KA DA WATCH CO LTD v. SKYWORLD AIR EXPRESS LTD

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JUDGMENT

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Nazareth J.:

1. This is an appeal by the plaintiff against the judgment of His Honour Judge Downey dated 2nd March, 1990, whereby the plaintiff was awarded US$760.00. The plaintiff asks for an order that so much of the judgment as adjudged that the plaintiff's claim was limited by provisions of an air waybill and the amended Warsaw Convention be set aside.

2. The facts are as follows. The plaintiff in 1988 contracted to sell a quantity of watches to IESA Electronic S.P.L. ("IESA") of Milan in Italy. It dispatched two consignments by air through the defendant. The first was in March 1988, and the second in July 1988. This appeal is concerned with the latter consignment, which weighed 38 Kilogrammes and had an invoiced value of US$10,950.00. It was carried by air from Hong Kong to Zurich and there delivered to the defendant's agent Natco Air, which delivered it to Pantransport Limited, IESA's agent. The latter sent it on by rail to Italy and at some later stage it appears to have come into the possession of IESA. But the plaintiff remains unpaid.

3. The house air waybill issued by the defendant clearly stated the consignee to be a named bank in Milan ("the bank") and "PAYMENT BY D/P (DOCUMENT AGAINST PAYMENT) AT SIGHT". So did the shipper's instructions given by the plaintiff to the defendant. But the instructions also added:

4. Natco Air, however, released the consignment to Pantransport Limited in breach of those instructions, without obtaining the bank release confirmation.

5. The plaintiff took out its writ on 20th March 1989, claiming that by reason of the unauthorised release of the goods, it lost the security under the D/P arrangement and the price of the goods in the sum of US$10, 950 which remains unpaid.

6. Many points were taken by the defendant in the trial below, but on appeal they have concentrated on that part of the pleaded Defence which alleged that clause 24(iii) of the house air waybill exempted the defendant from all liability, or alternatively limited that liability to US$20 per kilogramme.

7. By its reply the plaintiff responded that the defendant was barred from relying on any monetary limits by. the Warsaw Convention.

8. The trial judge rejected the defendant's claim to have acted as agents rather than as principals, and, alternatively, to total exemption, and awarded the plaintiff the sum of US$760 i.e. US$20 for each of the 38 kilogrammes.

9. In order to understand the first of the three grounds of appeal it is necessary to set out the material parts of articles 22(2)(a), 23(1) and 25 of the Warsaw Convention, and clause 24(i) and (iii) of the standard conditions in the house air waybill:

10. It is not in dispute that the Warsaw Convention, which is set out in Schedule 1 to the Carriage By Air (Overseas Territories) Order 1967, governs the carriage of the second consignment of goods, and that if the Plaintiff can show that the Defendant acted "recklessly and with knowledge that damage would probably result" in terms of article 25, the limits in article 22(2) would not apply. The relevant limit in the latter is the equivalent of HK$135.00 per kilogramme and therefore lower than that in clause 24(iii)(b).

11. The trial judge approached the matter in the following way at p. 16 of his judgment :

12. He then made a finding, which has not been questioned, that the defendant was reckless in releasing the watches without the bank's authorisation, and proceeded to address the chatter of the defendant's knowledge, stating that:

And concluding:

13. He accordingly found that the plaintiff had not discharged the onus of showing that the defendant was not entitled to rely on the limits of liability in article 22.

14. The plaintiff's first ground of appeal is that:

15. In considering the question of the defendant's knowledge, the damage that the trial judge addressed was the complete loss of payment for the watches and not the loss of security pleaded in paragraph 9 of the Re-Amended Particulars of Claim. It is not necessary to speculate upon his reasons for doing so. It seems quite clear to me that the loss of security in itself must be damage, and no less so because of conceivable difficulties in quantifying such damage. Significantly Mr. Dennis Law for the defendant was constrained to concede that it was a form of damage, though, he suggested not the actual kind suffered. Moreover, from the evidence and primary facts relied upon by the plaintiff, the inference that the defendant had knowledge that the plaintiff would probably lose its security is clear and irresistible. It follows that upon the view of the law taken by the trial judge i.e. that "the knowledge of probable damage must relate to the damage actually resulting from the 'reckless' act or omission", the appeal would succeed.

