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Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd "Bao Yue"

[2015] EWHC 2288 (Comm)

Case No: 2013 Folio 579
Neutral Citation Number: [2015] EWHC 2288 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 31/07/2015

Before :

THE HONOURABLE MR JUSTICE MALES

Between :

SANG STONE HAMOON JONOUB CO LTD

Claimant

- and -

BAOYUE SHIPPING CO LTD

“BAO YUE”

Defendant

Mr Yash Kulkarni (instructed by Duval Vassiliades) for the Claimant

Mr Neil Henderson (instructed by MFB Solicitors) for the Defendant

Hearing dates: 21-23 July 2015

Judgment

Mr Justice Males :

Introduction

1.

This is a claim for the conversion of a cargo of iron ore carried from Bandar Abbas in Iran to Tianjin in China on board the defendant’s vessel “Bao Yue” in February and March 2012 and a counterclaim for storage charges incurred on the cargo. No bill of lading was presented at the discharge port so the cargo was discharged into storage at Tianjin. The storage charges due as a result eventually exceeded the value of the cargo which has been there ever since. The warehouse company wants to be paid before it will release the cargo. The claimant bill of lading holder contends that the defendant converted the cargo. It accepts that the defendant was entitled to discharge the cargo into storage, but contends that the defendant nevertheless converted it because (a) without the claimant’s express or implied authority, a lien for storage charges was created in favour of the warehouse company, and (b) statements were made by the warehouse company and the vessel’s agent which amounted to denying the claimant access to the cargo regardless of whether it presented the bill of lading. The defendant shipowner denies having converted the cargo and contends that the claimant is responsible for the storage charges.

The facts

2.

The claimant, an Iranian company, was the shipper of the cargo, 35,376.611 metric tons of iron ore. The defendant was the contractual carrier and issued a bill of lading dated 4 February 2012 to the claimant as the shipper. The bill was issued “to order”, with no named consignee or notify party, on the Congenbill 1994 form. It incorporated “all terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf”, although no such charterparty was identified on the face of the bill. It is common ground, nevertheless, that this was effective to incorporate the terms of the applicable voyage charter.

3.

The charterparty chain was as follows:

a.

The defendant time-chartered the vessel to Shanghai Hengxin Shipping Co Ltd (“Shanghai Hengxin”) under a time charter dated 18 March 2011.

b.

Shanghai Hengxin voyage-chartered the vessel to a company called Ocean Mine Ltd (“Ocean Mine”) by a fixture dated 7 December 2011.

c.

Ocean Mine further voyage-chartered the vessel, on back-to-back terms, to Qisheng Resources Ltd (“Qisheng Resources”) also by a fixture dated 7 December 2011. Qisheng Resources is part of a group of companies known as the Qisheng Group.

4.

As the two voyage charters were on back-to-back terms, it is unnecessary to consider which of them was incorporated into the bill of lading. They each contained the following clause 12:

“Congen bill 94 to be used. In case original Bs/L would not be ready upon vessel’s arrival at discharge port, Owners allow to discharge cargo upon arrival to custom bonded warehouse area against Charterer’s single LOI with Owners P&I Club wording signed by Chrs.

Release cgo agnst original bill of lading. In the event cargo being kept in the warehouse in lieu of waiting for OBL to arrive at the discharge port, the expense of warehouse and all relevant costs to be for Chrtrs’ account. …”

5.

The cargo was the third in a series of three shipments sold on FOB terms under an agreement between the claimant as seller and a Chinese company, Teda Qisheng Mineral Products Import & Export Trading Co Ltd (“Teda”), another company in the Qisheng Group, as buyer. This agreement was itself the settlement of an earlier dispute which had arisen under an agreement concluded in December 2009. However, a further dispute arose in which the claimant contended that Teda owed it a total of US $565,891.58.

6.

This was made up as follows:

a.

The total FOB price of the three cargoes was US $2,876,391.14, of which US $1,127,205.03 was for the “Bao Yue” cargo. Teda had already made payments of US $2,544,339.56, leaving a balance due of US $332,051.58. Thus Teda had already paid US $795,153.45 (or just over 70% of the FOB price) for the “Bao Yue” cargo as well as bearing the cost of freight to China.

b.

The claimant contended that Teda also owed it US $233,840 pursuant to the original 2009 contract.

7.

Teda disputed liability to pay this amount, contending that it was the claimant who owed it money, but the claimant allowed the cargo to be loaded and the vessel to sail from Bandar Abbas, hoping and expecting that the dispute would be sorted out. It did not send the bill of lading to Tianjin but locked it in the safe of its office in Teheran. Teda pressed for release of the bill, telling the claimant on 23 February 2012 that the vessel’s ETA was 29 February, but continued to maintain that no payment was due to the claimant.

8.

It appears that it was in any event expected that, as is common, the bill of lading would not or at least might not be available at the discharge port on the vessel’s arrival. Arrangements were therefore made for the discharge of the cargo pursuant to letters of indemnity in standard form given by each charterer in the chartering chain described above. The letter of indemnity requested the defendant to discharge (not deliver) the cargo to the agent at Tianjin, Tianjin Star Ship Agency Co Ltd (“Star Ship”), who was to deliver/release the cargo against presentation of the original bill of lading.

9.

