Australia Capital Financial Management Pty Limited v Freight Solutions

District Court of NSW|2017-06-08

Shipping Law, Dickey & Davies, 4th edition (2016) Charter Parties, Scrutton 19th Edition (1984) Scrutton on Charterparties and Bills of Lading, 23rd edition Category: Principal judgment Parties: Australia Capital Financial Management Pty Ltd ACN 153 058 489 (plaintiff); Freight Solutions (Vic) Pty Ltd ACN 103 179 880 (defendant) Representation: Counsel: Mr E Cox appeared for the Plaintiff Dr R Scheelings appeared for the Defendant on 4, 5, 6, and 7 June 2017 Ms C. Gleeson appeared for the Defendant on 8 June 2017 Mr M. Harvey appeared for the Defendant on 28 July 2017

Solicitors: Mills Oakley Altus Lawyers (4-8 June 2017) Down Under Legal (10 July 2017) Aus Ship Lawyers (28 July 2017) File Number(s): 2015/00185920

The Course of the Hearing

Mr Cox of counsel appeared for the plaintiff throughout the case. Dr Scheelings appeared for the defendant on the first four days of hearing being 5, 6, 7 and 8 June 2017. At the end of 8 June 2017 Dr Scheelings was part way through his closing submissions.
On Friday 9 June 2017 Ms Gleeson of counsel appeared for the defendant and indicated that the retainer of Dr Scheelings had been terminated. The matter was then adjourned to enable new representation to be obtained.
On Monday 10 July 2017 Mr J. Law solicitor appeared for the defendant. A Notice of Motion seeking leave to re-open was heard and determined. The defendant was granted leave to re-open its case, such re-opening being limited to tendering, if otherwise admissible, the affidavit of Jeffrey Lennon affirmed on 21 June 2017. Directions were made for the further conduct of the matter.
The matter resumed on Friday 28 July 2017 when Mr Harvey appeared for the defendant. In spite of the leave which had been granted to re-open, no evidence was called for the defendant. Mr Harvey made submissions on fact and law.

The Pleadings of the Plaintiff

The plaintiff sued on an Amended Statement of Claim filed on 16 June 2016. It claimed damages in the sum of $765,084. The pleading alleged that on 16 May 2014 the plaintiff entered into a Loan Agreement with an exporter Australian Sheep Skin and Hide Pty Limited (ASSH). That agreement provided that ASSH could make drawdowns for the purchase of sheep skins and/or cow hides for export to China. It was a term of the contract between the plaintiff and ASSH that all original shipping documents, including bills of lading, relating to a proposed advance of funds by the plaintiff to ASSH would be deposited with the plaintiff.
There were some early drawdowns which were repaid on time. The plaintiff alleged that ASSH made three later drawdowns which totalled $742,800 and which were not repaid: 1. On 8 July 2014 - $289,120 ("Drawdown 4") 2. On 29 July 2014 - $271,000 ("Drawdown 5") 3. On 29 August 2014 - $182,680 ("Drawdown 6")
The plaintiff alleged that the defendant issued eight original bills of lading in respect of the goods purchased by ASSH with the three drawdowns. ASSH provided those bills of lading to the plaintiff as part of the documentation which the plaintiff required to be lodged with it, before making each further advance of funds.
The plaintiff alleged that each of the bills of lading purported to be and had the hallmarks of a negotiable instrument providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods. In particular, it was alleged that each bill of lading on its face appeared to be: 1. a receipt for the relevant goods specifying the cargo and the containers for transportation; 2. evidence of a contract of carriage; and 3. a document of title providing rights to the holder of the originals and identifying the "Consignee" as "TO ORDER".
The plaintiff alleged that at all material times the defendant was aware or ought to have been aware that the bills of lading would or might be provided by ASSH to third parties. The fact that each bill of lading was consigned "TO ORDER" meant that in the normal course of trade they could be endorsed by ASSH in its capacity as shipper and either sent to the buyer to present them to the carrier or their agent to obtain delivery of the goods, or the bills could be held by a third party as security for payment for the goods and/or to secure financial arrangements.
The plaintiff alleged that the defendant had received from the relevant carrier a set of original "ocean" bills of lading which it provided to ASSH for its own purposes, including obtaining delivery of the goods in China. Those ocean bills of lading were in fact negotiable instruments providing an entitlement to the holder to present the ocean bills of lading to the ocean carriers or their agents to obtain delivery of the goods. It was alleged that the goods were delivered to unidentified receivers in China and that when ASSH failed to pay its outstanding obligations to the plaintiff, the plaintiff was unable to use the bills of lading issued by the defendant to obtain delivery of the goods.
The plaintiff's case was that it had two causes of action against the defendant. Firstly it sued for misleading or deceptive conduct within the meaning of the Australian Consumer Law. It was said that by issuing the bills of lading, the defendant represented that: 1. each bill of lading was a negotiable instrument providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods; 2. alternatively, in issuing sets of "original" bills of lading consigned "TO ORDER", each bill of lading could be held by a third party as security for payment for the goods and/or to secure financial arrangements.
The plaintiff alleged that in reliance upon those representations the plaintiff accepted the bills of lading as security for amounts outstanding by ASSH to the plaintiff, did not take any steps to obtain further security, and made advances to ASSH in the belief that it had taken security by acceptance of delivery of the bills of lading. The plaintiff claimed damages for such misleading or deceptive conduct.
The second cause of action pleaded by the plaintiff was for breach of warranty of authority. It was said that by signing each of the bills of lading the defendant held itself out as having authority to act on behalf of each relevant carrier described in each bill, including the authority to issue bills of lading providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods described. Each of the bills were signed by the defendant as agents for the carrier, and purported to be a negotiable instrument providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods. The plaintiff alleged that the defendant did not have authority to act on behalf of each relevant carrier and that its warranty of authority in respect of the bills of lading induced the plaintiff to make the further advances to ASSH, which advances would not have been made but for the warranty of authority. As a result of the alleged breach of express warranty of authority it was said that the plaintiff suffered loss and damage, being the amounts further advanced to ASSH plus interest.
It was agreed between the parties that the defendant did not have authority to execute each bill as agent for the carrier - PX17.

The Pleadings of the Defendant

The defence of the defendant appeared in the Defence to Further Amended Statement of Claim filed on 14 July 2016.
Because of the changes of representation, and because Dr Scheelings and Mr Law appeared to argue some but not all of the defences pleaded in that document, I asked Mr Harvey on 28 July 2017 for clarification as to which of the issues were still maintained by the defendant. He indicated that he abandoned the submission made by Dr Scheelings concerning the breach of warranty of authority claim.
In the end result, I have considered the submissions made by Dr Scheelings on the misleading or deceptive conduct count, and the matters raised by Mr Harvey on both claims in his written and oral submissions.

