DICKSON WATCH & JEWELLERY CO LTD v. MOW TAI INSURANCE & REINSURANCE CO LTD

Insurance - claim under goods policy for loss following robbery - distinction between goods policies and liability policies - contractual measure of loss market replacement value - common ground policy covered both goods owned by insured and goods held only on consignment - whether for consigned goods the loss to be measured en basis of market replacement cost to consignor or consignee - position of consignor's profit in simple indemnity and non-loss of profits policy - whether construction of policy affected by trade custom or course of past dealings between parties - Held: 1. On facts no trade custom established to affect construction of policy; 2. On the facts Past dealings irrelevant to construction of policy; 3. Market replacement value meant the cost to the insured consignee of replacing the goods in the market which on the facts included the consignor's profit; 4. judgment for plaintiff for $2,315,546.50 increasing amount payable under policy from $8,522,123.05 to $10,838,669.55.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Action No. 7469 of 1984

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JUDGMENT

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1. The plaintiff owns a number of watch and jewellery shops in Hong Kong. One shop is situate in the Golden Mile Holiday Inn Shopping Centre, Kowloon. On 24th April 1984 robbers entered that shop and stele a large number of watches and jewellery. The plaintiff had insured the stock at the shop with the defendant under Policy No. MT-JB - 2076/83/5 for the period from 7th May 1983 to 6th May 1984.

2. At the date of the robbery the total sum insured was $14,500.000. The plaintiff claimed $10,842,189.05 under the policy. The defendant has paid $8,522,123.05 leaving a balance of $2,320,066 unsettled. This sum included a Cartier watch owned by a customer and left at the shop by its owner for repair at the time of the robbery. In opening, Counsel for the plaintiff indicated, that the plaintiff was prepared to delete this watch, valued at $3,519.50, from the claim, which reduced the amount in dispute to $2,316,546.50.

3. The disputed sum arises from the fact that at the date of the robbery some of the stock was owned by the plaintiff and some was in its possession on consignment from the owners. The defendant had paid in full that part of the claim relating to stock owned by the plaintiff. In relation to the remaining stock held on consignment, it recognised liability but contended that the measure of liability was the market value to the consignor of replacing the stolen stock for the consignee. At the hearing the principal issue which separated the parties was whether the proper measure of liability was the market value of replacing the stock to the consignor or the market value of replacing the stock to the consignee.

4. The approach of the plaintiff to this issue was pleaded in paragraph 7 of the Statement of Claim in these terms:

"7. The plaintiff says that it is an accepted practice and usage in the watch and jewellery trade that should a consignee failed '(sic)' to return to the consignor goods consigned to him, he is bound to indemnify the consignor on the price of the goods as stated in the accompanying consignment note."

 

Paragraph 10 gees on to plead that "market replacement value'' was intended by the parties to mean:

"…the value of the price charged by the plaintiff's consignors as stated in the accompanying consignment note as varied from time to time by notices from the consignors as a result of change of pricing by the consignors."

 

5. The defendant's contrary allegation was pleaded in paragraph 10 on the Amended Defence as follows:

"…The Defendant says that the term 'market replacement value', when applied to consignment goods, was intended by the parties to mean and did in fact mean the price which the consignors would have to pay to replace the stolen items so as to put all parties in the position they would have been in if the said items had not been stolen."

 

6. Before that principal issue was reached, a number of relevant factors ended up being undisputed. First, there was no dispute that the policy covered both stock owned by the plaintiff and stock held on consignment as the property insured was described in the policy as including:

Secondly, that the nature of the policy was a goods insurance and not a liability insurance policy. In other words, the policy insured the value of the stock and not the amount of any liability to third parties in relation to those goods. This important distinction between goods and liability insurance was referred to in Petrofina (U.K.) Ltd. v Magnaload Ltd. (1984) 1 Q.B. 127 which considered Hepburn v. A. Tomlinson (Hauliers) Ltd. (1966) AC 451 when the question of insurance of bailed goods came before the House of Lords.