Nobody presented the bill of lading (which was still locked in the claimant’s safe) when the vessel arrived at Tianjin and tendered notice of readiness at 14.00 local time on 3 March 2012, having been delayed by bad weather. Accordingly Star Ship arranged for discharge of the cargo into a warehouse operated by Tianjin QS Storage & Transportation Co Ltd (“TQST”). TQST was another company in the Qisheng Group, but the warehouse which it operated was what was described as an “associated warehouse” operated in conjunction with the port of Tianjin which was used as a bonded warehouse for cargoes awaiting customs clearance. It was about nine kilometres from the berth. It was the evidence of the defendant’s witnesses that although Tianjin is a major port with extensive warehouse facilities, March 2012 was a time of great pressure on those facilities, with no other warehouses available where the cargo could more easily have been stored.

10.

The contract between TQST and Star Ship dated 3 March 2012 referred to the parties as “Party A” and “Party B” respectively. It provided for payment by Party B of (in addition to handling and transportation charges) storage charges of RMB 0.20 per wet metric ton per day for the first 30 days, with charges increasing to RMB 0.40 after 30 days, Rmb 0.60 after 90 days and Rmb 0.80 after 180 days. It provided (in translation) that if payment was not made when requested:

“… Party A is entitled to refuse cargo releasing and to liquidate or otherwise dispose of such goods freight, by which it may offset any overdue charges owe to Party A under this Agreement.”

11.

The contract also indicated that the bill of lading would be needed in order to clear the cargo through customs.

12.

I accept the evidence of Mr Li Jie, the fleet manager of HTM Shipping the vessel’s manager, that Star Ship concluded this contract with TQST under the defendant’s direction and as its agent, so that the defendant has a contractual responsibility to TQST for the storage charges payable by Party B.

13.

Discharge took place between 21.40 on 3 March (i.e. 7 hours and 40 minutes after tender of notice of readiness) and was completed by 11.15 on 5 March 2012, after which the vessel sailed. There was some confusion in the evidence as to precisely where the cargo was discharged, but the most probable explanation is that it was discharged to a temporary holding area at the port from where it was transported by truck into the TQST warehouse over the next days, this process being completed by 11 March 2012. Accordingly the TQST storage charges began to run from 12 March.

14.

The claimant made no attempt to contact the vessel or its owner before arrival at Tianjin, despite knowing from 23 February 2012 onwards that the vessel had given an ETA of 29 February and that no bill of lading would be presented on arrival. Mr Khodabakhsh Amini, the principal shareholder of the claimant, said that the claimant did not have contact details for the defendant with which to do so, but I do not accept this. When it wanted to contact the defendant, the claimant obtained the necessary contact details from the agent at Bandar Abbas without difficulty. It could easily have done this at any time. It would have taken no more than a few days to courier the bill of lading to Tianjin if the claimant had wanted to do this.

15.

The claimant’s first contact with the master was by an email of 6 March 2012, by which time it must have known that the vessel had already arrived. The email stated:

“… Please kindly be notified that the buyer have not settled the proceed of this shipment to us as yet and hence the whole set of OB/L are resting with us waiting for buyer to pay us against the exchange of this document.

Trust you will take appropriate measures to prevent any inconvenience in future.”

16.

An email in the same terms was also sent at the same time to Shanghai Hengxin, although without the last sentence.

17.

Mr Amini explained that although this request for “appropriate measures” was not specific, it was obvious to him that the master would discharge the cargo into a bonded warehouse. This was what he wanted, as well as expected, to happen and in my judgment this is what the master should reasonably have understood from his email. The claimant had no intention of taking delivery of the cargo itself and no facilities with which to do so. If Teda would not pay the balance of the purchase price, the claimant would have no alternative but to attempt to sell the cargo to another Chinese buyer but that process, according to Mr Amini, could only begin once the cargo was in storage in China and available to be inspected. The only alternative to discharge of the cargo, which would have been as unacceptable to the claimant as it would have been to the defendant, was for the cargo to remain on board the vessel with hire or demurrage accruing day by day.

18.

As he readily acknowledged in his evidence, Mr Amini understood perfectly well that if the cargo was discharged into storage, charges would be incurred which would have to be paid by the person who claimed the cargo. He understood also that the warehouse would insist on payment of its charges before the cargo could be removed.

19.

The master did not reply to the claimant’s email. Nor did Shanghai Hengxin, other than to say that it would have to check with its charterer. Nevertheless, despite knowing and intending that the cargo would be discharged (if it had not already been), the claimant made no attempt at this stage to find out the identity or location of the warehouse in which it was being or would be stored.

20.

Teda’s reaction to this situation was to ask once again on 8 March 2012 for the original bill of lading to be sent to it. It added that if the claimant was planning to sell the cargo to someone else, the payments which it had made for the cargo and the freight cost should first be refunded to it. The claimant responded that it was holding the bill of lading against payment of the outstanding US $565,891.58 and that if this was not paid it would have no choice but to sell the cargo to another buyer. By 11 March 2012 the claimant was in contact with a potential buyer, Tradeline LLC of Dubai. It told Tradeline that the cargo had been discharged but that the receiver was refusing to settle the claimant’s outstanding account.

21.

During this time the claimant was in contact with a company called JiaRen International Trade Ltd (“JiaRen”), whose principal (an individual known as “Mahdi”) had first introduced it to Teda and who had been acting as an informal intermediary between the claimant and Teda. The claimant told JiaRen about its plan to find another buyer of the cargo. On 12 March 2012 JiaRen wrote to the claimant as follows:

“Regarding your phone conversation saying that you are gonna to sell Qisheng’s B/L, we have forwarded it to Qisheng, and Mr Lee said if you would sell the B/L, he would be definitely capable to keep the buyer of the B/L from acquiring the cargo. …”

22.