Evidence of Mr Chen

The principal of the company was Mr Ou Yang Chen (also known as Owen Chen). He gave evidence by: 1. an affidavit affirmed on 19 April 2016; 2. an affidavit affirmed on 22 November 2016; 3. oral evidence given through an interpreter.
I accept Mr Chen as a witness of truth. Because he gave evidence through an interpreter, I cannot draw any conclusions from his demeanour. However, his answers were direct and to the point, and his evidence was corroborated by the contemporaneous documentation, and the course of dealings between the plaintiff and ASSH.
The business of the plaintiff is the lending of money to local companies some of which have a Chinese background. The plaintiff required security from any borrower. In late 2013 Mr Chen met with the directors of ASSH who discussed whether the plaintiff could provide finance for their business of exporting skins and hides from Australia to China. Those discussions continued into 2014.
On 9 May 2014 Mr Chen sent a Finance Structure Paper to Mr Lee a director of ASSH. That document was in Chinese but it was translated by an interpreter Ms Tian who provided an affidavit. She was also the interpreter for Mr Chen during his oral evidence. The document sent on 9 May 2014 was a Framework Financing Agreement for a loan of $2 million for one year at 12% per annum interest. The company ASSH was to be the borrower and the purpose of the loan was for cow and sheep skin export. Paragraph 9 of that Agreement said that financing was being provided "based on the company's purchase documents (contracts), customs declarations, Australian container shipping documents, Australian insurance policies, and bills of lading from the destination at a discount". Paragraph 10 of the Agreement said that the "bill of lading is at ACIM until retirement". Paragraph 12 described the "retirement period" as 90 days. It is plain that the word "retirement" equates to the word "repayment".
On 18 May 2014 Mr Chen sent a letter of offer to Mr Lee. That letter was dated 16 May 2014 and was in English. The loan was for $2 million and security was to be two real property mortgages, a fixed and floating charge over the present and future property of ASSH, and charges over personal property owned by Mr Lee, Ms Yang and Mr Bai. The interest rate was 12% per annum and the term of the loan was for twelve months. Each drawdown had to be repaid in full at the time when the particular shipment relating to the drawdown was collected from the receiving port in China, or at the expiry of a term of 90 days, whichever was the earlier.
Special Condition 1 was: "Deposit of original shipping document with ACFM - ASSH will undertake to deposit all original shipping documents for each shipment of sheep skins and/or cow hides which relate to a drawdown under this Loan Facility including but not limited to the invoice, customs declaration, packing slip, insurance document and bill of lading. This is an essential term under this loan facility. ACFM will release these shipping documents to ASSH, the importing party or their duly appointed agent upon receiving full payment from ASSH of the balance of the drawdown relating to that particular shipment."
The offer was subject to satisfactory completion of due diligence in relation to the borrower. The borrower ASSH was asked to sign an acceptance and arrange for the payment of a $3,300 non-refundable establishment fee. Loan documentation would then be sent to the borrower. A statement of assets and liabilities had to be completed by ASSH, Lee, Yang and Bai.
ASSH signed and returned the letter of offer. A number of loan documents were prepared by Mr Ting, an employee of the plaintiff company. Among those was a Loan Agreement dated 16 May 2014. The Loan Agreement is in the form of a Deed. Again the loan is for $2 million for a period of 12 months at an interest rate of 12% per annum. Under the Loan Agreement ASSH could apply for drawdowns for the purpose of purchasing for export shipments of sheep skins and/or cow hides in the ordinary course of its trading business with China.
Clause 16 of the Loan Agreement dealt with general representations and warranties. Clause 16(g) was as follows: "The borrower and each guarantor represents, warrants and undertakes in favour of the Lender that: … (g) the borrower will deposit all original shipping documents for each shipment of sheep skins and/or cow hides which relate to a drawdown made in accordance with Item 1A of the Schedule including but not limited to the invoice, customs declaration, packing slip, insurance document and bill of lading."
Item 1A in the Schedule simply referred to the authorised purpose and terms of each drawdown, being drawdowns to enable the purchase of export shipments of skins and/or hides for trade with China.
Mr Chen gave evidence that he considered that by the plaintiff requiring the original bills of lading to be provided to it, the plaintiff acquired security over the goods the subject of each particular bill of lading. He considered that while the plaintiff held the original bills of lading, no other person could pick up the goods from the port. He also believed that holding the original bills of lading meant that the plaintiff, or someone acting on behalf of the plaintiff, could collect the goods and realise those goods to repay any amounts owing to the plaintiff by ASSH. I accept this evidence about his beliefs,
Such evidence is corroborated by what actually happened between the plaintiff as lender and ASSH as borrower. For each of the drawdowns under the loan facility, ASSH deposited bills of lading supplied to it by the defendant with the plaintiff, by sending the original bills of lading by post, or by delivering the bills of lading to the plaintiff's Sydney office by hand. As each drawdown was repaid, the plaintiff arranged for the return of the original bills of lading to ASSH. It also provided to ASSH documentation described as a "Loan Expired Form" and a "Collateral Return Recording".
Thus the course of dealings between lender and borrower was that the borrower ASSH deposited bills of lading supplied to it by the defendant with the plaintiff, and when those original documents were received, along with other nominated shipping documents, the borrower was permitted a drawdown against the loan facility. This happened after Mr Chen personally assessed each application for drawdown. As part of his consideration as to whether to permit the drawdown, he checked that original bills of lading had been received.
Except for one occasion, ASSH always provided to the plaintiff three copies of bills of lading which were stamped "ORIGINAL". On one occasion ASSH delivered only copies of the bills stamped "COPY NON-NEGOTIABLE". Mr Chen then telephoned Mr Lee and pointed out that the plaintiff would only accept original documents before consideration of approval of a drawdown. After this conversation bills of lading stamped "ORIGINAL" were provided to the plaintiff and the drawdown took place. There was no evidence as to how the replacement "ORIGINAL" bills came about. I infer that the defendant created them and handed them to Mr Lee, who then delivered them to the plaintiff. I find that this course of action also corroborates the evidence given by Mr Chen that it was important to him, indeed crucial, to obtain original bills of lading which he regarded as security for each drawdown by ASSH.
Mr Chen gave evidence, which I accept, that if three copies of bills of lading stamped "ORIGINAL" had not been provided to the plaintiff, he would not have allowed the plaintiff to lend the funds the subject of each application for drawdown.
There were three early drawdowns made by ASSH, upon deposit of original bills of lading, which were all repaid as per the Loan Agreement. Upon repayment of each amount, the original bills of lading were returned by the plaintiff to ASSH. This conduct also corroborates Mr Chen's evidence.
Drawdown 4 was initially due to be repaid by 7 October 2014, but ASSH obtained an extension of time from the plaintiff to extend the repayment date to 7 January 2015. Drawdown 5 was due to be repaid on 29 October 2014. Drawdown 6 was due to be repaid on 29 November 2014.
When ASSH failed to make the repayment for Drawdown 5 by 29 October 2014 Mr Chen telephoned Mr Lee and asked him where the goods the subject of the drawdown and shipment were. Mr Chen gave evidence, which I accept, that the purpose of his question regarding the location of the goods was to make sure they hadn't been collected. Once again, this is consistent with Mr Chen requiring the bills of lading as security and believing that they formed part of the security which the plaintiff was taking for each drawdown under the Loan Agreement.
In about late October 2014 Mr Chen made enquiries and became concerned that the goods may have been picked up without presentation of what he believed to be the only original bills of lading. The plaintiff then took action against the guarantors under the Loan Agreement, and certain recoveries reduced the amount outstanding by ASSH to the plaintiff.
Most of Mr Chen's evidence-in-chief was given by his affidavits. In oral evidence-in-chief he said that the bills of lading were kept in his office in a safe, which again provides support for my acceptance of his evidence that he regarded these bills as negotiable security documents. Mr Chen was cross-examined about how he satisfied himself that each bill was an original document. He said that it was important that there be a signature and stamp from the issuer, which in this case was the defendant. He confirmed that the bills of lading were kept in a safe and returned to ASSH when the money had been repaid. He was asked why there was a term in the Loan Agreement requiring repayment within 90 days of each drawdown, and he indicated that to his knowledge sheep and cow skins can go off and, since having access to the cargo was a security taken by the plaintiff, he wanted to make sure that the goods could be picked up before they went bad.
Mr Chen gave evidence that not only did he want to see the stamp "ORIGINAL" on the bill of lading, but he needed to see a signature and a stamp, which I took to mean the seal of the issuing corporation - in this case the defendant. He confirmed that funds would not be released until he was satisfied that he had original bills of lading in the possession of his company. Mr Chen said that it was not so important to him who the shipper was. What was important was that he had an original bill of lading as security.
There was a lot of cross-examination of Mr Chen about his dealings with the people behind ASSH, and about the taking of other securities for the loan facility. I formed the view that Mr Chen answered those questions frankly and directly, even though his evidence was given through an interpreter. Most of those topics were quite peripheral to the key issues in the case, and if they were attacks on credit, they failed.