7. Thirdly, it was common ground that strictly the value of the stolen goods was to be determined on the basis of their market replacement value as at the date of the robbery. This followed contractually from a variation to the policy known as Endorsement G, which came into effect on 6th March 1984. Endorsement G was in these terms:

"Valuation Clause:

It is hereby noted and agreed that claims if any under this policy shall be adjusted and settled on market replacement value basis at the time of loss. However should there be any lost item where the market replacement value cannot be established, settlement of such item shall be based on the original cost value plus a reasonable percentage but in no case exceeding 10% of the original cost provided the Sum Insured must be calculated on the same basis and adequate otherwise Average Condition shall apply."

Although not adverted to by either Counsel, market replacement value under Clause G was only the primary and not the exclusive measure of loss. If the market value were unascertainable resort has to be made to original cost value.  However both parties agree that in this case the market value is ascertainable.

8. From the evidence I am satisfied that it is a common practice of the watch and jewellery trade for wholesalers not only to sell goods to retailers but also to forward goods to retailers on consignment. In the instant action a large number of watches and some jewellery had been forwarded to the plaintiff on consignment. The consignors were UTC Far East Ltd.; Hong Kong Universal Jewellery Ltd.; Desco (Hong Kong Ltd.); Dickson Too (Holdings) Co. Ltd. and Artland Watch Co. Ltd. The consigned goods included 154 Chopard watches, 19 Audemars Piguet watches and 19 Concord watches. The Chopard watches, comprising the largest quantity of consigned goods both in number and value, were consigned by Dickson Too (Holdings) Co. Ltd. which is a separate Company to the plaintiff although some shareholders and directors are common to both companies.

9. The terms of the consignment notes vary from lengthy and detailed terms in the case of UTC Far East Ltd. to bare consignment notes in the case of Artland Watch Co. Ltd. The consignment notes, as a matter of law, constitute contracts of bailment. In practice, it appears that if the bailment is for a very short period of under 2 days the goods are at times referred to in the trade as merely being on approval, while if sent for longer periods, which may extend to several months, are commonly referred to as being on consignment. Whatever the length of time, in both cases the transactions are contracts of bailment.

10. The consignment notes usually expressly indicate the retail value of each item, which is the price the consignor recommends or anticipate, will be charged by the consignor to the customer. If a sale is effected by the consignee the amount which then becomes payable to the consignor is the so expressed retail price less the usual trade discount. The actual price charged by the retailer to the customer is irrelevant. The discount is often, but not always, endorsed on the face of the consignment note. In the case of the consignments disclosed in the action the discount was usually either 35% or 40%. This species of discount is widely known in the trade whether or not expressly recorded on a consignment note.

11. The plaintiff's claim in relation to consigned goods was for the consigned value of the goods less the appropriate trade discount. In other words, it recognised that it was not entitled to claim for its own loss of profit on the stolen goods. If the plaintiff had wished to recover loss of profits or any higher sum, for example an amount to include overheads, in excess of the value of the stolen goods, it was open to it to have obtained such a differently based policy. In that event no doubt it would have been obliged to pay a different structured and higher premium. The defendant, on the other hand, maintained that the sum payable was based not on the cost of the goods to the consignee but the cost of the goods to the consignor. This cost required a further deduction to be made equal to the consignor's profit on the sale of the consigned goods to the consignee.

12. In the latter event, I was informed, difficulties may occur in ascertaining the consignor's profit. A consignor may not wish to disclose his own profit to the consignee. In such cases the insurance company or its adjusters, with the consignee's consent, apparently often deal direct with the consignor. There are consignors who while unwilling to disclose their profit to the consignee, are willing to disclose this information direct to the insurance company. To preserve privacy, settlements of that part of a claim due by the consignee to the consignor are often made with the amount not being disclosed to the consignee.

13. In the instant case Dickson Too (Holdings) Co. Ltd., the largest consignor, declined to disclose its profit through either avenue and for commercial or ether reasons the defendant did not pursue similar requests to the other consignors. As a result the defendant does not know the amount of the various consignors profit. In those circumstances the adjusters advised the defendant that in its experience the normal profit of a consignor was in the region of 20%. Allowing a further 1C% margin, the adjusters recommended that 30% be deducted and that the plaintiff be paid 70% of the net consignment price, pending the proper legal basis of payment being determined. This was the principal basis on which payment of $8,522,123.05 was then made to the plaintiff by the defendant.