The Mr Lee referred to in this message was Liang Lee, with whom the claimant had dealt in its transactions with Teda from the 2009 agreement onwards. His business card described him as the manager of the Import and Export Department of the Qisheng Group and refers to a number of companies, including TQST and Qisheng Resources as well as Teda.

23.

Mr Amini’s evidence was that this message made him realise for the first time that the cargo had been delivered to and was already in the possession of Teda who was both determined and able to hang on to it. However, I do not accept either that this was the case or that this was Mr Amini’s understanding at the time. So far Teda’s own response to the possibility of a sale to a third party had merely been that, in that case, it would need to be refunded what it had expended on the cargo and on freight. That seems a reasonable attitude. This second hand message was not a firm basis for thinking that its position had changed. Mr Amini’s actions suggest that he understood this. He pressed on with discussion of a sale to Tradeline, which would have been pointless if he had really understood JiaRen’s message in this way.

24.

Only at this stage did the claimant begin to make some inquiries about the cargo. On or about 18 March 2012 Mr Amini telephoned the vessel’s manager, HTM Shipping, to enquire as to the whereabouts of the cargo. He was told that the manager was not in a position to answer his questions and that he should speak to Mr Chen Bin of Star Ship, the agent who had handled the vessel. Mr Li Jie the HTM fleet manager had no recollection of this conversation, but I accept Mr Amini’s evidence that it took place.

25.

On 18 March 2012 Mr Amini spoke to Mr Chen Bin, through a Chinese speaker called Mr Saleh. Mr Amini’s evidence, which I accept, was that the result of this conversation was that Mr Chen directed him to Mr Liang Lee of Teda and gave him Mr Lee’s telephone number, although in fact Mr Amini already had this. Mr Chen did not remember this conversation and did not think that it had taken place, but again I accept Mr Amini’s evidence, supported as it is by a contemporary note and email, that it did. The email, sent to Tradeline on 21 March 2012, records the conversation as follows:

“… I tried to get information from the shipping agent in Tianjin about the place where the cargo is being kept. They said they do not know but assured us that the initial buyer cannot release the cargo unless they produce the OBL.”

26.

There are two points to notice here. The first is the statement that the agent did not know where the cargo was being kept. That was not correct, at any rate if it referred to the knowledge of Star Ship as a company. It is possible that Mr Chen personally did not know the location of the cargo or it may be that he saw no reason to be helpful when contacted on the telephone by somebody he did not know. The second point is the assurance that “the initial buyer”, that is Teda, could not obtain the release of the cargo without producing the original bill of lading. In view of its inclusion in this contemporary email, I see no reason to doubt that this assurance was given in the telephone conversation and that it represented Star Ship’s understanding of the situation. It was consistent with the fact that the bill of lading would be needed in order to clear the cargo through customs.

27.

However, while it is possible to conclude that the statements recorded in Mr Amini’s note and in the email of 21 March 2012 formed part of this conversation, it is not possible to make any findings about what else if anything may have been said. Mr Saleh did not give evidence. Mr Chen did, but by video link through an interpreter. His evidence was not at all easy to follow. Particularly in view of what happened next, it is not clear how Mr Saleh introduced himself, what he was asking for, what assurance he was able to give that he was authorised to speak on behalf of the bill of lading holder, or with whom Mr Chen would have thought that he was dealing.

28.

There was then a telephone conversation in Chinese between Mr Saleh and Mr Liang Lee, in which Mr Saleh pretended to be an iron ore trader based in Qingdao to whom the cargo had been offered. He said that he was calling to ensure that it was available. According to Mr Amini’s contemporary note of what Mr Saleh told him, Mr Lee then said that “the cargo is ours and we have already cleared it from customs”. This is puzzling. There would have been no need for Mr Amini to utilise the services of Mr Saleh in this way if all he wanted was to speak to Mr Lee, as he and Mr Lee both spoke English and had communicated directly in English in the past. Still less was there any good reason for Mr Saleh to pretend to be a potential buyer of the cargo. Some manoeuvring was going on here which Mr Amini’s evidence has not explained. In any event, what Mr Lee said was not intended to be said to the claimant. He thought he was dealing with a potential buyer of the cargo, a cargo for which Teda had already paid US $1.5 million.

29.

Finally on 18 March 2012 Mr Amini telephoned Mr Liu Tonghe, who he understood to be the owner of the Qisheng group. Through Mr Saleh (who was no longer pretending to be a potential buyer) he told Mr Liu that the claimant was prepared to offer a discount of US $150,000 from the amount due to it by way of settlement. This offer was, however, refused.

30.

Having failed to negotiate a settlement with Teda, Mr Amini was still aiming to sell the cargo to another buyer. On 21 March 2012 he told Teda that he had now found a firm and serious buyer and requested Teda to advise what freight charges and advance payments needed to be refunded to it. It is, however, impossible to make any finding as to how real the prospect of a sale to such a buyer was. No disclosure relating to any such sale has been given.

31.

On 26 March 2012 Teda provided its response. This was not only to seek reimbursement of the freight (US $787,129.59) and advance payment for the cargo (US $800,000, although in fact the figure was US $795,153.45) but also to make various other claims. The total demanded was over US $2.5 million. Having made these claims, Teda’s email concluded:

“If you totally agree on refunding us the items of the funds we list above, we shall transfer the ownership of BAOYUE to your designated client, if not, then please present us its bs/l as soon as possible, otherwise the related demurrage charges shall be accumulating.”

