Court, Judges, Case No., Date:

Privy Council, UK

Lord Keith of Kinkel, Lord Fraser of Tulleybelton, Lord Roskill, Lord Brandon of Oakbrook, Lord Mackay of Clashfern

Appeal No. 25 of 1983

21 October 1985; 22 October 1985; 18 November 1985

Catchwords:

Bill of lading – Misdelivery – Conversion – Delivery by shipowner without presentation of bill – Cargo claim by pledgee as holder of bill – Measure of damages – value of goods at place and time of delivery or financing cost of pledgee – burden of proof of market value

Case Report by:

ARUN KASI

Appeal from:

Court of Appeal, Singapore ([1982-1983] 1 SLR 103; [1983] 1 MLJ 58)

Facts Summary:

Salt was shipped from Tuticorin in India to Chittagong in Bangladesh on board vessel Jag Dhir under a bill of lading. The bills were indorsed to a pledgee who financed the transaction. The cargo was misdelivered by the shipowner. The pledgee brought action for damages. The right of the pledgee to possession of the cargo was not disputed. The pledgee commenced an in rem action against a sister ship of Jag Dhir, namely Jag Shakti. The litigation centred around measure of damages.

The Court of Appeal gave an award of damages on the basis of the sums expended by the pledgee in financing the transaction, and refused to award damages on the basis of market value of the cargo at the time and place of delivery.

The pledgee was dissatisfied with the award and claimed a higher sum based on an alleged sub-sale of the cargo. Hence, this appeal by the pledgee against the shipowner.

Held:

1. Appeal is dismissed.

• The correct measure of damages is the market value of the cargo at the time and place of delivery (or when and where delivery should have been made), and not the cost of financing.

• However, the burden is on the claimant to prove the market value, which the claimant failed, as there was no reliable evidence of the alleged sub-sale.

• Although the Court of Appeal based its decision on a wrong basis of measurement, that is the only award that can be justifiably made as the pledgee failed to discharge its burden of proving the market value.

Observation:

–

Counsels & Solicitors:

Anthony Colman QC and C Arul for the Appellant.

Timothy Walker QC for the Respondent.

Philip Conway Thomas & Co for the Appellant.

Clyde & Co for the Respondent.

Cases, Legislation, Convention referred to:

Sewell v Burdick (1884) 10 App Cas 74

Swire v Leach (1865) 18 CBNS 479; 144 ER 53

The Winkfield [1902] P 42

Claridge v South Staffordshire Tramway Co [1892] 1 QB 422

London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 16 Com Cas 102

Chinery v Viall (1860) 5 H & N 288, 157 ER 1192

Johnson v Lancashire and Yorkshire Rly Co (1878) 3 CPD 499

Judgement:

LORD BRANDON OF OAKBROOK (delivering the judgment of the Board): This appeal arises out of a claim by Chabbra Corp Pte Ltd (Chabbra) against the owners of the ship Jag Dhir (the shipowners) for failure to deliver a cargo of salt carried by that ship from Tuticorin in India to Chittagong in Bangladesh in July 1977.

The claim was raised by an action in rem against the ship Jag Shakti, a ship in the same ownership as the Jag Dhir, begun in the High Court of Singapore on 29 April 1978 in accordance with the Admiralty jurisdiction conferred on that court by statute. The action was tried by Rajah J who, by an order dated 16 March 1981, awarded Chabbra damages of $S389,117.62 with interest at 12% per annum from 27 July 1977 and costs.

The shipowners appealed to the Court of Appeal of Singapore (Wee Chong Jin CJ, Chua and Lai Kew Chai JJ) on the ground that the damages awarded were too high. Chabbra cross-appealed on the ground that they were too low. The Court of Appeal, by an order dated 19 August 1982, varied the award of damages made by Rajah J by sustituting for the amount awarded by him the lower amount of $S275,620.82 with interest at 12% per annum from 5 August 1977. The Court of Appeal at the same time dismissed Chabbra’s cross-appeal.