14. The action of the parties in attempting to quantify the sum due, by reference to the contractual liability of the parties under the consignment notes, is at first confusing and may even be misleading. If the insurance were a liability policy and not a goods policy stipulating market replacement value as the measure of liability, the position would have been different. For in the latter event the contractual liability of the insured as consignee to the consignor, under the consignment notes, would be the measure of liability the defendant would have to meet. However, here there is a goods policy under which the parties have expressly stipulated that the measure of liability is market replacement value.

15. I therefore hold that the sole criterion of measuring liability is the market replacement value of the goods at the date of the robbery, namely on 24th April, 1984. The next step is to determine that market value. The non-market methodology pleaded and adopted by both parties to establish market value tended to blur, rather than highlight, the distinction between goods and liability policies. Instead of attempting to analyse and review the actual market as at 24th April, 1984 both the parties and the defendant's adjusters have been content to rely on the plaintiff's computerised stock prices - which corresponded with the consignment note contractual prices - as the sole indicator of market value. This, of course, is an alternative open to the parties in order to ascertain market value. Once adopted on the instant facts the practical result is that the market value of the consigned goods, the value shown in the plaintiff's stock records and the contractual liability between consignor and consignee under the consignment notes, are the same.

16. However, no real harm will result from this approach provided it is not overlooked that the measure of liability remains market value and not contractual liability. Any coincidence in amount between these three fundamentally distinct criteria is perhaps the less surprising, in view of the trade practice under which a consignor informs the consignee of any change in value during the period of consignment and adjusts the contractual sum accordingly which in turn also leads the consignee to adjust his stock values. This dominance in practice of contractual prices has even spread from the parties to Counsel. For while both are emphatic that market value is the sole criterion, it is agreed between them that if I were to find for the defendant, then instead of attempting to assess market replacement value to the consignor, I am to assume that it is the net consignment price to the consignee less 20% being the amount of the assumed profit of the consignor.

17. The major dispute between the parties basically raises a question of construction of the policy. Mr. Lee, for the plaintiff submits that the plaintiff's wider interpretation of liability is supported by the terms of the policy itself; by trade practice; and by the past dealings between the parties.

18. I confirm that under the express terms of the policy the insured property includes not merely stock owned by the plaintiff but also stock held in its possession on consignment The law is well settled that a bailee has an insurable interest in bailed goods and may therefore insure goods merely in his possession as bailee for their full value - 'MacGillivray & Parkington On Insurance Law' (7th Edn.) 676. Where he does so and the bailor has not insured the same risk, no question of contribution as between different insurers arises There was no other, insurance in the present case. In accordance with settled principles of indemnity the bailee is entitled to recover the full value of the goods. Any amount recovered beyond his own interest is held by him on trust for the other interested parties - 'The Law of Insurance' Colinaux (5th Edn.) 50. Having already held that the present policy insures goods and not liability I further hold that the goods covered, include all these held on consignment. I also hold that while the consignors are not parties to the policy if the insured consignee recovers monies from the insurer, part of such monies will be subject to trusts in favour of the consignors who, as owners, have a proprietary interest in the stolen goods.

19. This leaves the remaining issue which, summarised, is whether the market value of the stolen consigned goods, is the value in the market to the consignor or to the consignee. Under the policy the defendant agrees to "indemnify" the plaintiff for the loss of the stolen goods subject to the conditions of the policy. The primary measure of indemnity under Endorsement G, which, it is agreed, is the sole measure of indemnity in this case, is market replacement value. However, the policy is silent on whether there is only one market or, if more than one, which is the appropriate market.

