Court of Appeal finds carrier breached contract to deliver cargo - 19 December 2018

A high court recently dismissed plaintiff Minmetals Southeast Asia Corp Pte Ltd's claim against defendant Nakhoda Logistics Sdn Bhd (the carrier) for breach of its contract to carry and deliver cargo to the plaintiff on the basis that the plaintiff had failed to prove its claim. However, on appeal, the Court of Appeal upheld the plaintiff's claim and found the defendant liable.

Facts

The plaintiff traded commodities and sold retail building materials. The defendant provided freight and shipping services. The plaintiff and defendant entered into a contract under which the defendant agreed to carry cargo from Port Klang to Shanghai.

Yang Ming Marine Transport Corp is an ocean shipping company based in Taiwan. It was authorised to issue bills of lading for the cargo. Trinity Tripartners Private Ltd and Oriental Century Ltd sell cargo.

The plaintiff entered into purchase contracts with Trinity and Oriental for timber. Having paid in full for the invoices issued under the purchase orders, the plaintiff became the lawful legal and beneficial owner of the timber. Jiangsu Sopo Group Shangai Co Ltd and Shanghai Unidev Import and Export Co Ltd bought the plaintiff's cargo.

Between 10 December 2014 and 19 April 2015, the plaintiff entered into contracts to sell timber to Shanghai Unidev. The plaintiff subsequently entered into contracts of carriage with the defendant, following which the defendant issued 25 bills of lading for carriage of the cargo from Port Klang to Shanghai (house bills of lading). The plaintiff paid for the freight in full.

Shanghai Unidev's bank issued letters of credit to the plaintiff. When discrepancies arose in the letters of credit, the plaintiff's bankers advised the plaintiff that they could not use the letters. The plaintiff requested a direct payment from Shanghai Unidev, but no such payment was provided. The plaintiff subsequently decided to collect the cargo, as it was still the owner.

The plaintiff sent the original bills of lading to Minmetals Shanghai but later found that these contained no information regarding which carriers or agents in Shanghai the plaintiff should collect the cargo from. The plaintiff initiated an action seeking damages from the defendant for failure to deliver the cargo.

High court decision

The high court accepted the plaintiff's submission that the defendant had a duty to deliver the cargo only to persons in possession of the original bill of lading and upon production thereof. As the holder of the house bills of lading, the plaintiff was entitled to delivery and possession of the cargo and thus had a right to sue the defendant for breaching the agreement.

However, the high court held that the plaintiff failed to prove that the defendant had breached its duty, as no evidence was adduced regarding the plaintiff's attempts to collect the cargo at the Shanghai port. The high court accepted evidence from the defendant's witness, who stipulated that the cargo had been discharged at the Shanghai port, but since the consignee had failed to collect it, the cargo had been left there. Thus, the high court held that the defendant had not breached its obligation to deliver the cargo.

Further, it took the plaintiff seven months from the date of discharge to query the location of its cargo. The plaintiff did not explain this delay.

The high court found that even if the defendant had breached its duty, its liability should be limited to RM2,256,968.70.

Court of Appeal decision

The Court of Appeal observed that the defendant was bound to deliver the cargo to the person holding the bills of lading and that failure to do so would subject the defendant to liability under both the contract and tort laws. Further, the plaintiff's claim that the defendant had refused or neglected to deliver the goods when the original bills of lading were presented amounted to a fundamental breach. Thus, the defendant was liable for both breaches of contract and conversion.

Although there was a delay in the collection, the defendant could be compensated for demurrage, wharfage and storage costs. However, the defendant could not deliver the cargo to a party that did not hold the original bills of lading. According to the court, if this was allowed, the collection of cargo could theoretically be carried out by any party without furnishing the original bills of lading and it thus would be very difficult to protect the title to goods.

In the case at hand, the plaintiff was in possession of the house bills of lading and had made this known to the defendant. Despite this, the defendant had failed to facilitate delivery of the cargo. The Court of Appeal held that the defendant had a duty to exchange the ocean bills of lading with the original bills of lading to ensure that the plaintiff could take possession of the cargo. The Court of Appeal further held that the high court had failed to apply this principle of law and instead had required the plaintiff to exchange the ocean bills of lading for the house bills of lading from Jiangsu Sopo instead of the defendant. In light of this, the Court of Appeal found the defendant liable for the plaintiff's losses.

The defendant used the limitation defense under Article III, Rule 6 of the Hague Rules, which states that carriers are discharged from liability if a suit is brought more than a year after delivery of the goods. The question before the Court of Appeal was whether there was in fact a delivery of the goods. The court held that 'delivery' must be construed as the cargo being delivered to the party entitled to receive such goods. The Court of Appeal found that such delivery never took place.

The plaintiff also submitted that the one-year time bar applied to breaches concerning the loading of goods in order to discharge them and not to delivery thereof. According to the plaintiff, delivery does not fall within the scope of Article III, Rule 6. This case did not concern the discharge of cargo, but rather its delivery to the plaintiff; thus, the defendant could not rely on the limitation defense. The Court of Appeal upheld the plaintiff's argument.

On the issue of quantum, the defendant argued that it owed only RM2,256,968.70 on the basis that this was the amount stated in the customs declaration form. The Court of Appeal held that the customs declaration form did not represent the plaintiff's true losses.

Finally, the Court of Appeal held that the high court had erred in failing to consider the plaintiff's actual loss, given that the plaintiff had already paid Oriental and Trinity in full ($13,591,622.65) for the timber, but was not in possession of the timber due to the defendant's omission.