32.

Mr Amini’s evidence was that he viewed the message as putting paid to his efforts to sell the cargo to a third party and that he decided that there was no point in attempting to reach an amicable solution to the dispute with Teda. It is equally likely, however, that it was merely a somewhat ambitious negotiating position. In any case, it appears that Tradeline was losing interest in the deal.

33.

On 29 March 2012 a contact of Mr Amini in Tianjin called David who had been making some inquiries on the claimant’s behalf reported his findings as follows:

“… Qisheng discharged the goods in their own warehouse pointed, and which located in Dadaogangtang cross road of Tianjin, although we can use B/L to make clearance, however, it is quite difficult to get the goods out of warehouse, now we should investigate if the warehouse is their own or pointed, if possible to get out through some unusual way. Generally there will be some difficulties to solve the problem. …”

34.

Mr Amini could not explain what “pointed” meant. However, from this time onwards the claimant knew the whereabouts of the cargo. It is evident that David did not consider that the claimant had no prospect of ever obtaining its cargo. Rather he thought that there were difficulties which would need to be solved. David followed this up on 9 May 2012 by sending some photographs of the cargo in storage at TQST, clearly marked as being the “Bao Yue” cargo.

35.

The claimant had no further contact with Teda. It never made contact with TQST, either to ask for delivery of the cargo or even to inspect it. The bill of lading remained in its safe. Meanwhile the cargo has remained at TQST. Even if a claim to ownership of the cargo was intended by Teda’s message of 26 March 2012, Teda has not in fact used the cargo or disposed of it, or attempted to remove it from storage at TQST, despite the fact that it has paid some US $1.5 million to bring the cargo from Iran to China which the claimant evidently has no intention of refunding.

36.

Nor did the claimant have any further contact with the defendant shipowner or with Star Ship. It did not protest that the cargo should not have been discharged to storage at TQST. It did not inquire about the storage terms. It did not even ask in writing to be told anything about the location of the cargo. It remained silent until 19 January 2013 when, without prior warning, it arrested the vessel in India in support of a claim for misdelivery of the cargo to Teda without production of the bill of lading. The vessel’s manager, HTM Shipping, pointed out that the cargo was still at the warehouse and asked the claimant to advise what it wanted to do with it. The claimant did not respond to this request.

37.

Security for the claim was provided in order to obtain the release of the vessel and it was agreed that this court would have jurisdiction over the claim.

38.

On 30 August 2013 the defendant wrote to the claimant to say that the cargo was still in storage at Tianjin and invited it to take delivery by surrendering the bill of lading to Star Ship. On 2 September 2013 Mr Chen Bin of Star Ship wrote in similar terms, pointing out that outstanding charges in connection with the cargo would need to be resolved. However, the claimant still made no attempt to take delivery of the cargo. It has not done so to this day.

The claim for conversion

39.

The claim initially made in this action, as in the Indian arrest proceedings, was a claim for damages for having converted the cargo by delivering it to Teda without production of the bill of lading. However, that claim has been abandoned. It is, therefore, not the claimant’s case that the cargo has been misdelivered to Teda. Instead, the claimant now advances its claim on two bases.

40.

First, by amendment, the claimant advanced a new case that the defendant discharged the cargo into storage in circumstances where storage charges would accrue, for which the warehouse owner would have a lien, and that the creation of this lien constituted a conversion of the cargo. Mr Yash Kulkarni for the claimant made clear in the course of argument that (a) the defendant shipowner was entitled and authorised to discharge the cargo into storage in circumstances where no bill of lading was available at the discharge port, (b) the bill of lading holder would be liable to reimburse the shipowner for reasonable storage charges in such a case, and (c) it is not suggested that TQST’s charges were unreasonable or that any more favourable charges could have been obtained by storing the cargo elsewhere. His narrow submission is that the defendant was not entitled without the express or implied authority of the bill of lading holder to arrange for storage of the cargo in a way which gave rise to a lien in favour of the warehouse owner for its charges and that no such authority existed in this case.

41.

A second way of putting the case was developed in the claimant’s skeleton argument. Mr Neil Henderson for the defendant pointed out that this was not pleaded but was content to respond to this case on its merits. If necessary I would have given permission for an amendment to plead the case advanced in the skeleton argument, but neither counsel suggested that this was necessary. The case advanced was that TQST and Star Ship, to whom the defendant had delegated the care of the cargo and for whose conduct it is responsible, denied the claimant access to or possession of the cargo, and that this constituted a conversion by the defendant. The conduct relied upon as constituting a denial of access consisted of: (a) the statement made by Mr Liang Lee as reported through JiaRen on 12 March 2012 that “if you would sell the B/L, he would be definitely capable to keep the buyer of the B/L from acquiring the cargo”, (b) Mr Chen Bin’s failure to provide information as to the whereabouts of the cargo in the telephone conversation of 18 March 2012, and (c) Mr Liang Lee’s statement to Mr Saleh, also on 18 March 2012, that “the cargo is ours and we have already cleared it from customs”.

Conversion in general

42.

It is not disputed that the defendant shipowner, as a bailee of the cargo, was under a duty not to convert it: Morris v C.W. Martin & Sons Ltd [1966] 1 QB 716.