The Defendant's Bills of Lading

The particular bills of lading issued by the defendant and provided to ASSH, which were then lodged with the plaintiff, were: 1. Bill of lading no. MELZHE1010 dated 25 June 2014 2. Bill of lading no. MELZHE1011 dated 25 June 2014 3. Bill of lading no. MELZHE1020 dated 7 July 2014 4. Bill of lading no. MELZHE1012 dated 7 July 2014 5. Bill of lading no. MELCGO140000075 dated 7 July 2014 6. Bill of lading no. MOLU17101551936 dated 24 July 2014 7. Bill of lading no. OOLU3079110572 dated 31 July 2014 8. Bill of lading no. MOLU17101564173 dated 7 August 2014.
Bills (a) and (b) were security for Drawdown 4 made on 8 July 2014 for $289,120. Bills (c) and (d) above were security for Drawdown 5 made on 29 July 2014 for $271,000. Bills (e), (f), (g) and (h) above were security for Drawdown 6 made on 29 August 2014 for $182,680.
The important features of bill of lading no. MELZHE1010 are as follows.
In the top right-hand corner it is said to be a bill of lading issued by Freight Solutions (Vic) Pty Limited.
The carrier is said to be "China Ocean Shipping". In the bottom right-hand box these words appear: "In witness of the contract herein contained the above stated number of originals have been issued one of which being accomplished the other(s) to be void. For the carrier CHINA OCEAN SHIPPING."
That box is then executed under the name of Freight Solutions (Vic) Pty Limited, along with its ABN and ACN. The seal of the defendant and a signature is placed on an execution line against which are the words "Signed As Agents Only".
Above the execution box is, in large capital letters, the word "ORIGINAL".
In the top left-hand corner of the bill of lading the Shipper is ASSH. The Consignee is "TO ORDER".
The port of loading is Melbourne, the port of discharge is Shanghai and the place of delivery is Zhengzhou.
There are said to be three original bills of lading and three copies of the bills of lading. The goods are described, along with their marks, numbers and weights.
There is no endorsement on the bill of lading.
Bill of lading number MELZHE1011 is in identical terms, except for the description of the goods.
Bill of lading number MELZHE1020 is in identical terms apart from the description of the goods and the name of the vessel.
Bill of lading number MELZHE1021 is in identical terms apart from the description of the goods and the name of the vessel.
Bill of lading number MELCGO140000075 is in similar terms, except that the carrier is "Pacific International Lines". The defendant has signed as agent only for Pacific International Lines. Once again the description of the goods and the name of the vessel is different.
Bill of lading number MOLU17101551936 is in similar terms except that the carrier is Mitsui O.S.K. Lines Limited. The defendant has signed as agent only for Mitsui O.S.K. Lines Limited. The description of the goods and the vessel is different. The port of discharge is the same as the port of delivery being Qingdao.
Bill of lading number OOLU3079110572 is in similar terms except that the carrier is Orient Overseas Container Line. The defendant has signed as agent only for Orient Overseas Container Line. The description of the goods and the vessel is different and the port of discharge and delivery is Quingdao.
Bill of lading number MOLU17101564173 is in similar terms except that the carrier is Mitsui O.S.K. Lines Limited and the defendant has signed as agent only for that carrier. The description of the goods and the vessel is different, and the goods are being discharged at and delivered to Quingdao.
The common features of the eight bills of lading created and issued by the defendant, upon which suit is brought, are: 1. the shipper is ASSH; 2. the consignee is "TO ORDER"; 3. the defendant has signed as agent for a nominated carrier; 4. each is stamped "ORIGINAL"; 5. there is no endorsement.

Evidence of Mr Ting

Mr Howard Ting gave evidence in English by an affidavit affirmed on 28 October 2016. He was the Assistant General Manager of the plaintiff company. He was not directly involved with the Loan Agreement. His affidavit went towards establishing the mechanics for each drawdown, the receipt of documents, and the flow of funds. While there was cross-examination of Mr Ting, the actual mechanics of each drawdown were not really in issue in the case. In any event, I formed the view that Mr Ting was a witness of truth.

No evidence called for the Defendant

When Dr Scheelings was running the case on the first four days of hearing, there was a forensic decision taken that the defendant would call no evidence, in spite of affidavits being previously served.
After Dr Scheelings ceased to represent the defendant, the defendant filed a motion seeking leave to re-open. The defendant's motion limited the proposed re-opening to the tender of an affidavit of the principal of the defendant company Mr Jeffrey Lennon, affirmed on 21 June 2017.
On the hearing of the motion the plaintiff took objection to many paragraphs of the affidavit. Those objections were recorded in the document MFI 9. I received most of that affidavit as evidence on the motion but my judgment delivered on 10 July 2017 made it plain that the issue of whether or not the paragraphs of that affidavit would be admissible on a final hearing was a matter to be determined on a different basis, applying the law in relation to admissibility of evidence upon a final hearing, rather than upon an interlocutory motion.
When Mr Harvey appeared for the defendant on the final day of the hearing, he took the same course as Dr Scheelings, and called no evidence.

Characteristics of a Bill of Lading

In the textbook Bills of Lading, Aikens, Lord and Bools (2006) the learned authors say at paragraph 2.1: "Like an elephant, a bill of lading is generally easier to recognise than to define."
The learned authors of Bills of Lading in paragraph 2.3 say the following: "A bill of lading is a document. Generally it must be signed by, or on behalf of, the carrier by sea. Three common characteristics of a bill of lading are that (a) it constitutes a receipt for the goods shipped or received by the carrier, (b) it constitutes a document of title for such goods and (c) it contains or evidences the contract of carriage by sea relating to the goods. A document which has all these characteristics will almost certainly be a bill of lading, and a document which lacks any of them will rarely be."
In paragraph 2.6 the learned authors say: "The tripartite function of bills of lading underlies both their importance and the complexity of the law relating to them. Being documents developed by mercantile custom to facilitate international trade, they formed an essential part of a mechanism for transferring both property in the goods and the right to enforce the contract of carriage. This transfer of property generally occurs by endorsement and delivery of the bill from one holder to another. A bill of lading is thus 'negotiable' in the sense of being transferable, although it is not a negotiable instrument in the strict sense of being capable of giving the transferee a better title than the transferor has himself." [Emphasis added]
At paragraphs 2.38 and 2.39 the learned authors further discuss the concept of a bill of lading which is negotiable in this sense. They say: "This transferability is signified by the description of the consignee as 'To Order', or 'To X or Order', or 'To X or his Order of Assigns" or similar wording. Such a bill of lading is also referred to as an 'Order' bill. The omission of such words, or the marking on the bill of lading of the words 'non-negotiable' will signify that the bill of lading is non-negotiable. A bill or other document marked 'non-negotiable' cannot normally be 'transferable' in the sense that its transfer will transfer the right to possession of the goods."
At paragraph 2.89 the learned authors say that bills of lading are often issued in sets of three originals. Any copies are marked "copy" and, even in the case of bills which are in original form negotiable, the copies are marked "non-negotiable".

