the Diamonds.
In the High Court, the Indian bank sued the Hong Kong forwarder for conversion, claiming that:-
it was the pledgee of the Diamonds, and as such had the necessary proprietary, or at least possessory, interest in them to entitle it to bring the claim; and alternatively
it was entitled to sue for misdelivery under the Warsaw Convention or Amended Warsaw Convention (relying in particular on Article 13 thereof).
The High Court rejected both of these arguments:-
In relation to the argument that the Indian bank was the pledgee of the Diamonds, the High Court concluded that in order to constitute the Indian bank a pledgee (or to perfect the pledge), it would be necessary for the Diamonds to have been delivered to the Indian bank (or for possession of the Diamonds to be transferred to the Indian bank), but that because the House Air Waybills (although naming the Indian bank’s agent as consignee) were not negotiable documents of title – either as a matter of law or as the result of custom (none having been proved), the delivery of the House Air Waybills by the diamond supplier to the Indian bank did not amount to constructive delivery to the Indian bank of the Diamonds.
In relation to the claim based on the Warsaw Convention or Amended Warsaw Convention, the High Court held that this claim was not open to the Indian bank since it had not been pleaded. He also expressed doubt as to whether or not either Convention was applicable in this case, as the misdelivery took place after the completion of the carriage by air, and hence was not within the scope of either Convention.
Before the Court of Appeal, the Indian bank accepted that there could in this case be no claim under the Warsaw or Amended Warsaw Conventions, as the misdelivery had clearly taken place outside the aerodrome, so that the Conventions had ceased to be applicable by the time of the misdelivery. However, the Indian bank submitted that the High Court was in error in concluding that the Indian bank was not the pledgee of the Diamonds, contending that the case in question was indistinguishable from the decision of the Privy Council in Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439, in which it was held that the delivery of goods to a carrier, consigned to a bank, amounted to a constructive delivery of the goods to the bank, so as to perfect a pledge over the goods which it earlier had been agreed should be given to the bank. The Indian bank also submitted, as a fall back position, that even if it were held that the Indian bank’s pledge had not been completed, the diamond supplier had, by naming the Indian bank’s agent BEA as consignee on the House Air Waybills, parted with the immediate right of possession of the Diamonds in favour of the Indian bank, thus conferring upon the Indian bank a possessory title sufficient to sustain a claim for conversion. Finally, the Indian bank suggested that as the Warsaw and Amended Warsaw Conventions had the force of law in Hong Kong, the right of the consignee under Article 13(1) to have the cargo delivered to him also gave the Indian bank (through its agent, BEA) the necessary possessory title to mount a claim in conversion, and that this being a matter of law, it was not strictly necessary to plead it.
In the Court of Appeal’s view, the Indian bank was correct in its contention that it had become the pledgee of the Diamonds, and as such, was entitled to bring its conversion claim against the Hong Kong forwarder.
Articles II.1 and II.5 of the Working Capital Consortium Agreement provide, so far as material, as follows:-
1. The Borrower agrees that the said Facilities together with interest, compound interest, additional interest, liquidated damages, costs, charges, expenses and other moneys payable in respect thereof will be secured in favour of the said Banks by a first charge by way of hypothecation and/or pledge of the Borrower’s Current Assets, namely, Stock of Raw Materials, Semi Finished and Finished Goods, Stores and Spares … Bill Receivable and Book Debts and all other movables of the Borrower …
5. In respect of the said Facilities granted to the Borrower against pledge of goods, movables and all other assets all such goods, movables and other assets shall be placed in the possession of the said Banks under their control and in such manner that such possession and control may be apparent and indisputable …
In the Court of Appeal’s view, these provisions clearly amounted to an agreement on the part of the diamond supplier to pledge to the Indian bank its finished goods (in the case in question the Diamonds), although the pledge would not be complete until such time as the Diamonds were placed in the possession (actually or constructively) of the Indian bank.
It further seemed to the Court of Appeal that by delivering the Diamonds to the Indian forwarder for carriage to Hong Kong, under House Air Waybills that identified the Indian bank’s agent, BEA, as the consignee, the diamond supplier were directing the Indian forwarder to deliver the Diamonds to BEA, so as to constructively deliver them to the Indian bank. That an arrangement by which the owner of goods delivers them to a carrier consigned to a bank to whom the owner has agreed to pledge the goods amounts to a constructive delivery to the bank so as to perfect the pledge is established by the decision of the Privy Council in the Kum case.