20. Mr. Lee for the plaintiff submitted that the policy fell to be construed in accordance with the normal principles of construction of contracts on which I was referred generally to 9 Halsbury's Laws of England (4th Edn.) 246 and more specifically in relation to contracts of insurance to 25 Halsbury 36. 1 appreciate the latter reference deals with marine policies where the general principles are at times different to the principles applicable to non-marine policies. The plaintiff submits that the provisions of the policy are solely consistent with the value of the goods to the consignee insured being the proper test. It was pointed out that parties to the insurance are only the plaintiff insured and the defendant insurer; that the risk covered was robbery; the risk has occurred; that the defendant is liable to meet the plaintiff's loss; that the loss to the plaintiff is the cost to the plaintiff of replacing those goods in the market.

21. Mr. Chang for the defendant disputes that the replacement value is the cost to the plaintiff of replacing the stolen goods in the market and contends that their market value is the cost to the consignor in providing the plaintiff with replacement goods. The defendant submitted that in terms of at least some of the consignments, the liability of the consignee to pay the consignor only arose on a sale being effected by the consignee to a customer. No sale was effected in the case of any of the consigned goods. All of the consigned goods were stolen before that possibility had arisen. The market demand for the goods has not been affected as none have been sold in the market.  So it is only the goods which have disappeared and not the market.  Accordingly, all that in fact will happen as a consequence of the robbery is that the consigner will replace the stolen consigned goods at the market price of the goods to the consignor. The consignor will in due course receive its profit on those replacement goods if a sale by the consignee is effected on precisely the same basis as any sale which may have eventuated in respect of the prior consignment if the goods had not beer stolen. The consignor, it is submitted, is therefore fully indemnified. If the indemnity were to include the consignor's profit on the stolen goods it would upon the replaced goods being sold be receiving a double profit. In that event the sum paid by the defendant would be in excess of the obligation to indemnify merely for actual loss.

22. This submission was attacked by the plaintiff on several grounds. First, it assumed that the consignor would continue its business relationship; be willing to replace the stolen goods; and await the prospect of a future sale. Secondly, it assumed that the consignor would be able to obtain replacement goods from the manufacturer. If the basis of indemnity was other than loss to the insured plaintiff, there was no reason in principle, why the liability of the insurer should not be based on the cost to the consignor but instead oh the cost to the manufacturer. The practical difficulties of obtaining profit margins from the more remote manufacturers would be even greater than the present recognised difficulty in obtaining profit margins from wholesalers. These difficulties, it was submitted, flew in the face of commercial practice and business efficacy which highlighted the absurdity of the interpretation sought by the defendant.

23. The defendant rejoined that the assumptions referred to by the plaintiff were all reasonable. The continued existence of the market was inherent in the provisions of Endorsement G; a continued course of dealing based on market prices between the consignors and consignee was probable. Reference was also made to the evidence of the defence witness, employed by the adjusters, that if a consignor was reluctant to replace stolen goods, merely at the cost of those goods to the consignor, the adjusters would quickly inform the consignor that it would be unreasonable not to do so and unfair to claim his profit on the stolen goods as if the goods had been sold by the consignee. In the defendant's view the position of the manufacturer was irrelevant because of the distinction that the wholesaler, as consignor, had a proprietary interest in the insured goods as owner, while the manufacturer had no proprietary interest in the insured goods.

24. Counsel for the plaintiff went on to submit that quite apart from the terms of the policy, the trade custom was for watches on consignment to be subject to the condition that they were held by the  consignee on a pay or return basks. In other words the consignee was obliged to either return the goods or pay the consignor for them. If they could hot be returned it mattered hot to the consignor whether they were sold, lost or stolen. The consignee, if he was unable to return them, was obliged to pay. Finally, Counsel for the plaintiff went on to argue that in addition to the terms of the policy and trade custom, the past dealings of the parties supported the claim that market replacement value was to be ascertained by the market cost to the consignee of replacing the stolen goods based oh the existing consignment notes.