Sea-Carriage Documents Act 1997 (NSW)

This Act deals with "sea-carriage documents" which are defined to include bills of lading. In s 5 of the Act the following definition appears: "bill of lading means a bill of lading (including a received for shipment bill of lading) which is capable of transfer: (a) by endorsement, or (b) as a bearer bill, by delivery without endorsement."
Section 8 of the Act deals with transfer of rights under a contract of carriage. It provides: "(1) All rights under the contract of carriage in relation to which a sea-carriage document is given are transferred to: (a) in the case of a bill of lading - each successive lawful holder of the bill … (2) Rights in a contract of carriage transferred to a person under sub-section (1) vest in that person as if the person had been an original party to the contract."
Finally, s 5 defines "lawful holder, in relation to a bill of lading" to mean a person who: "(a) has come into possession of the bill, in good faith, as the consignee of the goods, by virtue of being identified in the bill, or (b) has come into possession of the bill, in good faith, as a result of the completion, by delivery of the bill: (i) of any endorsement of the bill, and (ii) in the case of a bearer bill - of any other transfer of the bill …".
There is no definition of "bearer bill" in the Act.

The Right to Delivery

In Westpac Banking Corporation v "Stone Gemini" (1999) FCA 434, Justice Tamberlin said at [33] that it was well settled law that a bearer bill of lading entitles the holder to call for possession of the goods. Where goods are delivered to a person other than the holder of the bill of lading then the person or corporation so delivering is exposed to a risk of liability to the holder. In that case Westpac provided finance for the purchase of a cargo, and the cost of freight, and received as part of its security the relevant bills of lading relating to the cargo. It was held at [36] that when Westpac received the bills of lading and paid for the cargo and freight, it acquired special property as the entity entitled to delivery of the cargo. The provision of the bills to Westpac as a pre-condition of the negotiation and payment of the amounts due gave rise to an implied pledge of title in the goods represented by the bills.
Westpac was the bearer of the bills of lading, which had been delivered to it and endorsed in blank at the time when the discharge took place. His Honour said at [29] that it was well settled law that endorsement in blank of a negotiable bill of lading caused it to operate as a bearer bill - at paragraph [29].
Thus possession of a bearer bill of lading, which was a proper negotiable bill, would have entitled the plaintiff in the present case to call for delivery of the cargo to it, if the borrower/shipper failed to pay the amounts due to the plaintiff.
It was common ground in this case, based upon the agreement reached by the experts for both parties, that the bills of lading issued by the defendant were not of a kind which gave the bearer the right to demand delivery of the cargo, because the defendant had no authority from the ocean carrier to issue them.
As Mr Cox put it in his oral submissions, if the defendant's bills of lading had been presented by the plaintiff to the carrier in China, the plaintiff would have been told to go away. Another way Mr Cox put this in oral submissions was that through the conduct of the defendant, it had put into the world two sets of documents of title that appeared to relate to a contract with the same shipping company for the same goods.

Freight Forwarders

The defendant is a freight forwarder. Freight forwarders arrange the movement of cargo around the world on behalf of a shipper. They issue documentation to cover the movement of goods. The forwarder could also be involved in the clearance and delivery of the cargo at its destination.
Paragraph 12.840 of Shipping Law, Dickey & Davies, 4th edition (2016), says: "The traditional view of the role of a freight forwarder is that it acts as agent for the shipper of goods, arranging for carriage and delivery of the goods by others, without contracting to carry and deliver the goods itself. The forwarder enters into a contract of carriage with a carrier on behalf of the shipper as an undisclosed principal. The freight forwarder may issue to the shipper a document called a consignment note or a house bill of lading, but that document is not a true bill of lading when the forwarder acts merely as an agent. The document is, at most, a receipt for the goods coupled with an authority to enter into a contract of carriage on behalf of the shipper."
It is common ground in the present case that the bills of lading issued by the Defendant were not negotiable ocean bills or liner bills. Rather, they were what is known as "house bills".
The nature of a house bill was considered by Justice Handley in Carrington Slipways Pty Limited v Patrick Operations Pty Limited (1991) 24 NSWLR 745. His Honour referred to Charter Parties, Scrutton 19th Edition (1984) where the following was said: "A 'house bill of lading' issued by a forwarding agent acting solely in the capacity of an agent to arrange carriage is not a bill of lading at all, but at most a receipt for the goods coupled with an authority to enter into a contract of carriage on behalf of the shipper. It is not a document of title, nor within the Bills of Lading Act 1855, and it is unlikely that it would ever be regarded as a good tender under CIF contract."

Expert Evidence about the Defendant's bills of lading

In the present case there was expert evidence concerning the characteristics and operation of the bills of lading. The plaintiff tendered two reports from Mr Paul Golland and the defendant tendered a report of Mr John Forster. Those experts met and produced a joint report dated 1 June 2017. Further, counsel for both parties produced a document entitled "Agreement reached by Experts".
The bills of lading issued by the defendant are of a kind often described as "house bills". Bills of lading issued by the ocean carrier are often described as "ocean bills" or "liner bills" or "master bills". I propose as much as I can to avoid the use of any of those terms, as what matters in this case is the legal effect and consequences of the bills of lading issued by the defendant, rather than any label.
The defendant's expert Mr Forster said that a bill of lading is a legal document between the shipper of goods and the carrier detailing the type, quantity and destination of the goods being carried. The bill of lading also serves as a receipt of a shipment when the goods are delivered at the pre-determined destination. The usual practice is for a bill of lading to be signed by an authorised representative from the carrier, shipper and receiver. He said that the bill of lading serves as evidence of title of the goods described on the bill of lading and allows the holder to take possession of the goods.
The agreement reached by the experts used the term "house bill" to refer to a bill of lading in the form as issued by the defendant in this case. The agreement reached was in the following terms: "1) It was not necessary for the defendant to provide an original bill of lading to customs in China, it was sufficient for customs clearance purposes in China for a copy of the ocean bill of lading to be provided. Customs do not require an original bill of lading to be provided, and the provision of original documents would not be standard practice. Alternatively a copy of the house or ocean bill marked 'for customs purposes only' could have been issued. 2) The usual practice when a negotiable house bill is used by a freight forwarder is: a) The freight forwarder names the consignee as 'to order' in the house bill of lading; b) Three copies of the house bill of lading are stamped 'original' and handed by the freight forwarder to the shipper, together with the 3 non-negotiable copies. c) The 3 original house bills of lading are then endorsed by the seller/shipper and either negotiated through the banking system or released to the consignee after paying for the goods. d) The buyer/consignee then presents one of the 'original' copies of the house bill of lading to the freight forwarder or the freight forwarder's agent in China. e) The freight forwarder or its agent then presents the original ocean bill of lading to the ocean carrier, who issues a delivery order to the party presenting the ocean bill of lading. f) The delivery order is then used to collect the goods at the terminal. 3) There was no commercial utility in issuing a house bill of lading in identical terms to the ocean bill of leading. One commercial reason for using house bills of lading in a trade of this kind was if the defendant wanted their agent to collect charges at the destination and/or handle the customs clearance. 4) The use of 3 original and 3 copies of a bill of lading was an indication that the house bill of lading was a negotiable document. 5) The practice of signing a house bill of lading 'as agent only' for a named ocean carrier, without authority for the carrier, is not standard practice in the freight forwarding industry."

