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[2012] ZASCA 56
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Hentiq 1320 (Pty) Ltd v Mediterranean Shipping Company SA Geneva (166/2011) [2012] ZASCA 56; 2012 (6) SA 88 (SCA) (30 March 2012)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
CASE NO: 166/2011
In the matter between:
HENTIQ 1320 (PTY) LTD
…...................................................................
APPELLANT
and
MEDITERRANEAN SHIPPING COMPANY
SA GENEVA
…....................................................................................
RESPONDENT
Neutral citation:
Hentiq 1320 (Pty) Ltd v
Mediterranean Shipping Company
(166/11)
[2012] ZASCA 56
(30 March
2012).
Coram:
Farlam,
Navsa, Snyders, Malan JJA et Plasket AJA
Heard:
24
February 2012
Delivered:
30
March 2012
Summary: Damages – whether appellant entitled
to recover damages from respondent in respect of liability incurred
by appellant
to a third party in circumstances where the appellant
was morally but not legally liable.
ORDER
On appeal from:
KwaZulu-Natal High Court, Durban
(Wallis J, sitting as court of first instance):
The appeal is dismissed with costs.
JUDGMENT
FARLAM JA
(
NAVSA, SNYDERS, MALAN JJA ET PLASKET AJA
CONCURRING
):
[1] The appellant in this matter, Hentiq
1320 (Pty) Ltd, appeals with leave of this court against a judgment
1
delivered by Wallis J, sitting in the KwaZulu-Natal High
Court, Durban, exercising its admiralty jurisdiction, on 28 September
2010,
in which he dismissed with costs a claim brought by the
appellant against the respondent, Mediterranean Shipping Company SA
Geneva.
[2] The appellant’s claim was for
payment of R1 672 080 (together with interest and costs) being the
damages allegedly suffered
by the appellant consequent upon the
delivery of three cargoes of rice which had been loaded on three
ships, the
MSC Sarah
,
the
Orient Vision
and
the
MSC Camille
at the
port of Kandla in India. The rice was described in the bills of
lading issued by the respondent’s representatives,
an Indian
company known as Samsara Shipping (Pvt) Ltd, as ‘Indian Long
Grain Parboiled Rice’. These bills of lading
were issued to the
suppliers of the rice, White Fields International (Pty) Ltd, another
Indian company, which endorsed them in
favour of Kingsburg Exports
Ltd, a Hong Kong company. (In what follows I shall call the suppliers
‘White Fields’ and
the Hong Kong company ‘Kingsburg’.)
Kingsburg endorsed the bills in favour of the appellant against
acceptance by the
appellant of two bills of exchange (one in respect
of the rice loaded aboard the
MSC Sarah
and the
Orient Vision
and the other in respect of the rice loaded aboard the
MSC Camille
).
[3] It was common cause at the trial that the
description of the rice appearing on the bills of lading was
seriously misleading;
it should have read ‘Indian Long Grain
Parboiled Rice (100% Sortexed Rejection)’. The words in
brackets, which were
not included in the description of the cargo on
the bills of lading, made all the difference as rice which is so
described (unlike
rice described as ‘Indian Long Grain
Parboiled Rice’, which is clean rice ready for repackaging) is
contaminated with
the detritus of stones, husks, soil and other
contaminants and is not in an edible condition.
[4] The appellant’s claim for damages was framed
both in contract on the bills of lading and in delict.
[5] It was also common cause at the trial that White
Fields, which had been paid for the rice under a letter of credit on
presentation
of, inter alia, the bills of lading, had obtained such
payment by perpetrating a fraud. It had been aware that the rice it
was
shipping was ‘100% sortexed rejection’. This was the
description which it provided on the Shipping Bill for Export of
Goods under Duty Entitlement it had submitted to Indian customs and
which it provided to the respondent’s agents as reflected
in
the mates’ receipts for the cargo. But the bills of lading it
prepared and which were issued on the respondent’s
behalf
omitted, as I have said, the description of the rice as being ‘100%
sortexed rejection’.
[6] For the appellant to succeed in either of its
claims, either in contract or in delict, it had to show that it had
suffered damages
in consequence of either the breach of contract or
the delict it complained of. At the commencement of the trial the
learned judge
made an order in terms of Rule 33(4) ‘[t]hat the
quantification of the [appellant’s] claim [excluding a package
limitation
point pleaded by the respondent] is separated out for
later determination, with all other issues to be determined in the
present
proceedings’.