25. The plaintiff called a number of witnesses to give direct evidence of actual transactions in the watch and jewellery trade of which they had personal knowledge. These witnesses were Mr. John Chan; Mr. Michael Lau; Mr. K.F. Poon; and Mr. Samson Lee. Mr. Chan is a director of Menichini Treasures Ltd.,Massoni Treasures (Peninsula) Ltd., and Massoni Treasures (Mandarin) Ltd., having shops at the landmark, Peninsula Hotel and Mandarin hotel and whose business includes the sale of watches. Mr. Michael Lau is the Sales Executive of Desco(Hong Kong) Ltd., a watch wholesaler and one of the consignors of the stolen goods. Mr. K.F. Poon, an uncle of Mr. Dickson Poon, is the Manager of Precision Watch Company, 37 Queen's Road, Hong Kong which is owned by Mr. K.K. Poon, the father of Mr. Dickson poon. Mr. Samson Lee is an accountant who, since 1st January 1984, has been the Financial Controller of the Dickson Group of companies which includes the plaintiff.

26. Parenthetically, I should at this stage refer to the fact that during the trial there was some dispute in relation to whether persons giving evidence of trade custom were expert or ordinary witnesses. The plaintiff had not made any pre-trial application under Order 38 r.38 for calling expert witnesses and so the restriction under Order 38 r.36 applied. The defence objected to the calling of expert witnesses at the trial. There are a number of alternative methods open to a party seeking to adduce evidence of a trade custom or usage. One alternative is that direct evidence may be adduced as to actual instances within witnesses personal knowledge. This type of evidence is recognised by 'Phison On Evidence' (13th Edn.) para. 9-29. Where this alternative is adopted the evidence may be given by an ordinary witness and it is not necessary to establish his status as an expert witness. Although the weight to be given to the evidence of such an ordinary witness may be affected by the occupation or experience of the witness. The latter qualities may in some cases establish him as an expert but this is not essential, so long as he limits his evidence to transactions within his own actual knowledge and refrains from expressing an opinion. Of course it is also open to an expert witness not only to offer his expert opinion but to give direct evidence of facts within his knowledge.

27. In the event, the plaintiff only called witnesses to give evidence of actual transactions within their own knowledge. At one stage it was intimated that another witness, who was prima facie an expert, was to be called but in the event he was not called. For completeness I should add that a similar position arose when the defence called Mr. T.T. Leong the Joint Managing Director of Mclaren Dick & Co. (Asia) Ltd., insurance adjusters. Mr. Leong commenced to give evidence of the settlement of actual claims by his Company. At that stage leading Counsel for the plaintiff was hot in Court but his junior objected to the evidence on the ground that the defence had not challenged the plaintiff's witnesses who gave evidence on trade custom. No objection was made that Mr. Leong was purporting to give expert evidence oh matters of opinion or otherwise. The objection was overruled. The witness continued to give direct evidence of three particular claims in which his Company had acted as adjusters. Counsel for the defendant had handed opposing Counsel a copy of the witnesses pre-trial statement and when the witness reached the fourth case, by consent of junior Counsel for the plaintiff, the particulars of the fourth case were read into the record by the witness from the statement. Before this was done any statements of opinion in relation to the fourth case were deleted.  In the event the evidence of Mr. Leong was limited to direct evidence of claims which his Company had settled.

28. In principle the evidence of Mr. Leong did hot differ from the evidence of the ordinary witnesses called by the plaintiff in respect of trade custom and usage. When later leading Counsel for the plaintiff's returned into Court an adjournment was granted for him to consider the matter. Objection was then taken to the evidence of Mr. Leong on the ground that it was only admissible as expert evidence. Before the Court ruled on the objection, both leading Counsel reached an agreement on Mr. Leung's evidence which it is desirable to set out. Counsel for both parties agreed that they would not rely on any part of Mr. Leong's evidence and pursuant to the terms of that agreement leading Counsel for the plaintiff did net proceed to cross-examine Mr. Leong. I am satisfied that Mr. Leung's evidence was limited to direct evidence of actual claims within his knowledge as the Joint Managing Director of the adjusters. However, in accordance with Counsels agreement I have expressly refrained from giving any weight to his evidence. Although I record that had I done so it would not in any event have affected the conclusion I have reached in this judgment.