The Defendant's own view of its Bills of Lading

In 2015 the solicitors for the plaintiff corresponded with the defendant by email concerning the bills of lading issued by the defendant. In an email dated 3 March 2015 from Mr Jeff Lennon of the defendant to Mr Hunt, solicitor for the plaintiff, Mr Lennon said: "These Bills of Lading are House Bills of Lading that David [Lee] called for. We performed these House Bills at the request of David in good faith. These House Bills are only for banking purposes and are not recognised by the Shipping Line as they are not Liner Bills which is the negotiable document here which we presented to David/your supposed customer here who is supposedly making this claim. I suggest you go back to your client and ask them where is the negotiable Liner Bill as I believe you will find your customer would have released this to the consignee in order to enable them to pick up the Delivery Order and take delivery of the Cargo directly with the carrier/Shipping Line. This being the case, your customer by surrendering the original Liner Bill of Lading to the consignee has rightfully surrender [sic] ownership of the cargo and that is why they find themselves in the predicament they are. They are certainly barking up the wrong tree here."
In that correspondence is a concession by the defendant that the bills of lading which it issued were not negotiable documents. Further, there is a concession that the only documents which would have given the holder the right to delivery of the cargo would have been the liner bills (i.e. "ocean bills") issued by the carrier, whereas the bills of lading issued by the defendant did not give such a right.
The defendant never explained what was meant in the email from Mr Lennon when he said "these House Bills are only for banking purposes". In the absence of any explanation, the probable inference from that phrase is that he recognised that the defendant's bills of lading could have been used by the shipper to procure finance.

Were these bearer bills of lading?

Mr Cox submitted that each of these bills of lading was a bearer bill because it was made out "TO ORDER". He submitted that there was no necessity for an endorsement by the shipper to make each bill a bearer bill. His primary submission was that the mere fact that the bills were made out "TO ORDER" was enough to make them bearer bills.
In support of that submission he cited paragraph 2.41 from Bills of Lading, Aikens, Lord & Bools, which says: "A bearer bill requires the carrier to deliver to the bearer (or holder) without requirement that that bearer is named consignee or indorsee. A bill of lading made out simply 'To Order' may be described as a bearer bill, although, as this will usually be issued to the shipper, it may be described as a shipper's bill. A bearer bill is a document of title. It may be converted into another type of bill by indorsement of the holder, so an indorsement of 'to X or Order' by the holder converts it into an order bill."
For the proposition that a bill of lading made out simply to order may be described as a bearer bill, the learned authors cite the decision in The Ythan [2006] 1 Lloyd's Rep. 456. That is a decision of Mr Justice Aikens (who is the lead author of the textbook) sitting in the Queen's Bench Division. I have read the decision in The Ythan and cannot find any authority in it for the proposition put forward by Mr Cox.
Mr Harvey submitted that to turn a bill of lading into a bearer bill (unless it was so described in the first place) there would need to be an endorsement by the shipper. There seems to be much support for that view.
Paragraph 10.001 of Scrutton on Charterparties and Bills of Lading, 23rd edition, says: "Goods shipped under a bill of lading may be made deliverable to a named person, or to a name left blank, or 'to bearer', and in the first two cases may or may not be made deliverable to 'order or assigns'. Bills of lading making goods deliverable 'To Order' or 'To Order or Assigns' are by mercantile custom negotiable instruments, the indorsement and delivery of which may affect the property in the goods shipped. … Indorsement is effected either by the shipper or consignee writing his name on the back of the bill of lading, which is called an 'indorsement in blank', or by his writing 'Deliver to I [order order], F', which is called an 'indorsement in full' and by completing the indorsement by delivery. The shipper may, if he has retained the right of disposal of the goods, delete the name of the consignee and either leave the bill deliverable to a name left blank or insert the name of another consignee." [Emphasis added]
Mr Cox referred to the decision of the Federal Court in Westpac Banking Corporation v "Stone Gemini" (1999) FCA 434, which is summarised earlier in this judgment. It is noted that in that case Westpac was the bearer of the bills of lading, which had been delivered to it and endorsed in blank at the time when the discharge took place. The Court said at [29] that it was well settled law that endorsement in blank of a negotiable bill of lading caused it to operate as a bearer bill.
I have already recited the agreed summary of the views of the experts in this case. It is noted that the experts agreed that house bills of lading can be endorsed by the seller/shipper and either negotiated through the banking system or released to the consignee after paying for the goods.
In the light of those matters I think it is overreading the proposition in paragraph 2.41 of Aikens, Lord and Bools, to say that a bill of lading made out simply "To Order" may be described as a bearer bill. In my view the authorities support the proposition that a bill of lading out made out "TO ORDER" will become a bearer bill if is endorsed in blank and delivered.
In this case the relevant bills of lading were certainly delivered to the plaintiff. However, they were not endorsed. That conclusion means that when Mr Chen received the bills of lading as security for the drawdowns, he was mistaken in his view that the bills would have given the plaintiff the right to demand delivery of the goods. That is not the end of the matter.
I have already recited that the pleading alleged that by issuing the bills of lading, the defendant represented that: 1. each bill of lading was a negotiable instrument providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods; 2. alternatively, in issuing sets of "original" bills of lading consigned "TO ORDER", each bill of lading could be held by a third party as security for payment for the goods and/or to secure financial arrangements.
Confronted with the submission by Mr Harvey that these were not bearer bills because there was no endorsement, Mr Cox fell back upon the alternative way in which the plaintiff's case was pleaded. His submission was that even if Mr Harvey was right about the need for endorsement, a person who has lent money under a loan agreement and received possession of negotiable bills of lading as security is a pledgee, and has rights as against the bailor. He submitted that the security obtained in those circumstances was a pledgee's lien and that no other person can take the goods. He submitted that both Stone Gemini and The Ythan proceed on the basis that a person in that position has rights as a pledgee. He submitted that such a pledgee would have in their physical possession the piece of paper which someone else would need to present to obtain delivery of the goods, and no other person could obtain delivery of the goods. No-one could get delivery without the lien holder's involvement. He further submitted that the question of the precise rights obtained by the plaintiff by delivery of the bills of lading was not important in relation to the Australian Consumer Law cause of action, but would only be relevant to the breach of warranty of authority claim.