[7] The contract of purchase and sale in respect of the
rice was concluded on or about 8 May 2001. The parties to the sale,
according
to the pro forma invoice issued by White Fields, were White
Fields and Kingsburg and the full purchase price, US $180 000 (US
$180–00
per metric ton), was to be paid through a confirmed and
irrevocable letter of credit payable at sight through White Fields’
bankers in New Delhi. Kingsburg duly caused its bankers to issue an
irrevocable letter of credit, in which White Fields was named
as the
beneficiary, for payment of an amount of US $180 000, against the
shipment of goods described as 1 000 metric tons of Indian
long grain
parboiled rice packed in 50 kg polypropylene bags and consigned on
cif terms to Durban. The documents required were
a signed invoice in
one original plus three copies; a full set of clean ‘on board’
ocean bills of lading made out to
order, endorsed in blank, marked
‘freight pre-paid’ and providing for Kingsburg to be the
notified party; and a marine
insurance policy or certificate in
respect of the consignment.
[8] Kingsburg on-sold to the appellant 900 metric tons
of the rice it had purchased from White Fields and issued three
invoices
(one on 2 June 2001 and two on 14 June 2001 in respect of
these 900 metric tons). The fraud was discovered and the contract
with
White Fields cancelled before the remaining 100 tons were
shipped. The total amount payable under these three invoices was
reflected
as being US $166 050.01. On 21 June 2001 and 9 July 2001
Kingsburg drew two bills of exchange for amounts totalling US $166
050.01
on the appellant, both of which it accepted.
[9] The initial negotiations regarding the purchase of
the rice took place between the appellant and White Fields and it was
at
all times envisaged that the rice was to be shipped from Kandla to
Durban for the benefit of the appellant.
[10] Mr. Iqbal Soomar, the manager of the appellant, who
conducted the negotiations leading up to the conclusion of the
contract,
explained in his evidence that the appellant had not
purchased the rice directly from White Fields because it had needed
financial
assistance in order to enter into a contract of this
magnitude. He originally said in chief that the appellant had a
credit facility
with Kingsburg which he arranged especially for the
rice importation business. His arrangement with Kingsburg was that it
would
open the necessary letters of credit and charge him [by which
he clearly meant the appellant] ‘2.5 percent commission,
interest
for 90 days and send me a bill of exchange which I had to
sign [ie accept] for the exchange [by which I take it he meant the
endorsement
and delivery] of the Bill of Lading’.
[11] He also said that he had not paid to Kingsburg the
full amount of the bills of exchange, but had come to an arrangement
with
Kingsburg to repay what he called ‘this debt’ in its
entirety. A portion of it had been paid from the sale of the scrap
material, ie the ‘100% sortexed rejection’ rice and, so
he stated, ‘the appellant owes the balance to Kingsburg’.
[12] In cross-examination he said that Kingsburg had
offered to write off the debt but he said he was morally obliged to
pay them.
[13] When it was put to him that Kingsburg had not
supplied what was called the correct cargo and that legally, at
least, the appellant
would not have to pay Kingsburg he said:
‘
Ja, but Kingsburg was not
the supplier here.’
[14] Earlier when the point was put to him he said:
‘
Well, Kingsburg trusted
me, lent the money to me, financed the deal for me. Kingsburg didn’t
know whitefields and Sumeet Saluja
[the director of White Fields who
handled the transaction on behalf of White Fields]. Kingsburg did not
introduce me to this chap.
And therefore I feel that they were
totally innocent in this matter. And I feel morally obliged that it
is my duty to pay to them.
And also the understanding and patience
that they gave me in this difficult time.’
[15] He also said:
‘
. . .I don’t see
how they become the supplier, the supplier was whitefields. Ja,
technically you’re saying that they
sold onto Kingsburg,
Kingsburg sold on to Hentiq, that is correct. Right, so you’re
saying that if Kingsburg supplied me
defective goods then Kingsburg
would have to reverse the payment or I wouldn’t have to pay
Kingsburg?’
[16] When the respondent’s counsel replied in the
affirmative, he said:
‘
That may be so, yes.’
[17] When pressed on the point he said:
‘
I don’t think they
did anything wrong, that’s why I feel I’ve got to pay
them . . . I certainly think that my
common knowledge tells me that
they’re the innocent party here.’
[18] Later in his evidence the judge questioned him on
the point. The relevant passage in the record reads as follows:
‘
WALLIS J
Mr Soomar, can you just
help me on one matter relating to your relationship with Kingsburg.
You described them as your financiers,
the people who helped you to
finance this transaction? --- Yes, Your Honour.
But the documents which have
been put up reflect that Kingsburg bought the goods and then on sold
them to the plaintiff with a commission
which was 2.5 percent of the
purchase price as I recall it? --- Yes, Your Honour.
Why was the transaction
structured in that fashion, was that – and perhaps I can ask a
second question, is it structured in
that way because of the dictates
of your faith in regard to borrowing money and paying interest or is
there some other commercial
reason for it? --- No, Your Honour,
you’re quite, quite 101 percent correct, it’s to do with
my faith. You will notice
that there is no interest on there.