Chabbra now appeal, with the leave of the Court of Appeal, to this Board, contending that the judgment of the Court of Appeal reducing the amount of damages awarded to them by the trial judge should be set aside, and the award made by him should be restored. There is no cross-appeal to the Board by the shipowners.

Before their Lordships both sides accepted the facts of the case as found by the Court of Appeal. These facts, amplified to some extent by reference to the documents and to other findings by the trial judge also accepted by both sides, are as follows. (1) By a written contract dated 20 May 1977 Indian Overseas Corp of Calcutta, India (IOC), agreed to sell to Mumtazzudin & Sons of Dhaka, Bangladesh (Mumtazzudin) 7,000 metric tons of edible salt at $US22 per metric ton c & f Chittagong/Chalna. (2) The suppliers of the salt were Bihar Supply Syndicate also of Calcutta (BSS), who had contracted in writing to sell to IOC 21,000 metric tons of salt plus or minus 10% at $US22 per metric ton c & f Chittagong/Chalna by three shiploads of 7,000 metric tons per ship. (3) The fact that IOC were not making a profit on the sale was because they were permitted, by reason of the export of the goods, to import certain scheduled goods into India to the value of one third of the value of the goods so exported. (4) There was a business firm in Singapore called Atlas Enterprises (Atlas) having two partners, one K C (Sharma) and the other his wife. Sharma agreed with Mumtazzudin that Atlas would finance Mumtazzudin’s contract of sale with IOC by causing transferable letters of credit to be opened by banks in Singapore in favour of IOC to pay for the salt bought by Mumtazzudin from the latter. (5) Atlas subsequently caused two transferable letters of credit to be opened in favour of IOC. One was opened with the Singapore branch of the United Commercial Bank for $US30,800 to pay for 1,400 metric tons of salt at $US22 per metric ton. The other was opened with the Singapore branch of the Banque Nationale de Paris for $US79,200 to pay for 3,600 metric tons at the same price. (6) The total amount expended by Atlas in financing the purchase of the salt by Mumtazzudin from IOC, including the opening of the letters of credit, bank charges and premiums for the insurance of the salt in transit, amounted to $S275,620.82. (7) Through the means of the two transferable letters of credit BSS were in due course paid for 5,000 metric tons of salt supplied by them to IOC. The payments were made by certain paying banks in India at the request of the opening banks in Singapore. (8) BSS, pursuant to their contract with IOC, shipped 5,000 metric tons of salt on board the ship Jag Dhir (the ship) at Tuticorin for carriage to Chittagong. (9) The shipowners’ agents at Tuticorin issued two shipped on board bills of lading, numbered 1 and 2 respectively and both dated 15 July 1977, in respect of the salt so shipped. Bill of lading no 1 covered 1,400 metric tons and bill of lading no 2 covered 3,600 metric tons, making 5,000 metric tons in all. BSS were named as shippers in the two bills of lading, which provided for consignment to order or assigns. Mumtazzudin was named as the party to be notified. (10) BSS, having been paid the price of the salt shipped by means of the transferable letters of credit, indorsed the two bills of lading generally and handed them to the paying banks who later forwarded them to the opening banks. (11) Atlas, having paid the opening banks and thereby obtained the two bills of lading, caused them to be indorsed over to Chabbra for value. (12) On 23 July 1977 Mumtazzudin were notified that the ship would shortly be arriving at Chittagong. (13) On 26 July 1977 the ship arrived at Chittagong ready to discharge. Although Mumtazzudin were not in a position to present the two bills of lading, they persuaded the master or the ship’s agents to deliver the whole of the 5,000 metric tons of salt to them without such presentation, in consideration of an indemnity signed on behalf of Mumtazzudin and countersigned on behalf of the Rupali Bank. (14) In order to obtain the countersignature of the Rupali Bank, Mumtazzudin were obliged to deposit, and did deposit, a sum of 2.7m takas, equivalent to $S389,117.62, with the bank concerned. (15) Chabbra, although not the sellers of the goods, invoiced Mumtazzudin for $US220,000, and sent the bills of lading through their bankers for collection by that firm. (16) Mumtazzudin refused to take up and pay for the documents tendered to them by Chabbra. Chabbra accordingly took the decision to bring proceedings against the shipowners.