43.

Lord Nicholls described the basic features of the tort of conversion in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5)[2002] UKHL 19, [2002] 2 AC 883, at [38] to [41]:

“38. … Denial of title is not of itself conversion: see section 11(3) of the Torts (Interference with Goods) Act 1977. To constitute conversion there must be a concomitant deprivation of use and possession. In support of this submission Mr Donaldson fastened upon a statement in Clerk & Lindsell on Torts, 17th ed (1995), p 636, paragraph 13-12:

'conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another's right whereby that other is deprived of the use and possession of it.' (Emphasis added).

A similar passage appears in Salmond and Heuston on theLaw of Torts, 21st ed (1996), pages 97-98. In the present case, it was said, none of the acts of IAC deprived KAC of use or possession of the aircraft. Some of IAC's acts were entirely abstract, such as applying for certificates of airworthiness. Even the physical acts, such as repainting or flying the aircraft, had no impact on KAC's possession.

39. In my view this line of argument was misconceived. I need not repeat the journey through the textbooks and authorities on which your Lordships were taken. Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.

40. The judicially approved description of the tort in Clerk and Lindsell encapsulates, in different language, these basic ingredients. The flaw in IAC's argument lies in its failure to appreciate what is meant in this context by 'depriving' the owner of possession. This is not to be understood as meaning that the wrongdoer must himself actually take the goods from the possession of the owner. This will often be the case, but not always. It is not so in a case of successive conversions. For the purposes of this tort an owner is equally deprived of possession when he is excluded from possession, or possession is withheld from him by the wrongdoer.

41. Whether the owner is excluded from possession may sometimes depend upon whether the wrongdoer exercised dominion over the goods. Then the intention with which acts were done may be material. The ferryman who turned the plaintiff's horses off the Birkenhead to Liverpool ferry was guilty of conversion if he intended to exercise dominion over them, but not otherwise: see Fouldes v Willoughby (1841) 8 M & W 540.”

44.

The judicially approved description in Clerk & Lindsell to which Lord Nicholls referred, now contained in the 20th Edition at paragraph 17-07, is that “conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it”. Paragraph 17-08 lists the principal ways in which a conversion may take place as follows:

“It is not possible to categorise exhaustively all modes of conversion for while some acts are necessarily an absolute abrogation of the claimant’s rights and deprive him of the whole value of his interest in the goods, there may be others where the courts retain a degree of discretion in deciding whether those acts amount to a sufficient deprivation. Nevertheless the principal ways in which a conversion may take place can be set out under the following headings, dealt with more fully below:

(a) when property is wrongfully taken or received by someone not entitled to do so;

(b) when it is wrongfully parted with;

(c) when it is lost by a bailee in breach of his duty to the bailor;

(d) when it is wrongfully sold, even without delivery, so as to pass good title to the buyer;

(e) when it is wrongfully retained;

(f) when it is wrongfully misused or destroyed; and

(g) when the defendant, without physically interfering with it, wrongfully denies access to it to the claimant.”

Conversion by creation of a lien

45.

I would accept in principle that goods may be converted by a person who creates a lien without the authority of the owner. As long ago as 1791, Buller J said that:

“If a person take my horse to ride and leave him at an inn that is a conversion; for though I may have the horse on sending for him and paying for the keeping of him, yet it brings a charge on me.”

46.

That example is taken from the case of Syeds v Hay (1791) 4 Term Reports 260, where the owner of goods on board a vessel had directed the master not to ground the goods on the wharf against which the vessel was moored and the master agreed not to do so. Contrary to that promise, however, the captain grounded the goods, delivering them to a wharfinger who was to have a lien over the goods for the wharfage fees. This was held to be a conversion. The master had allowed a lien to be created without the goods owner’s authority and contrary to his express agreement not to do so.

47.

The case is discussed in Clerk & Lindsell at paragraph 17-17. The discussion continues:

“But in cases of long-term hire and hire-purchase, the owner impliedly authorises the hirer to deliver the subject matter to others for purposes, such as repair, which are reasonably incidental to the use contemplated even though they may give rise to a lien.”

48.

I do not think this principle is confined to cases of long-term hire and hire-purchase. I would hold that a goods owner who authorises a bailee to deliver goods into storage must be taken to authorise the creation of a lien where that is a reasonable and foreseeable incident of the storage contract which the bailee is authorised to conclude. It is an example of the principle of sub-bailment on terms, established by cases such as Morris v C.W. Martin & Sons Ltd [1966] 1 QB 716 and The Pioneer Container[1994] 2 AC 324, whereby a head bailor is bound by the terms in a contract between his bailee and a sub-bailee if he has expressly or impliedly consented to those terms.

49.

It has been established for many years that if the bill of lading holder does not claim delivery within a reasonable time, the master may land and warehouse the cargo; that in some circumstances it may be his duty to do so; and that as a correlative right, the shipowner is entitled to charge the cargo owner with expenses properly incurred in so doing: see Scrutton on Charterparties, 21st Edition (2008), Article 153; Cargo ex "Argos" (1873) LR 5 PC 134; and, for a recent confirmation of the principle at the highest level, The Kos[2012] UKSC 17, [2012] 2 AC 164.

50.