No. --- And the 2.5 percent is a
borrowing finance – it’s a commission exactly in terms of
the way the Islamic finance
works, a profit is added.
As I understand it and please
correct me if I am wrong, the principle is that one doesn’t
lend money for interest, but one
participates with the other party in
a commercial transaction where it is legitimate to make a profit or a
loss, but the financier
is at risk on the transaction, is that
correct? --- The financier is at risk yes. Yes, Your Honour.
. . .
I am really not concerned. ---
The financier is at risk, but the borrower has an
obligation.
This is the moral obligation you
talked about yesterday? --- Yes, exactly, Your Honour.
And presumably the amount of the
commission is calculated to provide the sort of return which a
financier would look for? --- Exactly,
Your Honour.
Was it 2.5 percent here? --- For
the entire contract.
But that would be 2.5 percent
over a period of what was anticipated to be three months, which would
have been times four.
It would be 10 percent if you
were looking at an annual? --- Exactly.
Or at an interest rate if I can
put it that way? --- Yes, Your Lordship.
Thank you, I thought that was
the situation.’
[19] The court a quo based its decision to dismiss the
appellant’s claim on the fact that it had failed, so the court
held,
to prove that it had sustained any recoverable loss. In paras
20 and 21 of his judgment the judge said:
‘…
what the
plaintiff is seeking to recover is the amount paid by Kingsburg in
terms of the letter of credit on the basis of its own
obligation to
reimburse Kingsburg.
Prima
facie
Kingsburg
was entitled to recover that amount from Whitefields on the basis of
its fraud. It is possible, if it could prove that
the employers of
Samsara were parties to the fraud, that it might equally have had
claims against Samsara or even MSC. However
the claims pursued in
this action are not the claims of Kingsburg. Instead the plaintiff
seeks to recover under the bills of lading
from MSC as the carrier.
It does not sue as cessionary of the claims of Kingsburg. The
question that arises from this is whether
the plaintiff has suffered
any loss as opposed to the loss Kingsburg have suffered.
It is here that there is an
insuperable obstacle in the path of the plaintiff. It arises from the
fact that the structure of the
transactions involved back-to-back
sales from Whitefields to Kingsburg and from Kingsburg to the
plaintiff. Because of that structure
the plaintiff had no contractual
link with Whitefields and the party to which it was entitled to look
for performance of the contract
was Kingsburg. The latter had agreed
to sell it rice of a particular description and the rice that it
delivered was defective because
it was ‘100% sortexed
rejection’. Whilst Whitefields was the source of the problem,
at the level of contract the only
party against whom the plaintiff
had a remedy was Kingsburg. It was entitled to reject the rice that
was tendered for delivery
as being defective, to cancel the sale and
to refuse to pay for it. Had it done so it would have been acting in
accordance with
its rights and would have suffered no loss.’
[20] He summarized the evidence given on this aspect of
the case by Mr Soomar, which has been quoted above, and proceeded in
paras
23 and 24:
‘
Commendable though this
stance might be as an exemplar of honest dealing, and understandable
as it is given that the structure of
these transactions was dictated
by Mr Soomar’s Islamic faith, the problem remains that as a
matter of law the contract remains
one of purchase and sale between
Kingsburg and the plaintiff. It is not a loan by Kingsburg to the
plaintiff any more than there
was a contract of sale in respect of
the rice between Whitefields and the plaintiff. In terms of the
contract of sale Kingsburg
concluded with the plaintiff it undertook
to deliver rice of a certain description and it failed to do so. As a
matter of law there
is therefore no obligation on the plaintiff to
pay Kingsburg for that rice. The fact that it chooses to do so does
not give rise
to a loss recoverable from MSC.
Whilst I accept that the
transactions between the plaintiff, Kingsburg and Whitefields were
structured in the particular form that
I have described in order to
meet the dictates of the Islamic faith, that does not mean that the
court can treat them as if they
had a different form or give them an
effect other than that which they have in law. Nor has any evidence
been led before me to
show that what Mr Soomar described as a moral
obligation has, by virtue of its Islamic context, a specific legal
content. In other
words it has not been submitted, nor has any
evidence been tendered to show, that the conventional transactions
into which the
parties entered were, as between the plaintiff and
Kingsburg, overlain by a legal obligation arising from Islamic
principles, that
imposed a legal duty on the plaintiff to compensate
Kingsburg for its loss arising from the payment of the letter of
credit. Absent
any such evidence the obligation that the plaintiff
perceives that it owes to Kingsburg remains a moral and not a legal
obligation.