Misleading or Deceptive Conduct

The plaintiff firstly sues the defendant for a breach of s 18 of the Australian Consumer Law which is contained in Schedule 2 to the Competition and Consumer Act 2010 (C'th). Section 18(1) provides: "A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." The particular conduct of the defendant upon which it has been sued is set out in the pleading and is summarised in paragraphs 9-14 above. The plaintiff alleged that by issuing the bills of lading, the defendant had represented that: 1. each bill of lading was a negotiable instrument providing an entitlement to the holder to present the bill of lading to obtain delivery of the goods; 2. alternatively, in issuing sets of "original" bills of lading consigned "TO ORDER", each bill of lading could be held by a third party as security for payment for the goods and/or to secure financial arrangements.
The relevant legal principles in relation to a misleading or deceptive conduct claim are set out in paragraph [10] in Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 as follows: 1. A contravention of s 18 is established by "conduct" which is misleading or deceptive or likely to mislead or deceive; 2. Section 18 is concerned with the effect or likely effect of "conduct" upon the minds of that person or those persons in relation to whom the question of whether the "conduct" is or is likely to be misleading or deceptive falls to be tested. The test is objective and the court must determine the question for itself; 3. "Conduct" can, of course, include making a statement that is misleading or deceptive or likely to mislead or deceive; 4. By making a statement of past or present fact, a corporation's state of mind is irrelevant unless the statement involved the state of the corporation's mind; 5. Contravention of s 18 does not depend upon the corporation's intention or its belief concerning the accuracy of the statement of fact but upon whether the statement conveys a meaning which is false; 6. A false meaning will be conveyed if what is stated concerning the past or present fact is inaccurate but also if, although literally true, the statement conveys a meaning which is false.
The intent of the defendant is not relevant under s 18. All that is relevant is whether, tested objectively, the conduct was misleading or deceptive or likely to mislead or deceive - Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre Limited (1978) 140 CLR 216 at 223.
In Henville v Walker [2001] HCA 52; 206 CLR 459 Gleeson CJ said that the purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action for misleading or deceptive conduct, unless the conduct of the victim is such as to destroy the causal connection between the contravention and the loss or damage - at [13].
The remedy sought by the plaintiff is damages under s 236 of Australian Consumer Law. This provides as follows: "(1) If: (a) a person (the claimant) suffers loss or damage because of the conduct of another person; and (b) the conduct contravened a provision of Chapter 2 or 3; the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention."
This introduces the common law concept of causation, which is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter - March v Stramare (E & MH) Pty Limited (1991) 171 CLR 506.
It is not essential that the contravention be the sole cause of the loss or damage. Where there are two concurrent causes, and misleading or deceptive conduct was one of those causes, that is enough - Henville v Walker at [14].
The plaintiff must prove that it has relied upon the conduct, in acting as it did, thus suffering loss.

Breach of Warranty of Authority

As previously recited, the defendant had no authority from any of the carriers nominated on the bills of lading which the defendant issued.
The fundamental principle is that a person who enters into a contract expressly as agent for a principal named impliedly warrants his authority. If he has no such authority, he may be sued on that implied contract and is bound to make good to the other contracting party what that party has lost, or failed to obtain, by reason of the non-existence of the authority - Leggo v Brown & Dureau Limited (1923) 32 CLR 95 at 99.
In Firbank's Executors v Humphreys (1886) 18 QBD 54 Lord Esher MR said (at 60): "The rule to be deduced is, that where a person by asserting that he has authority of the principal induces another person to enter into any transaction which he would not have entered into but for that assertion, and that assertion turns out to be untrue, to the injury of the person to whom it is made, it must be taken that the person making it undertook that it was true, and he is liable personally for the damage that has occurred."
In BHPB Freight Pty Limited v Cosco Oceania Chartering Pty Limited & Ors [2009] FCA 1087 Justice Finkelstein said that it is not necessary for the plaintiff to enter into a transaction with the supposed principal in order to establish an action for breach of warranty of authority. The cause of action is established even if the plaintiff enters into a transaction with another person. His Honour cited Firbanks Executors v Humphreys and also Penn v Bristol & West Building Society [1997] 1 WLR 1356.
To the same effect is the decision of Justice Price in Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242 at [288]-[297].
In the normal case of breach of warranty of authority, the person to whom the warranty is given is the other party to the purported contract. However, the characteristics of a bill of lading are such that the creation, issuing and delivery of a bill of lading mean that a commercial document is put into the world which can end up in the hands of third parties, and not just the person to whom the bill is originally delivered. One of the three characteristics of a bill of lading is that it constitutes a document of title for the goods nominated in the bill.
A person who is given possession of a bill of lading, even though they did not have the warranty of authority conveyed directly to them, has a document of title purportedly signed by an agent for the carrier, and execution in that fashion carries with it a warranty of authority which is made not only to the original recipient of the bill, but to any person who subsequently comes into possession of the bill.

Findings of Fact

In May 2014 the plaintiff and ASSH entered into a Loan Agreement.
The Loan Agreement contained an express term that ASSH would deposit, as security for each drawdown, "all original shipping documents for each shipment of sheepskins and/or cow hides which relate to a drawdown... including but not limited to the invoice, customs declaration, packing slip, insurance and bill of lading" - clause 16(g).
The Loan Agreement provided that if ASSH failed to pay monies owing by the due date, that failure would constitute an Event of Default - clause 22(a).
The Loan Agreement contained a clause that if there was default in repaying a loan by the due day, the plaintiff had power to: "Cause the Borrower to assign the right of collection to the relevant shipment to the Lender or its Representative and otherwise enable the Lender or its Representative to take possession of the shipment, sell the sheep skins and/or cow hides in that shipment, keep the sales proceeds and apply against the balance due in relation to the relevant Loan Debt Repayment" - clause 24(a).
ASSH applied for and was granted three drawdowns which it did repay on time.
As security for those drawdowns ASSH delivered bills of lading relating to the goods purchased with each drawdown, to the plaintiff. The plaintiff kept those bills of lading in a safe and re-delivered them to ASSH upon repayment of each drawdown.
Each bill of lading lodged in relation to the repaid drawdowns was a bill of lading issued by the defendant. The bills of lading issued by the defendant and used by ASSH as security for the early repaid drawdowns were in the same form as later bills of lading issued by the defendant which were delivered by ASSH to the plaintiff.
Prior to the approval of each drawdown ASSH submitted an application to the plaintiff with supporting documents and the relevant bills of lading.
Mr Chen of the plaintiff considered each application for a drawdown and considered the supporting documents delivered by ASSH including the bills of lading. Mr Chen believed that by the plaintiff acquiring possession of the bills of lading provided to it by ASSH, the plaintiff was acquiring security over the goods the subject of each particular bill of lading.
Mr Chen believed that while the plaintiff held the original bills of lading, no other person could pick up the goods from the port.
Mr Chen believed that by holding the original bills of lading, the plaintiff, or someone acting on behalf of the plaintiff, could collect the goods and realise those goods to repay any amounts owing to the plaintiff by ASSH.
In July and August 2014 ASSH applied to the plaintiff for Drawdown 4 in the amount of $289,120, Drawdown 5 in the amount of $271,000 and Drawdown 6 in the amount of $182,680.
In support of its three applications for drawdowns, ASSH delivered eight original bills of lading to the plaintiff in respect of the goods purchased by ASSH with the three drawdowns.
In accordance with his standard practice, Mr Chen had the bills of lading locked away in the office safe.
The defendant had issued all eight bills of lading.
The eight bills of lading issued by the defendant had the following common features: 1. The shipper is ASSH; 2. The consignee is "TO ORDER"; 3. The defendant signed as agent for a nominated carrier; 4. Each bill was stamped "ORIGINAL"; and 5. There was no endorsement on any bill.
While the defendant purported to sign as agent for the nominated carrier on each bill of lading, the defendant had no such authority from the carrier.
On one occasion ASSH delivered copies of bills stamped "COPY NON-NEGOTIABLE". Mr Chen declined to accept these bills of lading and declined to further consider a drawdown based on such bills.
After this conversation between Mr Chen and Mr Lee, ASSH delivered bills of lading in identical form, save that they were stamped "ORIGINAL".
Upon delivery of the bills of lading, Mr Chen approved the drawdowns and placed the bills in a safe.
Mr Chen was not aware at the time he approved each drawdown that the defendant's bills of lading were not executed by the defendant with the ocean carrier's authority.
When Mr Chen approved each drawdown he held the belief that each bill of lading issued by the defendant was an original negotiable bill of lading which gave the holder a right to demand delivery from the carrier who then held the goods in China.
Between May and November 2014 Mr Chen was not aware that any other negotiable bills of lading existed which gave a right to demand immediate possession of the goods.
Until Ms Wang sent the first email from the plaintiff to the defendant on 3 November 2013 Mr Chen had no knowledge that any of the goods the subject of the bills of lading which the plaintiff held had been delivered in China.
Mr Chen would not have approved any of the three unpaid drawdowns, unless he had received original "TO ORDER" bills of lading, being those issued by the defendant.
ASSH failed to repay Drawdown 5, Drawdown 6 and Drawdown 7.
The plaintiff recovered against other securities provided for the drawdowns and the loss proven in these proceedings is the nett loss after taking account of those recoveries.
The defendant said later by email that the bills of lading it issued were to be used by ASSH for banking purposes.
There was no commercial purpose for having two sets of negotiable bills of lading (the ocean carrier bills and the defendant's "house" bills).
The purpose of the defendant in issuing its bills of lading remains unexplained.