Even more recently, in The Lehmann Timber[2013] EWCA Civ 650, [2013] 2 Lloyd’s Rep 541 at [95] Sir Bernard Rix said:

“In Gaudet v. Brown (Cargo ex "Argos") (1873) LR 5 PC 134 the authorities at Le Havre prevented the discharge of a cargo of petroleum. The shipowner found no nearer port where he could discharge the cargo and so took it back again to London. He was held entitled to his freight, backfreight and expenses, because the consignee was under a duty to discharge the cargo and the shipowner was under a duty to take care of the cargo in the circumstances which had arisen and he had acted reasonably. He could not throw the cargo into the sea, but he was not required to retain and preserve the cargo at his own expense. That was not a case where a lien was exercised, but the case illustrates the doctrine that a shipowner is entitled to be indemnified in contract and/or bailment for the reasonable expenses of dealing with a cargo where the consignee is unwilling or, as here, unable to perform his duty of discharging the cargo (at 161, 165).”

51.

In the present case it was the claimant’s responsibility as the shipper to whom the bill of lading was issued, and therefore as a party to the bill of lading contract, to take delivery of the cargo at Tianjin. In breach of the contract it failed to do so, leaving the defendant shipowner with no alternative but to land and store the cargo. That was, as already indicated, what the claimant wanted and expected the defendant to do. Just as it is not suggested that the financial terms on which the defendant (through the agent Star Ship) agreed to store the cargo were unreasonable or that more favourable terms could have been obtained elsewhere, it was not and could not have been suggested that it was unreasonable to agree to a term in the storage contract which conferred a lien on the warehouse company for its charges. Mr Amini knew that the warehouse company would insist on such payment before the cargo could be removed. That was not merely a matter of his subjective understanding, but of obvious commercial reality. No sensible warehouse company would agree to store a cargo on terms which did not include such a lien, with the consequence that it would be obliged to release the cargo without payment to a bill of lading holder which had already shown itself (by failing to take delivery from the vessel) ready to breach its obligations and would be left with an unsecured claim to recover those charges.

52.

In those circumstances the claim for conversion by reason of the creation of a lien must fail. The claimant did authorise the storage of the cargo. It did so expressly by virtue of clause 12 of the charterparty incorporated into the bill of lading, which permitted the discharge and storage of the cargo, and by its email of 6 March 2012 which was reasonably to have been understood in this way. It did so impliedly as an aspect of the well established general law of bailment applicable to the situation where a bill of lading holder fails to take delivery at the discharge port. In such circumstances the creation of a lien was a reasonable and foreseeable incident of the storage contract which the shipowner was authorised to conclude. In accordance with the principle of sub-bailment on terms the claimant must be taken to have authorised also the creation of that lien.

53.

Mr Kulkarni submitted that the defendant’s failure to give notice of what it was intending to do made all the difference. In fact, however, it made no difference at all. The defendant was under no duty to the bill of lading holder to give notice of the vessel’s arrival (Houlder v General Steam Navigation Co (1862) 3 F & F 170) but even if it had done so, the claimant would simply have requested that the cargo be discharged into storage, just as it did by its email of 6 March 2012 after this discharge had already taken place. There was never a possibility that the claimant would have taken delivery of the cargo without it first being discharged into storage. Even after it was discharged, the claimant never sought to take delivery by presenting the bill of lading.

54.

Mr Kulkarni did not submit that commencement of discharge only seven hours and 40 minutes after tender of notice of readiness was unreasonable or premature. I find that it was reasonable. The claimant had ample opportunity to present the bill of lading if it had wished to do so.

55.

It is, therefore, unnecessary to consider what the position would have been if the claimant, while failing to perform its obligation to take delivery, had requested the defendant to store the cargo, but on the express basis that it forbade and did not authorise the creation of a lien. It would have been impracticable for the defendant to comply with such a request, so that the only alternatives would have been to store the cargo ashore subject to a warehouse company’s lien for storage or else to keep the cargo on board with hire or demurrage accruing, Although it could be said in such circumstances that the creation of a lien was not authorised, I find it hard to think that a shipowner who chose the former course, and in so doing was acting reasonably in mitigation of the bill of lading holder’s breach, would be liable for conversion.

Conversion by denial of access

56.

As indicated by the citations from the Kuwait Airways case [2002] UKHL 19, [2002] 2 AC 883 and from Clerk & Lindsell set out above, in some circumstances a denial of access to goods may be such as to constitute the tort of conversion. This will generally depend on whether the conduct of the defendant or those for whom it is responsible amounts to a deliberate “encroachment on the rights of the owner [so] as to exclude him from use and possession of the goods”.

57.

In the present case, however, the matters relied upon by the claimant as constituting such a denial of access fall well short of this, whether considered individually or together.

58.

The first such matter, the statement said to have been made by Mr Liang Lee on 12 March 2012 that “if you would sell the B/L, he would be definitely capable to keep the buyer of the B/L from acquiring the cargo”, was reported at second hand through JiaRen. There is no evidence from “Mahdi” of JiaRen. Precisely what was said or in what context is unknown. Contrary to his evidence, Mr Amini did not understand this as excluding the claimant from use and possession of the cargo. Instead he continued to discuss a sale of the cargo to Tradeline, in the context that there was an existing dispute between the claimant and Teda in which Teda’s position so far was that if the cargo was going to be sold to a third party, it would need to be reimbursed for the US $1.5 million which it had expended by way of advance payments and freight.

59.

In any event there is no reason to suppose that Mr Lee was speaking otherwise than in his capacity as a representative of Teda, rather than on behalf of the warehouse company TQST, or that he was saying anything more than insisting that if the claimant did not reimburse it the US $1.5 million, Teda would take steps against the cargo to ensure that it got paid. The defendant is not responsible for statements made by Teda as distinct from TQST.