29. Counsel for the plaintiff submitted that the principle was well established that the insurer is presumed to know the practice or usage of the trade in connection with which he issues a policy of insurance referring to the judgment of Lord Mansfield C.J. in Noble v. Kennoway 2 Doug. K.B. 510; (1775-1802) All E.R. Rep. 439. The clearly established trade practice, it was submitted, was that goods were consigned on a pay or return basis. On proof of trade custom and usage I was referred to 'Phipson On Evidence' (13th Edn.) para. 9-28, 29 and 30. The latter reference draws a distinction between business usage and common law custom. The former is more easily proven; it need not be long established or strictly uniform. It is sufficient if it is reasonably certain and so notorious and generally acquiesced in that it may be presumed to be an ingredient in the contract. Similar statements appear at 12 Halsbury (4th Edn.) para. 450 et. seq.

30. Counsel for the defendant, after emphasising that the measure of loss was market replacement value, submitted that before the nature of the loss in respect of consigned goods could be ascertained it was necessary to examine the terms of each consignment note. The terms varied but none of them expressly provided that, if the goods were stolen, the consignee was liable to pay the consignor the amount stipulated on the consignment note less the usual discount. In other words, none of the consignment notes required the consignee to pay the consignor on goods being stolen, the same price, including the consignor's profit, as if the goods were sold. The Court, it was submitted, only had before it non-expert evidence that some witnesses understood that was the position which did not establish trade custom or usage. In any event, it was submitted, custom cannot be relied on to modify the natural meaning of a policy and is not relevant in relation to the present policy. I was referred to "The Law of Insurance'' Colinvaux (5th Edn.) para. 2-12 which concludes:

"In fact it is rare for a plea of custom to be raised, and still rarer for it to succeed, in nonmarine insurance cases."

31. The final submission of the plaintiffs was that the past dealings of the parties, supported its claim that the market value loss to the plaintiff was the amount payable by the consignee to the consignor. The factual basis of this submission was that the present claim arose from the third robbery of different shops insured by the defendant under similar policies and owned either by the Dickson Group or the Poon family. The first robbery occurred on 18th November 1981 at the premises of the Precision Watch Company, 37 Queen's Road Central, Hong Kong; the second robbery occurred on 5th January 1984 at the premises of Dickson Watch & Jewellery Co. Ltd., East Arcade, Peninsula Hotel, Kowloon; the present robbery occurred on 24th April 1984 at another shop of Dickson Watch & Jewellery Co. Ltd. at the Golden Mile Holiday Inn Shopping Centre, Kowloon. The policies were substantially the same in each case. The plaintiff claimed that the defendant in the earlier two robberies met the insureds claims calculated, in respect of consigned goods, on the consignee's liability to the consignors which sum included the consignors profit. All of the policies provided that the loss was to be measured on the basis of market replacement value.

32. If the plaintiff's allegations are correct, then these claims would also be other examples of the parties being content to ascertain market value not by reference to current market dealings at the date of the robberies but simply by accepting the common values appearing in the consignment notes and stock lists. Counsel for the defendant submitted that the previous dealing ground, was in disguise basically the same as the estoppel issue raised by the plaintiff in its Reply but since abandoned. The defence denied that the settlements of the prior claims included to the knowledge of the defendant any consigned goods. Further, as the previous claims were settled by agreement between the parties it followed that because of the nature of such settlements they could not give rise to any past course of dealings between the parties that could affect the construction of the present policy in the instant claim.

33. Against the background of those submissions L turn now to construe the policy. Under the policy the plaintiff is the, insured and the defendant is the insurer. It is common ground that the consigned goods were stolen and that the defendant is liable to the plaintiff, in terms of the policy, for the loss suffered by the plaintiff. Any claim made by the defendant for any such loss is, in accordance with Endorsement G, to be settled on market replacement value at the time of the loss. After considering the contents of the policy in the light of the factual circumstances of the robbery, I would have thought that the proposition that the market replacement value of the stolen goods was the cost to the insured of replacing these goods in the market, would have been unanswerable.