16. It is upon that view of the law that the plaintiff's first ground of appeal is premised. It was only at a late stage of the appeal when Mr. Johnson Lam for the plaintiff was submitting in reply that he suggested that the trial judge's view of the law, and of necessity, that taken in Goldman, might be wrong.

17. In Goldman (1983) 1 WLR 1186, Eveleigh L.J. held that "the damage anticipated must be of the same kind of damage as that suffered" principally because article 25 covers cases of damage both to the person and to property, but also for the other less tangible reasons he outlined at p. 1196 C-D. O'Connor L.J. agreed (p. 1200F) and also made the distinction between personal injury and damage to goods (p, 1200H). Purchase L.J., as can be seen from his judgment, also agreed with the interpretation of article 25 but relied upon the travaux preparatoires.

18. Mr. Lam suggested that the interpretation in Goldman might be wrong, in reliance simply upon the following passages in the 4th Edition of Shawcross and Beaumont's Air Law and the 26th Edition of Chitty on Contract:

19. With respect, these do not address the reasons given in Goldman. There was, in addition, no submission to the contrary, and the travaux preparatoires were not available to this Court. In these circumstances I do not think it right to consider a submission which was not raised in the Notice of Appeal and is indeed inconsistent with it; and which, if well founded would be at variance with highly respected authority.

20. By accepting that authority, ground 1 of the appeal likewise restricts the plaintiff's claim, as did the further and better particulars supplied in November last year, to the loss of security suffered by the plaintiff. The submission was simply that the judge misdirected himself that the kind of damage in question was non-payment of the purchase price. The possible view that in using the words "Kind of damage" Eveleigh L.J. did not intend them to be applied as strictly as the judge below did, but rather was merely differentiating between general heads of damage was not put forward. In Goldman, Eveleigh L.J. was concerned with the difference between personal injury and injury to property. In the present case both kinds of damage canvassed might perhaps be looked upon as "economic".

21. Be that as it may, for the reasons just mentioned this Court is concerned only with the loss of security, which, as I have said, must have been foreseen by the Defendant.

22. The second ground of appeal attacks the line of reasoning to conclude that although delivery to Pantransport actually did involve an obvious risk, Natco Air nevertheless did not know that the probable result would be complete non-payment. With respect to the judge, it is a line of reasoning not easy to accept. But the point is immaterial, for, as I nave already indicated, the plaintiff's claim, is limited to loss of security.

23. It is likewise unnecessary to express a firm opinion on the third ground of appeal, which suggests what I am inclined to think is possibly an overstrained construction of clause 24(iii).

24. Turning to the amount of the damages, this was assessed by the judge by reference to the limit of US$20 per kilogramme in clause 24(iii). The latter the judge held to apply upon the basis that although null and void in tending to fix a lower limit of liability by importing wilful misconduct from clause 24(i)(a), was nevertheless valid in so far as it was not a lower limit than laid down in the Convention. Having already been held to be null and void by the judge, it seems unlikely that clause 24(i)(a) could survive to provide that foundation, a fortiori given the provisions of clause 29:

Counsel were accordingly invited to make submissions on the point, which had not been raised in argument or the appeal papers. In the event this led to the question of whether. clause 24(iii) tended to fix a lower limit than that which is laid down in the Convention in terms of article 23.(1).

25. As to where such latter limit might be laid down in the Convention, Mr. Lam for the plaintiff was only able to point to article 18(1):

26. If I understood` him correctly, Mr. Law for the defendant, who relied upon other submissions, was prepared to concede that article 18 embodied some such limit, i.e. in the particular circumstance, "no limit". However, it seems to me that the words "laid down in this Convention" can be taken to suggest limits that are expressly provided and not that are determined by principles which themselves however certain, are manifestly not stated in article 18. I think that as opposed to that second limb of article 23(1), the first limb i.e. "tending to relieve the carrier of liability" affords a far clearer basis for resolving the point. Clause 24(iii) applies the limit of US$20 per kilogramme without exception, and in failing to make provision for those cases freed by article 25 from the limit in article 22(2) and which would otherwise exceed the limit of US$20, tends to relieve the carrier of liability. That in principle was the approach of Donaldson J. in Corocraft Ltd. v, Pan American Airways [1969] 1 QB 616 at 626G, in holding that an air waybill clause limiting liability to that in article 22(2) but without abrogation in the circumstances specified in article 25, was caught by article 23.