There, Lord Devlin, having observed that in a contract of sale, delivery would prima facie occur on shipment, went on to consider whether the position should be any different under a contract of pledge, and expressed the view that where the contract was silent as to the mode by which delivery was to be accomplished, it was difficult to see why the same presumption should not apply, going on to say that the circumstances of the case in fact strongly supported the applicability of the presumption. Lord Devlin suggested that there were three possible occasions for delivery to a pledgee, these being on shipment, by attornment during the voyage, or by physically delivering the goods to the pledgee at the destination, and explained that of the three, the most sensible, particularly where money had already been advanced, was on shipment, since that would provide the bank with the security for which it had stipulated at the earliest point in time. By contrast, attornment during the voyage would be unnecessarily complicated, as it would involve a transfer of possession during the voyage, which would require fresh instructions to be given to the carrier, which the carrier would have to accept. Delivery by way of physical delivery at the destination made little sense, since in the normal case, where the buyer honoured his payment obligations, the bank itself would never take delivery of the goods, with the result that the contract of pledge would, in normal circumstances, never be completed, and would leave the bank with no security in the event that the customer obtained the goods without first paying for them.
The factual situation in the case in question was not materially different. The Indian bank had advanced funds to the shipper (the diamond supplier), and would have been concerned to obtain the security of a pledge at the earliest opportunity. There was therefore no reason to treat the delivery by the diamond supplier of the Diamonds to the Indian forwarder, consigned as they were to BEA, as other than a delivery to them as a bailee for the Indian bank.
Unfortunately, the High Court seemed to have led itself into error by focussing on the question of whether the House Air Waybill constituted a negotiable document of title, and concluding that it did not. It would seem that the High Court understood the effect of the Kum case to be that the pledge there was completed by the delivery to the bank of the mate’s receipts which constituted the shipping documents in that case, on the basis that those documents were, by a custom which had been established on the evidence in that case, negotiable documents of title. This was indeed the basis on which the Malaysian Court of Appeal had found in favour of the bank in that case. But the Privy Council had in fact held that the custom contended for could not be established in the face of the fact that the mate’s receipts were clearly marked “non-negotiable”. The delivery of the mate’s receipts to the bank therefore did not equate to delivery to it of the goods. However, notwithstanding that the Privy Council held that the mate’s receipts were not negotiable documents of title, it had no difficulty in concluding that delivery to the carrier of goods consigned to the bank amounted to a delivery to the bank so as to complete the pledge. That this (and not the delivery of the mate’s receipts) was the basis of the Privy Council’s decision is clear from Lord Devlin’s statement (at p. 446 of the judgment).
It seemed to the Court of Appeal that one of the main bases of the Indian bank’s claim was that it had been constituted a pledgee of the goods and, as such, had the necessary possessory title to maintain its claim for conversion.
For the foregoing reasons, the Court of Appeal was satisfied that the Indian bank had established that it had become the pledgee of the Diamonds, so as to be able to claim damages for conversion as against the Hong Kong forwarder for its misdelivery of the Diamonds to the buyer, and that the High Court was in error in reaching the contrary conclusion. As to the amount of damages, there did not appear to have been any real dispute but that the value of the Diamonds was, as stated in the Statement of Claim, US$852,339 (the first shipment being worth US$248,500.50, the second shipment being worth US$409,076 and the third shipment being worth US$194,762.50) and that this represented the measure of the Indian bank’s loss.
The Court of Appeal would therefore allow the appeal, set aside the judgment of the High Court, and substituted therefor orders that the Hong Kong forwarder to pay to the Indian bank the amount of US$852,339 as damages for conversion, together with interest at the commercial rate on the value of each of the three shipments from the date of misdelivery. So far as costs were concerned, the Court of Appeal would make an order nisi that the Hong Kong forwarder was to pay the Indian bank’s costs both of the Court of Appeal and the High Court.
Please feel free to contact us if you have any questions or you would like to have a copy of the Judgment.
23/F, Excel Centre, 483A Castle Peak Road, Lai Chi Kok, Kowloon, Hong Kong 香港九龍荔枝角青山道483A卓匯中心23樓 Tel: 2299 5566 Fax: 2866 7096 E-mail: gm@smicsl.com Website: www.sun-mobility.com A MEMBER OF THE HONG KONG CONFEDERATION OF INSURANCE BROKERS 香港保險顧問聯會會員
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More than 10 years ago, we broke new grounds unheard of before among insurance brokers by introducing genuine claim support (by truly employing a team of professional transport claim handlers) independent of that from the insurers. Since then, the knowledge advantage of the insurer over that of the transport operator insured has been evened. Those who buy transport liability insurance are truly better protected with professionals standing at their side who really know the freight industry and are conversant in transport insurance and claims handling.