At the trial before Rajah J in the High Court, Chabbra contended that Atlas had themselves bought the salt from IOC and resold it to Mumtazzudin for $US220,000, twice the price paid for it to IOC. On this basis Chabbra claimed, as assignees of Atlas through the indorsement and delivery to them of the bills of lading, damages of $S512,380, calculated by reference to a rate of exchange of $S2.3290= $US1.

Rajah J rejected this contention of Chabbra about a sub-sale and held that the damages should be related to the invoice value of the goods shipped, by which their Lordships understand him to have meant, in effect, the market value of the goods on delivery at Chittagong. The judge went on to say that, in the absence of reliable evidence as to what such value was, he had decided to take the amount of 2.7m takas, the sum deposited by Mumtazzudin with the Rupali Bank in order to obtain that bank’s countersignature to the indemnity given by Mumtazzudin to the shipowners for the purpose of attaining delivery of the salt from the ship without presentation of the bills of lading. That sum, as indicated earlier, was equivalent to $S389,117.62, and that was the capital sum awarded by the judge as damages to Chabbra by his order dated 16 March 1981. The judge did not go into the question whether Chabbra’s entitlement to such damages lay in contract or in the tort of conversion or both.

In the Court of Appeal Chabbra, by their cross-appeal, sought to have the damages awarded to them increased to $S512,380 on the basis of the alleged sub-sale unsuccessfully relied on by them in the High Court. The Court of Appeal, however, like Rajah J, rejected Chabbra’s case about a sub-sale, on the ground that there was no evidence to support it. The Court of Appeal accordingly dismissed Chabbra’s cross-appeal, and, as indicated earlier, Chabbra do not appeal to the Board against that decision.

With regard to the shipowners’ appeal the Court of Appeal held that Chabbra were entitled to recover damages from them both for breach of their contract to deliver and in tort for conversion. They held further, however, that the proper measure of damages in law, on either basis, was not the market value of the salt on delivery at Chittagong, but only the amount which Atlas had themselves expended in the transaction, in respect of the opening of the two letters of credit, bank charges and insurance premiums to cover the salt in transit. That sum, as stated in finding no (6) above, was $S275,620.82, and the Court of Appeal varied the order of Rajah J by reducing the award of damages to that amount. The ground of this decision appears to have been that Atlas were only pledgees of the bills of lading; that as such pledgees they only had a special, as distinct from a general, right of property in the goods represented by the bills of lading; and that they were, accordingly, not entitled to recover as damages the market value of the salt, but only the amount expended by them in financing the transaction, that being the amount secured to them by the pledging to them of the bills of lading.

Before their Lordships it was conceded by counsel for Chabbra that the Court of Appeal had been in error in holding that Chabbra could recover in contract, and accepted that they could only recover in tort for conversion. In their Lordships’ opinion, having regard to the decision of the House of Lords in Sewell v Burdick (1884) 10 App Cas 74 , [1881–5] All ER Rep 223 , this concession was properly made. That case shows that, where indorsement and delivery of a bill of lading to a party are made with the intention, not of passing to that party the general property in the goods represented by the bills of lading, but only a special property in such goods by way of pledge, the Bills of Lading Act 1855 does not have the effect of transferring to such party either the rights or the liabilities under the contract contained in the bill of lading so indorsed and delivered. In the present case Atlas were, as found by the Court of Appeal, only pledgees of the bills of lading, and as such obtained only a special property in the goods represented by them.

This very proper concession by counsel for Chabbra was matched by an equally proper concession by counsel for the shipowners that, even though Chabbra could not recover from the shipowners in contract, they nevertheless had a good cause of action against the latter in tort for conversion.