34. However, I have listened to lengthy and at times complex submissions, nearly all of which require at least some qualification to that otherwise apparently unambiguous proposition. Indeed, the defence submission, while insisting that there is but one market, requires the substitution of the market cost of replacement to the consignee with the very different concept of the market cost of replacement to the consignor. Although I recognise that the same cost on that approach might, but not necessarily would, consequently become the actual cost to the consignee.

35. Notwithstanding all these submissions and the considerable number of authorities cited, the primary task to look at the contents of the policy remains. I do so in accordance with the general principles relating to the interpretation of non-marine insurance policies which are collected at 25 Halsbury (4th Edn.) paras. 410 et. seq. which starts off with the broad proposition in paragraph 410 that:

"A policy of insurance is a document in writing; it is a contractual document and a commercial document, designed to fulfil well recognised commercial purposes and presumed to be made with due regard to well recognised commercial habits and practices."

36. That statement gives rise to a number of subsidiary rules including the important principle that it is the actual language of the policy that must be construed; that words must be given their ordinary meaning; that the parties intention is paramount; in the case of ambiguity business efficacy is a proper aid to construction and that where ambiguities do arise the contra proferentem rule may be applied in favour of the insured.

37. I recognise too, that in certain circumstances extrinsic evidence may be admissible to establish the existence of a trade custom or usage. The plaintiff pleaded and strongly argued that the policy had to be construed subject to the trade custom that consigned goods are subject to the absolute pay or return condition. On the evidence I am not satisfied that such a custom has been established. The variety of conditions on the various consignment notes alone would seem to negate the existence of such a custom. Goods may be consigned on whatever conditions the parties agree. The consignment notes produced in evidence reflect a number of different approches. Where, as in the case of the consignments made by Artland Watch Co. Lto. no conditions are endorsed on the consignment note, it may be necessary to consider, on the facts of a particular consignment, the conditions which may properly be implied. However, not only the consignment notes but the evidence as whole falls far short of establishing any trade custom in respect of consignments generally.

38. I am also satisfied that the plaintiff's third submission, which invoked past dealings between the parties, does not assist in the construction of the present policy. I accept that the provisions of the policies were the same. However, each of the two prior claims were settled on a basis which also falls far short of establishing that the parties to the instant policy intended that claims thereunder involving consigned goods would be settled on the basis of the price charged in the consignment notes less the normal trade discount.

39. I therefore proceed to construe the policy, unaffected by considerations relating to either trade custom or past course of dealing. The plain words of the policy indemnify the plaintiff for its loss. The agreed measure of that loss is market replacement value. The market in which the plaintiff participates, in relation to consigned goods, is that provided by consignors, itself and other consignees. The market replace ment value, prima facie, is surely the terms on which consignees in that market can obtain goods from consignors. The evidence overwhelmingly establishes that consignees generally obtain goods from consignors at prices listed in the consignment notes less the normal trade discount. That net price eliminates the consignee's profit in the event of sale and consequently corresponds with the sum payable by an insurer under a simple indemnity as distinct from a less of profits policy. I am not satisfied that there is a separate replacement market distinct from the general consignment market where different principles apply.

40. I appreciate that the reference to market replacement value in the policy does not expressly specify a particular market. I recognise too, that for manufactured products which are distributed through wholesalers and ultimately sold by retailers to consumers there are a number of markets.   There is at least a market between manufacturers and wholesalers; a market between wholesalers and retailers; and a third market between retailers and consumers. Counsel for the defendant put forward an argument, which in isolation may be attractive, based on the evidence of one of his witnesses. Namely, that the market practice is for the consignor to replace goods stolen from the consignee subject only to receipt from the consignee's insurance monies, of a sum equal to the consignor's replacement cost. In other words, the consignor does not require payment of his usual profit where goods are hot returned because they are stolen. The evidence did not establish any such trade practice.