The Hong Kong District Court issued a Judgment on 28/4/2014 dismissing a seller’s cargo misdelivery claim of US$122,302.80 against a freight forwarder and holding the seller liable to pay the outstanding freight charges of US$28,855 to the forwarder. [DCCJ 344/2010]
In the transport industry, the contracts of carriage (e.g. Bills of Lading, Air Waybills) usually contain an exclusive jurisdiction clause for settling disputes. However, it is not uncommon that the shippers and consignees sue the transport operators in a court other than the one specified in the exclusive jurisdiction clause. In Hong Kong, the transport operators may rely on the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance to tackle this kind of situation.
The Hong Kong High Court issued a Judgment on 13 August 2021 holding a forwarder liable to pay nominal damages of HKD1,000 to a shipper in a cargo misdelivery claim case of USD1,299,189.87. [HCA 937/2016] [2021 HKCFI 2310]
The Hong Kong High Court issued a Decision on 22 Feb 2021 holding that the wreck removal claims of a ship sunk were not subject to the Convention on Limitation of Liability for Maritime Claims 1976. [HCAJ 98/2019] [2021 HKCFI 396]
The Hong Kong Court of Final Appeal (“the CFA”) issued a Judgment on 10/9/2014 dismissing a cargo owner’s (“the Assured”) cargo insurance claim of US$1,555,209.00 against an insurance company (“the Insurer”) on the ground that the Assured had breached an insurance warranty relating to the carrying vessel’s deadweight capacity. [FACV No. 18 of 2013]
The Hong Kong High Court issued a decision on 31 May 2022 ordering a South Korean shipowner to provide a Hong Kong shipowner with security for costs in the amount of HK$600,000 in relation to a ship collision case that happened in Hong Kong during the super typhoon Hato in August 2017. [HCAJ 80-85/2019] [2022 HKCFI 1631]
The English High Court issued a Judgment on 15/5/2015 maintaining an anti-suit injunction to restrain the Xiamen Maritime Court’s legal proceedings in breach of a London arbitration agreement. [Case No: 2015-515], [2015 WL 2238741], [2015 EWHC 1974 COMM]
The Hong Kong High Court issued a Judgment on 25/8/2017 to determine whether the Hong Kong Court or the Yangon Court was the natural and appropriate forum in an in rem legal proceedings in relation to a cargo damage claim of USD143,852.02. [HCAJ 101/2015]
The Hong Kong High Court issued a judgment on 21/4/2016 and disallowed a cargo owner’s application for summary judgment against a forwarder in connection with a cargo (a diamond) missing claim of US$900,000. [HCCL 10/2015]
The Hong Kong Court of Appeal issued a Judgment on 18/12/2014 in connection with a cargo misdelivery claim of US$27,835,000 involving also anti-suit injunction and worldwide freezing order issued by the English Court. [CACV 243/2014 & HCMP 1449/2014]
The Hong Kong High Court issued a judgment on 12/4/2016 to dismiss a cargo owner’s action in respect of breaking a barge owner’s tonnage limitation. [HCAJ 178/2014]
The High Court of Hong Kong issued a Judgment on 4/5/2012 explaining some legal principles as to when shipowners should fear the arrest of their ships. [HCAJ 141/2010]
The High Court of Hong Kong issued a Judgment on 1/11/2012 ordering the USA/Canada owners of a cargo (a yacht) to put up HK$250,000 as further security for costs in their legal action against the ship owners. [HCAJ 177/2009]
As reported in our Chans advice/170 dated 27/2/2015, the English High Court on 14/10/2014 held CSAV’s bill of lading’s English jurisdiction clause as an exclusive jurisdiction clause. On 23/4/2015, the English Court of Appeal issued its Judgment reaching the same conclusion. [Neutral Citation No: 2015 EWCA Civ 401, Case No: A3/2014/3584]
Following the issue of Chans advice last month, we would like to report the latest decision issued by the court over this theft case. On 17 January 2023, the Hong Kong High Court dismissed Mr Ma’s application to withdraw HK$1.5 million out of his frozen assets for paying the legal costs for his appeal against conviction in theft. [HCA 619/2016] [2023 HKCFI 197]
We mentioned in our Chans advice/225 that the limit of liability under the Montreal Convention for carriage of cargoes was increased from 19 SDR/kg to 22 SDR/kg of the gross weight of the cargoes effective on 28 December 2019. We have recently received some forwarders’ request asking us to talk about the major terms in the Montreal Convention. We in this issue would like to introduce the Montreal Convention’s major provisions as follows:
The Hong Kong High Court issued a Judgment on 24/11/2015 dealing with a mandatory injunction and specific performance in respect of a letter of indemnity in connection with a delivery of cargo without production of the original bills of lading. [HCCL 12/2015]
The English High Court issued a Judgment on 31/7/2015 dismissing a cargo owner’s conversion claim US $565,891.58 against a shipowner in an uncollected cargo case. [(2015) EWHC 2288 (Comm), (2015) 2 C.L.C. 415]
Remember our Chans advice/171 of 31/3/2015 reporting that the Hong Kong Court of Appeal discharged the Mareva injunctions against Hin-Pro? The Hong Kong Court of Final Appeal issued a Judgment on 14/11/2016 reversing the Court of Appeal’s Judgment of 11/3/2015. [FACA No. 1 of 2016]
We have received some enquiries from our forwarder clients about the FCR e.g. what is FCR? How many types of FCR are there? What are the uses of FCR? We would like to discuss these in this issue.