60.

The second matter relied upon by the claimant is Mr Chen Bin’s failure to provide information as to the whereabouts of the cargo in the telephone conversation of 18 March 2012. Again, precisely what was said or in what context is unknown, although it is apparent that the conversation included an assurance that Teda could not obtain the release of the cargo without producing the original bill of lading. Far from amounting to a deliberate encroachment on the rights of the owner, that statement represented an assurance that the rights of the bill of lading holder would be respected. Moreover, within only 11 days of this conversation the claimant knew the location of the cargo.

61.

Finally, the claimant relies on Mr Liang Lee’s statement to Mr Saleh on 18 March 2012 that “the cargo is ours and we have already cleared it from customs”. It is clear that, like Mr Lee’s earlier statement, this was said in Mr Lee’s capacity as a representative of Teda, not on behalf of TQST. TQST never had any claim to ownership of the cargo. It never purported to “exercise dominion” over it save for the fact that it wanted, as it was entitled, to be paid its storage charges. The fact that TQST was another company in the Qisheng Group does not mean that everything said by Mr Lee was said on its behalf. In any event the statement was made in the somewhat mysterious circumstances described above and was not made to the claimant but (as Mr Lee was led to believe) to a potential buyer of the cargo.

62.

The fact is that the two statements made by Mr Lee on which the claimants rely, even if they were intended to assert that the claimant would not get its cargo if it presented the bill of lading, were never put to the test. It is possible to envisage statements which were so final and unequivocal that it would have been futile for the claimant to have pressed for delivery thereafter, but these statements do not fall into that category. Nevertheless the claimant never did present the bill although the cargo has remained at TQST and has not been misappropriated by Teda. Once its prospective sale to Tradeline fell through for whatever reason, the claimant had no use for the cargo. It had no other buyer, no use for the cargo itself and nowhere else to keep it. It was not prepared to pay the accumulating storage charges and it was unwilling to refund the advance payments (amounting to over 70% of the FOB price) or freight cost which Teda had incurred.

63.

Moreover the written evidence of Mr Jian Zhang of TQST was that TQST operated as a bonded warehouse under the supervision of the port; that it was and is run independently of Teda, who would not be in a position to give instructions for the removal of the cargo without producing the bill of lading; that Teda has never asked TQST to remove the cargo; and that in order for the cargo to be removed, it would have to be cleared through customs for which presentation of the bill of lading would be necessary. Although Mr Jian also gave oral evidence by video link through an interpreter which was not easy to understand, I accept the evidence just summarised. It was suggested that his evidence was contradicted by the fact that Mr Lee Liang of Teda took part in an inspection of the cargo in January 2013, but I do not agree. It is not surprising, in view of what Teda had paid for the cargo, that it should have remained very interested in what happened to the cargo which represented its only hope of being reimbursed for what it had expended.

64.

In these circumstances it is simply not the case that the claimant has been deprived of the use and possession of its cargo. I accept the written evidence of Mr Ping Fu of Star Ship that the cargo remains under the control and custody of Star Ship. It is and always has been available to the claimant on presentation of the bill of lading and payment of the charges which have accrued.

Other defences

65.

Accordingly the claimant’s claim for damages for conversion must be dismissed. It is therefore unnecessary to consider at any length the defendant’s further defences based on exclusion clauses in the bill of lading and the charterparty.

66.

The bill of lading included a term that:

“The Carrier shall in no case be responsible for loss of or damage to cargo arisen prior to loading and after discharging.”

67.

Clause 2 of the Gencon charterparty provided:

Owners’ Responsibility Clause

The Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by personal want of due diligence on the part of the Owners or their manager to make the Vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied, or by the personal act or default of the owners or their Manager.

And the Owners are not responsible for loss, damage or delay arising from any other cause whatsoever, even from the neglect or default of the Master or crew or some other person employed by the owners on board or ashore for whose acts they would, but for this Clause, be responsible, or from unseaworthiness of the vessel on loading or commencement of the voyage or at any time whatsoever.”

68.

Mr Henderson submitted, relying on the decision of the Privy Council in Chartered Bank of India, Australia & China v British India Steam Navigation Co Ltd[1909] AC 369, that these clauses would have protected the defendant from liability. If necessary, however, I would have followed the approach of Clarke J in The Ines [1995] 2 Lloyd’s Rep 144 and of the Court of Appeal in Motis Exports Ltd v Dampskibsselskabet AF 1912 Aktieselskab [2000] 1 Lloyd’s Rep 211 and would have held that much clearer words would have been required to protect the defendant against liability for conversion by refusing to deliver the cargo against production of the bill of lading.

69.

I should also mention two further matters. The first is the defendant’s contention that the claimant failed to mitigate its loss by presenting the bill of lading and taking delivery of the cargo. On the facts which I have found, the claimant could have done this, although if it had done so it would have had to pay at least some storage charges and to deal with Teda’s claim for reimbursement. On those facts, however, there was no conversion and the question of mitigation does not arise. If there had been a conversion whereby the claimant was deprived of the use and possession of the cargo, the issue of mitigation would have arisen in very different circumstances in which (depending on the facts then found) it would not necessarily have been straightforward for the claimant to obtain its goods. I therefore say nothing further about the defendant’s mitigation argument.

70.