41. I also note that none of the consignment notes expressly created any similar contractual right in favour of the consignee. The evidence of the defence witness who elaborated oh this issue reflected the absence of any contractual right when he tated that the adjusters would attempt to use their influence to encourage the consignor to replace the stolen goods, merely at the cost to the consignor. Whether a consignor would place stolen goods on this basis would be his unilateral decision dependent oh his personal whim. It may be that some consignors would be willing to replace stolen goods en this basis. At the other extreme, as the plaintiff mentioned, a consignor might refuse to deal further with the consignee who might then, particularly where there was a sole distributor, have to replace the stolen goods by purchasing from another retailer, in which case the price would no doubt be even higher than the normal cost to a consignee, on the consignment market. These were all possibilities hone of which were established in evidence as a probability. I must therefore return to the consignment market.

42. In doing so, I am well satisfied, that business efficacy does not favour the defendant's interpretation of the policy. That interpretation would require the consignor to reveal his profit at least to insurer. However, he could not be compelled to make such disclosure and that is precisely the problem arising in the present case. There was evidence that in other claims this problem has been circumvented by the insurer dealing direct with the consignor. This again requires the consignor, who is not a party to the policy, to make voluntary disclosure to the insurer with whom he is not a contracting party. However, it also requires the voluntary consent of the insured. If either consignor or consignee refuse to give their consent the profit margin of the consignor can only be estimated. Where a consignor is prepared confidentially to disclose his profit to the insurer the privacy of such an informal arrangement can still be frustrated by the insured insisting upon his contractual right to receive the whole of the settlement monies. After the consignee deducts such portion of those monies to which he is beneficially entitled, he can then ascertain, in discharging his duty as trustee to account to the consignor for the balance, what the consignor's profit on the stolen consignment would have been.

43. I appreciate that if the parties endeavoured to establish market value, independently of the actual prices for the consignments affected by the robbery, only some of these difficulties would diminish. The reality is that is the practice the parties prefer to adopt to ascertain market value. Certainly the prices of any consignment, including those for goods later stolen, would at least be some evidence of market value. Nor need the practice be too quickly criticised as simply an alternative of convenience. For there was evidence that for some particular watch brands there is a sole or exclusive distributor in Hong Kong. Where this position arises it creates, in economic terms, a monopolistic market for that brand. The market price which consignees have to meet for watches of that brand is the price the single consignor stipulates. This not uncommon situation, is an example of where the sole price charged by one wholesaler in the market, necessarily represents the market price for that commodity.

44. The obvious difficulties which would invariably face the contracting parties to a policy of insurance in obtaining, directly or indirectly, from a non-contracting party, sensitive and confidential information relating to that non-contracting party's own profit, have already been highlighted in this present action. It is reasonable to assume that similar difficulties would occur in other cases. Where that occurs the contracting parties are left with, at best, estimates and speculation. In the light of these factors it would be highly unlikely that the parties to a policy of insurance, would have intended that the settlement of a claim, would be based on a particular market value when neither party would necessarily have direct knowledge of the prices in thet market. Still less, when neither party could contractually ascertain the particulars of that market under any powers of disclosure. On the other hand, if the appropriate market is the consignment market, the prices therein are known to the insured as a participant in that market. If they are not known to the insurer they can be obtained by the insurer, as of right, under the disclosure and other contractual powers of the policy. In my opinion the opposing views of the defendant, particularly in the case of a commercial contract of insurance, are untenable. All the factors properly relevant to the construction of the policy, including the contra proferentem rule, point compellingly to the contrary.

45. Accordingly, I hold that the market replacement value of stolen goods is to be ascertained in accordance with the market prices, consignees have to pay consignors, for the same or similar items. The prices in this particular market, I further hold, are inclusive of the consignor's profit but, of course, are exclusive of the consignee's profit. I confirm that in the event of my having reached this conclusion, both parties have agreed that the market replacement price should be ascertained by reference to the prices appearing in the consignment notes. In accordance with that agreement, it follows from my earlier findings, that the defendant was not entitled to deduct from the $10,842,189.05 claimed, the sum of $2,316,546.50 being its estimate of the consignor's profit plus the 10% margin recommended by the adjusters.

46. There will therefore be judgment for the plaintiff in the sum of $2,316,546.50. The parties have already indicated that once this principal issue were determined, they wished to make further submissions on the question of interest and also on costs for which leave is now reserved.