The Hong Kong High Court issued a Judgment on 11 January 2019 dealing with a dispute of US$335,858.31 between a bunker supplier and a ship agent. [HCA119/2015] [2019HKCFI57]
The Hong Kong High Court issued a Judgment on 18/11/2016 dismissing a shipping company’s application for summary judgment against its former deputy general manager (Mr Ma) for restitution of the sum of HK$387,655,303.70 on the ground of money had and received and/or unjust enrichment. [HCA 619/2016]
The Hong Kong High Court issued a Decision on 19 March 2018 dealing with some legal principles in relation to granting relief against unless orders in a ship collision case. [HCAJ 84/2017] [2018 HKCFI 609]
The PRC Supreme Court on 26/11/2015 issued a Judgment holding a shipping company’s container demurrage claim against a shipper time barred. [2015民提字第119號]
In the issue of our Chans advice last month, we talked about the major provisions of the Montreal Convention (which is for the international carriage of goods by air). In this issue, we would like to discuss the major terms of an equally important international convention for the international carriage of goods by sea, viz. the Hague Visby Rules.
The Hong Kong High Court issued a Judgment on 29/4/2013 relating to a discovery order ancillary to and in support of a Mareva injunction. [HCA 2124/2011]
Remember our Chans advice/165 (reporting the Hong Kong Court of Appeal holding the Hong Kong forwarder liable to pay US$852,339 plus costs and interest to the Indian bank in the air cargo misdelivery case)? On 19/5/2016, the Court of Final Appeal dismissed the Hong Kong forwarder’s application for seeking leave to appeal. [FAMV Nos 45 & 52 of 2015]
The High Court of Hong Kong issued a Decision on 15 November 2018 concerning the tragic collision between the cargo vessel CF Crystal and the tanker Sanchi, which happened on 6 January 2018 and led to the death of all the officers and crew of the Sanchi. [HCAJ3/2018] [2018HKCFI2474]
The Hong Kong District Court issued a Decision on 30 April 2021 dealing with a personal injury case in relation to a container terminal. [DCPI 110/2020] [2021 HKDC 463]
Remember our Chans advice/138 regarding the Hong Kong High Court’s Judgment holding the He Da 98’s owners fully liable in the collision that happened off Shanghai? The Hong Kong High Court issued its Decision on 18/1/2013 dealing with the damages to be paid to the Pontodamon’s owners. [HCAJ 200/2007]
In this issue, we would like to continue with the case (CSAV v Hin-Pro) mentioned in our monthly newsletter of Chans advice/169 two months ago. The Hong Kong Court of Appeal issued its Judgment on 11/3/2015 discharging the Mareva Injunctions and the receivership orders granted by DHCJ Saunders against Hin-Pro and Soar. [CACV 243/2014]
In our Chans advice/244, we reported the Hong Kong High Court case [HCA937/2016] [2021 HKCFI 2310] that the forwarder was held liable to pay nominal damages of HKD1,000 to the shipper in the cargo misdelivery claim of USD1,299,189.87. On 20 October 2021, the Hong Kong High Court issued a Decision on Costs holding the shipper liable to pay the costs of the forwarder. [2021 HKCFI 3021]
In our Chans advice/169 last month, we mentioned the English Court’s Judgment dated 14/10/2014 holding CSAV’s bill of lading’s English jurisdiction clause to be an exclusive jurisdiction clause. In this issue, let’s look at that English High Court Judgment [2013 Folio No 1248, 2014 EWHC 3632 Comm, 2014 WL 5113447] issued by Justice Cooke in detail.