Having regard to these two concessions made by counsel on either side, only two questions remain for actual or potential decision by the Board. The first question, which needs to be decided in any event, is whether the proper measure in law of the damages recoverable by Chabbra is (a) the full market value of the salt on delivery at Chittagong, as held by Rajah J, or (b) the total amount expended by Atlas in financing the purchase of salt by Mumtazzudin from IOC, as held by the Court of Appeal. If the answer to the first question is (b), no further question arises for decision. If the answer is (a), however, a second question arises for decision, namely what Chabbra proved, on the evidence adduced before Rajah J, to have been the full market value of the salt on delivery at Chittagong.

So far as the first question is concerned, it is not in dispute that the pledgee of a bill of lading is entitled, on presentation of it to the ship at the port of discharge, to the possession of the goods represented by it. It has further, in their Lordships’ opinion, been established, by authority of long standing, that where one person, A, who has or is entitled to have the possession of goods, is deprived of such possession by the tortious conduct of another person, B, whether such conduct consists in conversion or negligence, the proper measure in law of the damages recoverable by A from B is the full market value of the goods at the time when and the place where possession of them should have been given. For this purpose it is irrelevant whether A has the general property in the goods as the outright owner of them, or only a special property in them as pledgee, or only possession or a right to possession of them as a bailee. Furthermore, the circumstance that, if A recovers the full market value of the goods from B, he may be liable to account for the whole or part of what he has recovered to a third party, C is also irrelevant, as being res inter alios acta.

The only exception to the general principle just stated is when B has one or more cross-claims against A arising out of the same or some connected transaction. In that case B may be entitled to set off or deduct the amount of any such cross-claim or cross-claims from the full market value of the goods in arriving at the amount of the damages recoverable from him by A: see McGregor on Damages (14th edn, 1980) paras 1075–1080. In the present case, however, there is no suggestion even that the shipowners had any cross-claim against Atlas arising out of the same or any connected transaction. It is, therefore, unnecessary to consider what the rights of Chabbra, claiming through Atlas, against the shipowners might otherwise have been.

In their Lordships’ view it is sufficient, in order to illustrate the authority of long standing referred to above, to cite two cases only. The first case is Swire v Leach (1865) 18 CBNS 479 , [1861–73] All ER Rep 768 . In that case the plaintiff, who was a pawnbroker, had seized from him by the defendant, in purported execution of a distress warrant for arrears of rent, a quantity of unredeemed pledges which he had in his possession in the ordinary course of his trade. It was held by the Court of Common Pleas, first, that goods deposited with a pawnbroker, were privileged from distress; and, second, that the proper measure of damages for conversion was the full market value of the goods and not merely the value of the plaintiff’s interest in them. With regard to this second part of the decision Erle CJ said (18 CBNS 479 at 492, cf [1861–73] All ER Rep 768 at 769 ):

‘In distraining these goods, the defendant was an absolute wrong-doer. The landlord had no colour of right to take them. The bailee, therefore, is entitled to the full value of the goods.’

The second case is The Winkfield [1902] P 42 , [1900–3] All ER Rep 346 . In that case there had been a collision between two ships, the Mexican and the Winkfield, in consequence of which the Mexican sank. The owners of the Winkfield admitted that their ship was half to blame for the collision, and, following such admission, successfully

[1986] 1 All ER 480 [1986] 1 All ER 480 at 485

brought proceedings to limit their liability under s 503 of the Merchant Shipping Act 1894. Various claims were made against the limitation fund in court, including in particular two claims by the Postmaster General for the loss of postal parcels, mail and registered letters of which he was not the owner. In respect of some of these items the owners of them had made claims on the Postmaster General and given him written authority to represent them in the proceedings for distribution of the limitation fund. In respect of others of these items no claims had been made by their owners against the Postmaster General nor had any instructions been given by them to him. He had, however, undertaken to distribute any moneys recovered to the owners, and to indemnify the court against any claims which might later be put forward by them.

The Admiralty registrar allowed the claim of the Postmaster General in respect of the first group of items referred to above but disallowed his claim in respect of the second such group. An objection to the disallowance made by motion to Jeune P) was overruled, and the Postmaster General then appealed to the Court of Appeal. That court (Collins MR, Stirling and Mathew LJJ) allowed the appeal, holding that the Postmaster General, on the basis, accepted before the registrar and Jeune P, that he was the bailee of all the parcels, mail and registered letters concerned, was entitled to claim in his own name against the limitation fund forthe full value of those items.

