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 judgment1 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

1 The  Sarah: Hentiq 1320 (Pty) Ltd v Mediterranean Shipping Company SA Geneva SCOSA
D349.

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.

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
30 March 2012

STATUS: Immediate

Hentiq 1320 (Pty) Ltd v Mediterranean Shipping Company (166/11)

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

The Supreme Court of Appeal (the SCA) today dismissed an appeal from the
KwaZulu-Natal High Court, Durban finding that the appellant, Hentiq 1320 (Pty) Ltd
could not recover damages from the respondent, Mediterranean Shipping Company
in respect of the appellant’s moral liability to a third party.

The appellant had concluded a contract with a third party, White Fields, to ship rice
from India through three ships belonging to the respondent. The appellant had used
another third party, Kingsburg, to finance the deal. The contract of purchase and
sale for the shipped rice was concluded between White Fields and Kingsburg.
Kingsburg on-sold the same cargoes of rice it bought from White Fields to the
appellant. It was subsequently discovered on delivery of the rice that the cargoes of
rice that had been shipped were different from what the respondent had recorded on
the bill of lading it issued. The appellant nevertheless felt morally obliged to pay
Kingsburg for the cargoes of rice because according to the appellant, Kingsburg only
financed the deal and was not the true supplier.

The high court held that since the contract of sale was concluded between
Kingsburg and White Fields, the appellant could not establish any recoverable loss
against the respondent as Kingsburg was the party that had suffered a recoverable
loss.

On appeal, it was argued on behalf of the appellant that it was probable that the
respondent’s agent in India was complicit in the fraud committed by White Fields to
deliver the wrong goods. It was argued that the true substance of the agreement
between Kingsburg and the appellant was different from the form as set out in the
documents which made Kingsburg the purchaser of the goods. The appellant relied
on the decision of Par Excellence Colour Printing (Pty) Ltd v Ronnie Cox Graphic

Supplies (Pty) to argue 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 responsible whose actions had led to its
having to pay the damages.

The SCA held that 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.  The SCA held that in the
light of the evidence given on behalf of the appellant, there was no basis to hold that
the relationship between the appellant and Kingsburg was not what it purported to
be. The court also held that this case was distinguishable from the Par Excellence
decision on the basis that legal liability on the part of the appellant to Kingsburg had
not been proven.

The appeal was consequently dismissed with costs.

-- ends --