The second matter is the quantum of the claim. Usually damages in conversion are assessed by reference to the value of the goods of which a claimant has been deprived, but that is not how the claimant has put its case here. Its pleaded claim is said to be for the market value of the cargo, but the figure claimed is US $565,891.58. That is pleaded as being “the market value of the Cargo – as had been agreed between the Claimant and Teda – as at the date of conversion and/or expected delivery”. In fact, however, it is no such thing. Rather it is the unpaid part of the FOB price of the cargo (US $332,051.58) plus a claim for a balance of US $233,840 alleged to be owing from Teda under a separate contract. As the claim has failed, it is unnecessary to consider further what the correct quantum ought to be in these circumstances, but even applying the claimant’s mistaken approach, it is hard to see how judgment for more than US $332,051.58 could be justified.

71.

In fact, however, the claimant has failed (and has not really attempted) to prove that it has suffered any loss. Assuming that it was deprived of the use and possession of the cargo, what it lost was the CIF market value in China, where it would have had to dispose of the cargo. There was no expert or other evidence to quantify that value. There was some evidence that the market value of iron ore had declined, although this was not explored in any detail at the trial. It is, however, reasonable to infer that in view of the dispute with Teda for which the defendant was not responsible, the cargo would probably have been seen as a distressed cargo. A potential buyer would therefore have been able to take advantage of the claimant’s need to sell the cargo promptly to minimise storage charges. In any event the claimant would have had to pay at least some storage charges, which would have increased the longer it delayed. It would also have had to deal with Teda’s claim for reimbursement of the US $1.5 million which it had expended. These factors, it seems to me, go a long way to explain why the claimant, having been paid all but some US $300,000 of the FOB price by Teda, did nothing to assert its right to possession by presenting the bill of lading. In any event the claimant has not attempted to prove that the price for which it could have sold the cargo to a buyer in China would have exceeded the storage charges and reimbursement to Teda which it would have had to pay out.

The defendant’s counterclaim for storage charges

72.

Mr Kulkarni for the claimant accepted that if the claim for conversion failed, the claimant would be liable to reimburse the defendant for reasonable storage charges paid to TQST subject to three points. Subject to those points, this conclusion follows clearly from the authorities referred to above.

73.

The first point is that in concluding the storage contract with TQST, Star Ship was acting as the agent of Shanghai Hengxin as the time charterer of the vessel and not of the defendant shipowner, so that the latter has no liability to TQST. I do not accept this. Star Ship was appointed by Shanghai Hengxin to act as the agent at Tianjin for both the charterer and the owner. In concluding the storage contract it was acting, as I have already found, as the agent of the shipowner so as to render the shipowner liable for TQST’s storage charges.

74.

The second point is that the shipowner is able to pass its liability down the charterparty chain by virtue of the provisions of the various letters of indemnity. Even if this is so, however, it does not provide the claimant with a defence. In any event the reason why such substantial storage charges have accumulated is that having received already most of its value, the claimant has chosen to leave the cargo in storage rather than to present the bill of lading and take delivery.

75.

Finally, the claimant’s case is that the defendant failed to mitigate by selling the cargo. However, I am not satisfied that this could have been done without the bill of lading. In order for the cargo to be sold it would have had to be cleared through customs and the evidence is that the bill of lading would have been needed for this to happen. In any event the claimant would certainly have objected to a sale of the cargo. If this was to be done, it was for the claimant as the bill of lading holder to take the lead.

76.

I hold, therefore, that the claimant is liable to reimburse the defendant for reasonable storage charges as and when paid to TQST. As yet those storage charges have not been paid. I accept the evidence of Mr Li Jie that he has successfully negotiated the amount due to TQST down to US $2,146,763.11 as at 21 July 2015, the first day of the trial, which represents a substantial discount in the defendant’s favour. This represents the cost of storage for over three years and I find that the figure is reasonable.

The bill of lading

77.

The defendant seeks an order for delivery to it of the bill of lading to enable the cargo to be sold. In my judgment it is entitled to such an order. The claimant was in breach of its obligation to take delivery of the cargo. As a result the defendant had no alternative but to discharge the cargo into storage. It thereby incurred a liability to TQST to pay storage charges for which the defendant is liable to reimburse it. That liability will continue to increase indefinitely unless the cargo can be sold, but the bill of lading is needed in order to clear the cargo through customs so that a sale can take place. The claimant has demonstrated by its conduct over the last three years that it has no intention of taking delivery of the cargo. Unless ordered to do otherwise, it would be prepared to leave the cargo at TQST’s warehouse until the crack of doom.

78.

In those circumstances I would hold that, just as a shipowner has a right to charge the cargo owner with expenses properly incurred in landing and storing the cargo so as to preserve it for the cargo owner, the cargo holder has a continuing duty to take delivery of the cargo once it is landed, and to do what is necessary to co-operate in minimising loss and expense if it is unwilling or unable to do so. On the facts here, that requires delivery up of the bill of lading.

Conclusions

79.

For the reasons given above:

a.

the claimant’s claim for damages for conversion fails;

b.

there will be a declaration that the claimant is liable to reimburse the defendant for reasonable storage charges as and when paid to TQST, and that the amount of the defendant’s reasonable liability to TQST up to 21 July 2015 amounts to US $2,146,763.11; and

c.

the claimant must deliver the original bill of lading to the defendant to enable the cargo to be sold.

Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd "Bao Yue"

[2015] EWHC 2288 (Comm)

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