Collins MR, with whose judgment the two other members of the Court of Appeal agreed, made a full review of the relevant authorities, including Swire v Leach, which he treated as correctly decided, and Claridge v South Staffordshire Tramway Co [1892] 1 QB 422 , which he regarded as wrongly decided and which was therefore overruled. Later he said ([1902] P 42 at 60–61, [1900–3] All ER Rep 346 at 352 ):

‘Therefore, as I said at the outset, and as I think have now shewn by authority, the root principle of the whole discussion is that, as against a wrongdoer, possession is title. The chattel that has been converted or damaged is deemed to be the chattel of the possessor and of no other, and therefore its loss or deterioration is his loss, and to him, if he demands it, it must be recouped. His obligation to account to the bailor is really not ad rem in the discussion. It only comes in after he has carried his legal position to its logical consequence against a wrongdoer, and serves to soothe a mind disconcerted by the notion that a person who is not himself the complete owner should be entitled to receive back the full value of the chattel converted or destroyed. There is no inconsistency between the two positions; the one is the complement of the other. As between bailee and stranger possession gives title—that is, not a limited interest, but absolute and complete ownership, and he is entitled to receive back a complete equivalent for the whole loss or deterioration of the thing itself. As between bailor and bailee the real interests of each must be inquired into, and, as the bailee has to account for the thing bailed, so he must account for that which has become its equivalent and now represents it. What he has received above his own interest he has received to the use of his bailor. The wrongdoer, having once paid full damages to the bailee, has an answer to any action by the bailor.’

In support of the view that Chabbra could recover by way of damages no more than the amount of the limited interest secured to Atlas by the pledge to them of the bills of lading the Court of Appeal of Singapore relied on the decision of Channell J in London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 16 Com Cas 102. The facts of that case were these. A contract provided for the sale by Dutch vendors of certain oil fob to Palmer & Co on the terms of cash against documents. The oil concerned was shipped by a firm, Messrs J E de Beer & Zoon, on the ship Maesstroom for carriage from Amsterdam to London under a bill of lading dated 29 April 1910, which was made out in the name of Palmer & Co as shippers and which made the oil deliverable to their order or assigns. The oil was poured into drums belonging to Palmer & Co The bill of lading, together with a draft attached to it, were then sold by the vendors to certain bill brokers and they in turn sold them to an Amsterdam bank which had an account with the plaintiffs. The Amsterdam bank sent the bill of lading, together with the draft attached to it, to the plaintiffs for collection, and the plaintiffs, on receiving them, credited the Amsterdam bank on 2 May 1910 with the amount of the draft. When the Maesstroom arrived in London, Palmer & Co approached the defendants, who were the London agents of the owners of that ship, and informed them that they had not received the bill of lading for the oil, but that, if they could have delivery of the oil, they (Palmer & Co) would give them an indemnity; and on these terms delivery of the oil was given to Palmer & Co. Subsequently, Palmer & Co went to the plaintiffs, with whom they had business connections, and asked for an advance on the consignment of oil; and on 4 May 1910 this loan was arranged, and Palmer & Co indorsed the bill of lading, which was still in the plaintiffs’ possession, and gave them a charge. Some days later, on the plaintiffs’ representative applying to the defendants for the oil, they were informed that it had already been delivered to Palmer & Co who had disposed of it. The plaintiffs then sued the defendants for damages for wrongful delivery of the oil to Palmer & Co.

Channell J said (at 108):

‘The general result, therefore, is that the plaintiffs are entitled to succeed in their action of trover. In an action like this between parties, each of whom has an interest in the subject matter, the plaintiffs are not necessarily entitled to the full value. In this case the amount having been reduced by payments off on other securities the plaintiffs are only entitled to the amount for which they held the bill of lading, and there will be judgment for the plaintiffs for that amount.’