The District Court of Hong Kong issued a Judgment on 21/4/2011 dismissing a forwarder’s cargo indemnity claim of US$46,201.81 against a trucking company. [DCCJ 2092/2009]
The Hong Kong High Court issued a Judgment on 9/4/2018 dealing with a cargo total loss case in which a NVOC in Malta was wrongly sued (because it had the same name as that of the correct NVOC in BVI). [HCAJ 65/2016], [2018 HKCFI 699]
The United States District Court (Southern District of New York) issued an order on 29 November 2021 to deny a shipping company’s motion to rely on the Singapore jurisdiction clause in its bill of lading. [1:19-cv-5731-GHW-RWL]
The High Court of Hong Kong issued a Judgment on 26/8/2011 to determine which ship to blame in a collision case that occurred at Shanghai. [HCAJ 200/2007]
The English High Court issued a Judgment on 2/4/2014 holding the Hague Visby Rules instead of the Hague Rules (as incorporated by a Paramount Clause) to apply to a shipment ex Belgium. [Case No: 2012 Folio 102, 2014 EWHC 971 Comm, 2014 WL 1219313]
On 5/8/2011, the District Court of Hong Kong dismissed a shipping company’s container claims against a forwarder for want of prosecution and abuse of process. [DCCJ 765/2005]
The English Commercial Court issued a Judgment on 7/11/2012 holding a carrier liable for US$458,655.69 owing to its issuing 13 clean Bills of Lading for a consignment of steel pipes which had some pre-shipment damage. [2012 EWHC 3124 (Comm)]
Does the law require forklift trucks to have the third party insurance of motor vehicles? The Hong Kong High Court’s Judgment [Magistracy Appeal No 241 of 1996] dated 2/5/1996 explained the legal principles to answer this question.
The Hong Kong Court of Appeal issued a Judgment on 20 February 2019 dismissing Changhong Group’s appeal against the High Court’s Decision of 15 November 2018 (reported in Chans advice/215) because Changhong Group had not obtained leave to appeal from the Hong Kong High Court. [CACV576/2018] [2019HKCA246]
The Hong Kong High Court issued a Decision on 21 July 2023 in relation to a case that an aircraft (worth at least USD 80 million) and its cargoes were destroyed by a fire caused by the goods of chlorine dioxide disinfection tablets. [HCA 837/2022] [2023 HKCFI 1896]
The Hong Kong High Court issued a Judgment on 3/2/2017 holding Natural Dairy liable to pay HK$4,360,948.38 to Schenker being the outstanding freight charges. In the Judgment, the Judge also explained the principles regarding the meaning of notice of the forwarder’s standard trading conditions. [HCA 1755/2011].
This continues the Q&A in our off-line real seminar on Uncollected and Undelivered Cargo on 28 May 2024. Participants were keen to know more about seaway bills, how war plays in insurance? How modes of transport differ mis-delivery claims handling? What is insurers’ attitude towards transloading claims? And finally, why mis-delivery and uncollected cargo claims deserve special attention. SMIC deals with similar questions daily. Each case varies in its cause, and therefore healing recipe differs. But if you are conversant with fundamentals. They could be simple.
The High Court of Hong Kong issued a Judgment on 21/7/2014, in which some legal principles relating to the in rem jurisdiction of the Court to arrest vessels were explained. [HCAJ 241/2009]
The Hong Kong High Court issued a ruling on 2/12/2016 dealing with a shipowner’s interrogatory application in relation to an uncollected cargo case. [HCAJ 118/2015]
In Chans advice/14 dated 28/2/2002, we discussed this topic 15 years ago. In its Judgment dated 16/10/2017, the District Court of New South Wales in Australia had to deal with, inter alia, a malpractice that a forwarder issued its own house B/Ls but signed off with as agent for China Ocean Shipping, Pacific International Lines, Mitsui O.S.K. Lines Limited or Orient Overseas Container Line without authority. [2017 NSWDC 279]
The Hong Kong High Court issued a Decision on 4 March 2020 dismissing a shipowner’s application for a stay of proceedings in favour of arbitration in a case of cargo misdelivery without presentation of original bill of lading. [HCAJ 5/2019] [2020 HKCFI 375]
According to the Hague-Visby Rules, the carrier shall be discharged of all liability in respect of the cargoes unless suit is brought within one year of their delivery or the date when they should have been delivered. The English High Court issued a Judgment on 22nd July 2025 explaining the meaning of “suit”. [2025 EWHC 1878 (Comm)]