27. It follows that the limit in clause 24(iii) is thereby rendered null and void and does not assist the defendant. The plaintiff's appeal must therefore be allowed, and judgment entered for the value of the security which was lost. In my view the value of that loss should be judged at the time it occurred, having regard to the circumstances then prevailing. There is little evidence as to these, but a telex from IESA on the 4th November 1988 indicates that it was by then already in financial difficulties, making it seem likely that its credit rating a few months earlier would not have been high. I would therefore assess the damages at 90% of the purchase price i.e. US$9,855.

28. By its Claim and Notice of Appeal, the plaintiff asked also for interest. But no mention of such relief was made in its skeleton argument or counsel's submission on its behalf.

29. For all the reasons I have given, I would allow the appeal, enter judgment for the plaintiff in the sum of US$9,855 and as to interest, invite submissions from counsel.

Sir Derek Cons, Ag. C.J.:

30. I agree with my Lord and would likewise allow the appeal, enter judgment for the plaintiff in the sum of US$9,855 and entertain submissions as to interest if counsel so desire.

Kempster J.A.:

31. I have had the advantage of reading in advance the judgment just delivered by Nazareth J. and agree with him that the defendant, by its agent Natco Air, must have known that the plaintiff would lose its security for the price of the goods, being US$10,950, if such goods were released in the absence of Bank Release Confirmation. The effect of this conclusion, coupled with the trial judge's unchallenged finding of recklessness, is to render the limits of liability specified in article 22 of the Convention inapplicable by reason of the provisions of article 25. The question then arises as to whether, even though not asserted on behalf of the defendant, the provisions of clause 24(iii)(b) of the standard conditions in the waybill avail to limit liability to the figure awarded by Judge Downey or whether damages are at large as is prima facie the position under article 18 of the Convention.

32. In my opinion clause 24(iii) is null and void not only because it "does not make it subject to abrogation in the events specified in article ... 25" per Donaldson J. also with reference to a waybill purporting to limit liability, in Corocraft Ltd. v. Pan American Airways Inc. [1969] 1 QB 616 at p. 626 (Appeal allowed on other grounds) but also in that it necessarily fixes a lower limit of liability than that which is laid down in the Convention when, in the circumstances, no limit obtains. Taking no account of the French text which, under paragraph 4 of the Order in Council, does not prevail here as it does in England pursuant to section 1(2) of the Carriage by Air Act 1961, I understand the words "laid down in" appearing in article 23(1) to be the equivalent of "provided for by". To quote Lord Denning MR in Allen v. Thorn Electrical Industries Ltd. [1968] 1QB 487 at p. 502:

And if the words in question were to be thought ambiguous I would rely upon a passage from the judgment of winn L.J. in the same case, at p.509, which reads:

33. To like effect Lord Goff in Yien Yieh Commercial Bank Ltd v. Kwai Chung Cold Storage Co. Ltd. [1989] 2 HKLR 639 at p. 646:

34. I too would allow the plaintiff's appeal and order that judgment be entered in its favour for the value of the security lost and also invite submissions from counsel in relation to interest.

35. At the time when the goods in question were dispatched, during July 1988, payment for a consignment sent to IESA in March was still outstanding. The contents of a telex from IESA, received by the plaintiff on 4th November 1988, showed that the buyers were then in financial difficulty. In the premises it may be thought that, in the absence of security, payment for the goods was less than assured. To the best of my understanding the buyers have made no payment to date. But the value of that security cannot precisely be determined. However, as Vaughan William L.J. said in Chaplin v. Hicks [1911] 2 KB 786 at p. 792:

I am satisfied that the defendants will suffer no injustice if the value of the security lost is fixed at US$9,855, being 90 per cent of the price of the goods, as assessed by Nazareth J.