It is not clear from the report of the case what were ‘the other securities’, the payment off of which Channell J considered that the defendants were entitled to deduct from the full value of the oil. If the payment off of these other securities brought the case within the exception of a cross-claim or cross-claims by the defendants against the plaintiffs arising out of or connected with the same transaction, to which reference was made earlier, the decision may be supportable on its particular facts. Otherwise the case must, in their Lordships’ opinion, so far as the measure of damages is concerned, have been wrongly decided and ought not to be followed.

Applying the general principle laid down in Swire v Leach and The Winkfield to the present case, their Lordships reach the following result. Firstly, Chabbra, as holders and indorsees for value of the bills of lading, had a right to delivery of the salt to them at Chittagong. Secondly, that right entitled Chabbra to recover from the shipowners, who had wrongfully converted the salt by delivering it to Mumtazzudin, the full value of the salt on delivery at Chittagong. Thirdly, the circumstance that Chabbra, having recovered from the shipowners the full value of the salt, might, after taking out of the sum recovered the sums expended by them in financing the purchase of the salt by Mumtazzudin from IOC, have to account, in whole or in part, for the balance to Mumtazzudin was, as between Chabbra and the shipowners, wholly irrelevant.

On the basis that the first of the two questions referred to earlier falls to be answered by saying that the proper measure in law of the damages recoverable by Chabbra from the shipowners for conversion of the salt was the full value of the salt on delivery at Chittagong, it becomes necessary for their Lordships to answer also the second question referred to earlier, namely what Chabbra proved, on the evidence adduced by them before Rajah J, to have been that value.

In relation to this question, counsel for Chabbra put forward two alternative contentions. The first contention was that Rajah J was entitled to assess the damages recoverable by Chabbra by reference to the amount deposited by Mumtazzudin with the Rupali Bank in order to obtain the countersignature on behalf of that bank of the indemnity given by Mumtazzudin to the shipowners. The second and alternative contention was that there was other evidence given at the trial which supported a market value on delivery at Chittagong of at least the same amount.

Counsel for the shipowners met these two contentions as follows. With regard to the first, he submitted that the amount of the deposit could not be taken as a proper basis for the assessment of the damages, because it was intended to cover an adverse claim against the shipowners by a third party and would therefore include not only the damages which such third party might recover on the basis of the value of the salt, but also the costs of both the third party and the bank in dealing with such a claim. It was further to be assumed that the bank, in accordance with ordinary commercial practice, would require the deposit to include a fee for the bank and a substantial margin for contingencies. With regard to the second contention, counsel for the shipowners stressed the fact that Rajah J stated expressly in his judgment (as he did) that he had only turned to the amount of the deposit as a basis for assessing damages because there was no evidence of market value which he regarded as reliable. That being so, it would not be right, counsel said, for the Board to make its own assessment of the amount of damages recoverable by reference to the written record of evidence which the trial judge had expressly found to be unreliable.

In their Lordships’ judgment, the arguments put forward by counsel for the shipowners are unanswerable and must prevail. The amount of the deposit could not, for the reasons given by him, be regarded as a proper basis for assessing the amount of the damages recoverable by Chabbra. Similarly, evidence of the market value of the goods which the trial judge, who saw and heard the witnesses who gave it, found to be unreliable could not justifiably be used to found a fresh assessment of the market value of the salt by the Board.

The burden of proving the market value of the salt on delivery at Chittagong was on Chabbra. In the event, while it is probable that such value exceeded the sums of money expended by Atlas in financing the transaction of sale between IOC and Mumtazzudin, Chabbra failed to adduce any reliable evidence to prove what the amount of that excess was.

For these reasons their Lordships feel obliged to conclude that the amount of damages awarded by the Court of Appeal, although arrived at on a basis which they consider was incorrect in law, is nevertheless the only amount that they can justifiably arrive at on the different legal basis which they have already indicated that they consider to be correct.

In the result the victory which Chabbra have won in relation to the proper basis in law for assessing the amount of the damages recoverable by them turns out to be a fruitless victory which avails them nothing.The judgment of their Lordships therefore is that the appeal should be dismissed with costs.

Appeal dismissed.