Submissions for the Defendant

Mr Harvey submitted that Mr Chen had very poor English and that he did not understand the legal effect of the house bills of lading which are the subject of these proceedings. He submitted that Mr Chen's assessment of the bills involved only determining whether they were original.
He submitted that Mr Chen's assessment of the bills was inadequate for determining whether each bill of lading provided its holder an entitlement to obtain delivery of the goods; whether the bills of lading could be held as security for payment for the goods and/or to secure financial arrangements; and whether the bills of lading were issued on behalf of the ocean carriers.
There is some force in Mr Harvey's submissions. Nevertheless, the actions of Mr Chen in insisting upon provision of these bills of lading, in locking them in a safe because he regarded them as security documents, and in rejecting the proffering of non-negotiable bills and insisting that a bill be marked "ORIGINAL", all lead me to find that while Mr Chen may not have understood the legal nuances of the documents offered by ASSH, he recognised the documents as original bills of lading with sufficient indicia to indicate that they would provide the plaintiff with security in the event of default in repayment of the drawdowns.
I accept the submission of Mr Harvey that because the bills were not endorsed, they were not bearer bills and thus the bills alone did not give the plaintiff a right to demand delivery of the goods purchased with each drawdown. However, possession of the bills of lading, if they had been the only original negotiable bills (as they appeared to be) would have given the plaintiff leverage, if not certain rights, to enable it to obtain repayment of its loans.
Firstly, if these bills had been the only original negotiable bills (as they appeared to be) the plaintiff would have had a possessory pledgee's lien over the original shipping documents being the bills of lading. Some accommodation would have had to be reached between lender, borrower/shipper, consignee and carrier, before the goods when landed in China could be taken by the eventual purchaser.
Secondly, if these bills of lading were (as they purported to be) original negotiable bills of lading (of the kind an ocean carrier would issue), then all the plaintiff had to do to perfect its security interest was to have the borrower endorse each "TO ORDER" bill. There was a clause in the Loan Agreement which provided that the borrower would have been obliged to so endorse the bill. Clause 46 of the Loan Agreement provided: "Each party must promptly execute all documents and do all things that another party from time to time reasonably requests to effect, perfect or complete this Agreement and all transactions incidental to it."
Thirdly, if Mr Chen had been aware of the need for endorsement to perfect the securities, he could have (and I find would have) required an endorsement before approving any further drawdowns.
I find that if these were the only original negotiable bills of lading, issued with the authority of the ocean carrier, the possession of them by the plaintiff would have given the plaintiff the following rights: 1. The right to call upon ASSH to endorse each bill of lading to the plaintiff, thus giving the plaintiff the right to take delivery of the cargo if there was default in repayment of each drawdown; 2. The right to continued possession of each bill of lading, thus preventing any other party from taking possession of the cargo until the plaintiff could assert its right to be paid before the cargo was released.
I find that these three drawdowns would never have been approved by Mr Chen or made by the plaintiff in the absence of the defendant issuing the bills of lading in a form which would lead the commercial world to believe that they were the only original negotiable bills of lading and that the holder of these bills could have rights in relation to the cargo.
I accept the submission of Mr Cox that what the defendant did by issuing these bills of lading without the authority of the ocean carrier was to put into the world two sets of bills of lading (one being the genuine ocean carrier bills and the second being the defendant's unauthorised bills) which on their face gave a right to demand delivery of the goods.
I find that but for that fact the plaintiff would never have made these drawdowns to ASSH.
Mr Harvey submitted that by issuing the bills of lading the defendant did not represent that each bill of lading provided an entitlement to the holder to obtain delivery of the goods. I reject that submission. By their form, each of these bills of lading did purport to provide an entitlement to the holder to obtain delivery of the goods.
Mr Harvey also submitted that by issuing the bills of lading the defendant did not represent that each bill of lading could be held by a third party as security for payment for the goods and/or to secure financial arrangements. I reject that submission. I find that each bill of lading was in a form where, if genuine, it could have been held by a third party as security.
I also find that, so far as it is relevant, the defendant knew that its bills were going to be used for banking purposes.
Mr Harvey submitted that without relying on the bills of lading, Mr Chen assumed that they passed property in the goods to the plaintiff. He did reach this conclusion. However, the form of the bills of lading would have given anyone in the commercial world that idea.
Mr Chen's ability in the English language was limited, and his knowledge of the mercantile law concerning bills of lading would have been much less than that of experienced maritime lawyers. Participants in the commercial world deal everyday with commercial documents, without understanding the strict legal rationale and operation of such documents. The law does not require people who bank a cheque to have the law of banker and customer at their fingertips. Nowadays most transactions are done by electronic funds transfers, so the mechanics of the transfer is even more opaque than that of dealing with a cheque. The law does not require people who make or receive payments by electronic funds transfer to have knowledge of the legal basis for such transfers. Very few lawyers do.
To hark back to the words of the textbook writer, Mr Chen recognised the elephant in each case. He may not have been able to identify its genus or its forebears, but he did recognise the essential features of a bill of lading which appeared on its face to be one which would or could give the plaintiff the right or opportunity to obtain delivery of the goods if there was default in repayment of each drawdown.