The fulfilment of such an obligation does not give rise
to loss of a character recoverable by way of the contractual claim
advanced
in this action.’
[21] The claim was accordingly dismissed.
[22] Mr
Shaw
QC, who appeared for the appellant, submitted that it
was overwhelmingly probable that persons acting on behalf of Samsara,
the
respondent’s agents in India, were complicit in the fraud
committed by White Fields and that the appellant’s main cause
of action was based on that fraud. All that had to be shown in the
present stage of the proceedings was that an amount was payable
by
the respondent to the appellant in consequence of the appellant’s
belief that it had received conforming cargo, which
belief had been
engendered by the fraud.
[23] He submitted further that the intervention of
Kingsburg did not relieve the respondent of its obligations to the
appellant.
He attacked the judge’s finding that it was open to
the appellant to reject the rice as being defective, to cancel the
sale
and refuse to pay for it. He contended that in an action between
the appellant and Kingsburg it would have been open to Kingsburg
to
say that it had intervened in the transaction solely as a financier
and that the appellant had no complaint against it for the
supply of
defective goods. Kingsburg could, he submitted, say to the appellant
‘we were not the true suppliers of the rice.
We undertook no
obligation that the rice would be in accordance with the shipment
sample received [which was of clean rice ready
for repacking]. Our
sole obligation was to make payment against a bill of lading which
complied with the letter of credit.’
[24] He thus submitted that the true substance of the
agreement between Kingsburg and the appellant was different from the
form
as set out in the documents.
[25] He pointed out that in order to obtain
delivery of the rice (which it believed to be as described in the
bills of lading) the
appellant had to enter into a transaction which
made it liable to Kingsburg, namely it had to accept the bills of
exchange drawn
on it by Kingsburg. He referred to the agreement
between the appellant and Kingsburg to the effect that after the
outcome of this
case there was to be what he called an adjustment of
rights between Kingsburg and the appellant. In the meantime Kingsburg
was
to receive the amount of salvage. He referred further to
Par
Excellence Colour Printing (Pty) Ltd v Ronnie Cox Graphic Supplies
(Pty)
Ltd
1983 (1) SA 295
(A), in which this
court held that a party which had settled a damages claim against it
and agreed to pay an amount set forth in
the settlement agreement,
was entitled to recover the settlement figure from the party legally
responsible for its having to pay
the damages and that it did not
have to prove the quantum, provided that it acted reasonably in
concluding the settlement. The
court referred with approval to a
decision of the English Court of Appeal,
Biggin
& Co Ltd v Permanite Ltd
Berry Wiggins
& Co Ltd
[1951] 2 All ER 191
(CA) in
which this principle was applied. Applying the
ratio
of that decision to the present case, Mr
Shaw
contended that it would, as he put it, have been ‘a
bold legal adviser’ who would have told the appellant not to
pay
what it owed to Kingsburg under the bills. If the appellant had
sought legal advice on the matter proper advice would have been
that
something should be paid. In view of the order for the separation of
issues made at the start of the case all the appellant
had to show at
this stage of the case was that it suffered some damage. The judge,
he continued, accordingly erred in holding that
the appellant
suffered no damage at all.
[27] In reply Mr
Mullins
SC, who appeared for the respondent, supported the
judge’s finding that the appellant had not sustained any
recoverable loss
and that the appeal had to fail on that ground.
[28] He submitted further that the
Par
Excellence
decision on which Mr
Shaw
relied was distinguishable in that the principle there
accepted applied only as to the quantum of a claim settled, in other
words
where it was clear that the liability of the party which
settled the action was unassailable. That that was the case in the
Par Excellence
matter
appears from what was said in the judgment at 308F–G.
[29] I do not think that there is any basis in the light
of the evidence given by Mr Soomar which has been set out above to
hold
that the relationship between the appellant and Kingsburg was
not what it purported to be and am in agreement with what the judge
held in that regard.
[30] I am further of the view that Mr
Mullins
was correct in
submitting that, absent liability on the part of the appellant to
Kingsburg, what one can call the
Par
Excellence
principle cannot be applied.
[31] It follows that the order made by the court a quo
was correct and the appeal must fail.
[32] The following order is made:
The appeal is dismissed with costs.
I G FARLAM
JUDGE OF APPEAL
APPEARANCES
APPELLANT: D J SHAW QC
Instructed by Mohamed Hassim Attorneys,
Durban;
Naudes Attorneys, Bloemfontein.
RESPONDENTS: S R MULLINS SC
Instructed by Shepstone & Wylie Attorneys,
Durban; Matsepes Attorneys, Bloemfontein.
1
The
Sarah
:
Hentiq
1320 (Pty) Ltd v Mediterranean Shipping Company SA Geneva
SCOSA D349.