Misleading or Deceptive Conduct

I find that by issuing the bills of lading the defendant represented that each bill of lading was a negotiable instrument providing an entitlement to each successive lawful holder of the bill to present the bill of lading to obtain delivery of the goods.
I find that by issuing the bills of lading the defendant represented that because they were "ORIGINAL" bills of lading consigned "TO ORDER", each bill of lading could be held by a third party as security for payment for the goods and/or to secure financial arrangements.
I find that the plaintiff did not become a lawful holder of each bill because each bill was not endorsed.
I find that the plaintiff could have become a lawful holder of each bill by requesting and obtaining endorsement of the bill by ASSH. ASSH wanted these drawdowns in order to do business, buy goods and sell them for profit in China. I find that if a request was made by the plaintiff for ASSH to endorse each bill of lading it is likely that it would have done so, just as it voluntarily provided possession of the bills as a condition of the approval of each drawdown, and just as it substituted bills marked "ORIGINAL" when requested to do so.
I find that even without endorsement, each bill of lading, if issued with authority, would have given the plaintiff a lien as pledgee over the bills of lading, which would have had the practical effect of the plaintiff being empowered to prevent any other party taking delivery of the cargo, unless the plaintiff was repaid for each drawdown.
A false meaning was conveyed by these bills of lading issued by the defendant. Firstly, the falsity was that they were ocean bills of lading issued by the defendant as authorised agent of each ocean carrier. Secondly, by being specifically stated to be "ORIGINAL" and "TO ORDER" they purported to be ocean bills of lading which would have entitled the lawful holder to possession of the goods the subject of the bill.
Even if these were genuine ocean carrier bills (issued by the defendant with the authority of each carrier), the plaintiff would not have obtained a perfect security because each bill was not endorsed. However, it had a security which could be perfected by endorsement, which I have found would probably have been given by ASSH if asked.
The intention of the defendant in issuing these bills of lading is irrelevant under the Australian Consumer Law, but I am fortified in my conclusions by: 1. the statement by Mr Lennon that the bills were issued for banking purposes; 2. the lack of any discernible commercial purpose in issuing the bills, as per the views of the experts; 3. there being no evidence called from Mr Lennon or any other person, leading to the usual Jones v Dunkel inference that their evidence would not have assisted the defendant's case.
I find that all of the evidence points to Mr Chen relying upon the bills as original negotiable bills of lading (as they appeared to be on their face) and in view of such reliance the plaintiff suffered loss or damage because of the misleading or deceptive conduct of the defendant.
The conduct of the defendant was a cause, in fact the dominant cause, of the loss or damage.
The plaintiff may therefore recover the amount of the loss or damage against the defendant under s 236 of the Australian Consumer Law.
In opening the case Mr Cox put forward a Plaintiff's Schedule of Damages. On the misleading or deceptive conduct claim, the damages claimed were the total amount of Drawdowns 4, 5 and 6, less a repayment by David Lee of $51,998.64. This left a total claim for damages on the misleading or deceptive conduct claim of $690,801.36. No submission was put for the defendant to challenge that calculation of damages, if the misleading or deceptive conduct claim succeeded. The damages for this cause of action will therefore be $690,801.36.

Breach of Warranty of Authority

I find that the defendant's bills of lading purported to evidence a contract of carriage between the shipper and the defendant as an agent for the various ocean carriers.
I find that the defendant purported to execute each bill of lading as agent for the ocean carrier, without having authority from any of the ocean carriers.
I find that a cause of action for breach of warranty of authority is available even if the plaintiff enters into a transaction with another person, rather than with the agent who misstated the extent of their authority.
I find that the breach of warranty of authority by the defendant was a cause of the plaintiff approving and permitting each of these three drawdowns by ASSH.
I find that if the defendant had not breached its warranty of authority, the plaintiff would have suffered no loss, as it would never have advanced the three unpaid drawdowns to ASSH.
In the result, I find that the defendant is liable to the plaintiff on the cause of action pleaded for breach of warranty of authority.
During the opening of the plaintiff's case, Mr Cox put forward a Plaintiff's Schedule of Damages, which has never been the subject of any contrary submission by counsel for the defendant. On the breach of warranty of authority claim, the plaintiff's rights under the defendant's bills of lading at the time of the breach of the warranty are to be calculated by reference to the sound arrived value of the goods shipped to China. The commercial invoices for the goods demonstrate that the value of the goods the subject of the defendant's bills of lading greatly exceeded the amount of the sums drawn down. The plaintiff could have only retained sufficient monies from the sale of the goods to compensate it for an actual loss. Any residual value under the securities would have been returned to ASSH under the Loan Agreement.
In the Plaintiff's Schedule of Damages the ultimate conclusion was that the damages for breach of warranty of authority consisted of the loan amount (nett) of $690,801.36 plus contractual interest of $22,284. That will be the award of damages for the breach of warranty of authority action.

Interest

Mr Cox submitted that if the claim under the Australian Consumer Law succeeded, then the plaintiff was not entitled to contractual interest. He submitted that the plaintiff would be entitled to interest at court rates. For each of the three drawdowns, numbered 4, 5 and 6, court rates would run from the time the monies were drawn down, the plaintiff's case being that it would never have advanced the monies in the first place but for the misleading or deceptive conduct.
In relation to the breach of warranty of authority claim, Mr Cox submitted that the court needed to consider the position the plaintiff would have been in if it had sought delivery under the defendant's bills of lading from the ocean carriers, assuming that there had been no breach of warranty. He submitted that the measurable loss would be the sound arrived market value of those goods in China, which the commercial invoices tendered show would have been worth in the vicinity of $1.4 million to $1.5 million. The loss would then have been reduced by the amount the plaintiff recovered from other sources, so the true loss would be only the amount the plaintiff was entitled to retain from the security. The value of the security would have been more than enough to cover the loss.
Mr Cox submitted that the difference between the two causes of action was that on the Australian Consumer Law cause of action, the plaintiff would never have advanced the money. On the breach of warranty of authority claim, the plaintiff would have advanced the money and the loss would therefore include a claim for contractual interest.
I did not understand either Dr Scheelings or Mr Harvey to dissent from the theoretical propositions on interest put forward by Mr Cox.
In the Plaintiff's Schedule of Damages, referred to above, Mr Cox put forward a calculation of interest on a statutory basis in the amount of $121,441.77. There was no dissent from counsel for the defendant in relation to this amount, although the calculations for it were not set out in the Schedule. Of course, additional interest would have accrued since preparation of that Schedule. I will assume that the date to which interest on a statutory basis was calculated was the first day of the trial - 4 July 2017, when that Schedule was handed up. Interest at court rates from 4 July 2017 to 16 October 2017 adds another $10,929.80.
I propose to award interest upon the judgment sums in the amount of $132,371.57. I will grant liberty to apply in relation to any re-calculation of interest.

Conclusions

I find that the defendant is liable to the plaintiff in damages in the amount of $690,801.36 for misleading or deceptive conduct within the meaning of the Australian Consumer Law.
I find that the plaintiff is entitled to interest on that sum in the amount of $132,371.57.
On the plaintiff's claim in damages for misleading or deceptive conduct within the meaning of the Australian Consumer Law there will be judgment in the amount of $823,172.93 ($690,801.36 plus $132,371.57).
I will grant liberty to the parties to apply in relation to any re-calculation of interest.
I find that the defendant is liable to the plaintiff in damages for breach of warranty of authority.
I find that the plaintiff is entitled to damages in the amount of $713,085.36 ($690,801.36 plus contractual interest of $22,284).
I find that the defendant is liable for interest on a statutory basis on this amount of $132,371.57.
There will be judgment for the plaintiff against the defendant in damages for breach of warranty of authority for $845,456.93.
I will grant liberty to the parties to apply in relation to any re-calculation of interest.
I make it plain that while the plaintiff has succeeded on two causes of action, in differing amounts, there can only be one recovery by the plaintiff, as there is clear overlap between the two damages figures.
My orders are: 1. Judgment for the plaintiff against the defendant in damages for misleading or deceptive conduct within the meaning of the Australian Consumer Law for $823,172.93. 2. Judgment for the plaintiff against the defendant in damages for breach of warranty of authority in the amount of $845,456.93. 3. Grant leave to the parties to restore the matter before me in relation to any necessary re-calculation of interest. 4. Order the defendant to pay the plaintiff's costs. 5. Grant liberty to the parties to restore the matter before me if either party seeks a different costs order. 6. Order that the amount of $150,000 paid into court on 28 April 2017 as security for costs be paid out to the plaintiff's solicitors.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 October 2017

Australian Consumer Law(C'th) Sea-Carriage Documents Act 1997(NSW)

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Judgment (26 paragraphs)

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Legislation Cited (2)

Cases Cited (9)

Cited By (1)