DENSE BILLION LTD v. HUI TING SUNG AND OTHERS

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JUDGMENT

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Liu JA:

1. The plaintiff was the owner of a quantity of silk fabrics. The defendant was a transportation company and it undertook the overland carriage of the silk fabrics from Nam Hoi, across the border to Hong Kong. The third party was a driver of the defendant.

2. On 11 November 1992, the third party drove the defendant's three-ton lorry, carrying the said quantity of silk fabrics from Nam Hoi for delivery to the plaintiff's premises at San Po Kong. He reached his home in Hong Kong at about 7 p.m. He parked the lorry in the vicinity and found it missing the next morning. The lorry was recovered some days later but without its load of silk fabrics. The plaintiff sued the defendant for the sum of $475,863.45 and interests together with costs. In third party proceedings, the defendant claimed an indemnity from the third party driver against whatever judgment debt it had to pay and its costs of defending the action.

3. On 19 April 1995, Mr Justice Findlay dismissed the plaintiff's action against the defendant. This is the plaintiff's appeal against that dismissal. In the respondent's notice, the defendant reiterates its claim for, inter alia, the same indemnity against the third party driver.

4. On the facts found proved by the judge, the relationship of a bailee for reward unquestionably arose. The judge accepted that the defendant had instructed the third party driver to park the lorry "only in the defendant's carpark or any place designated by the owner of the goods", that "there was a risk that contents of a (lorry left) unattended" would be stolen and that the purpose of these instructions "was to minimize the risk of theft". It was also established that the defendant had caused the mobile telephone or pager number of its Miss Lau to be given to the third party driver for late arrival after 8 p.m. In the context, the evidence focused on unattended open-parking, and the judge described the order given in the instructions to the third party driver as "a mandatory requirement". In terms of unattended open-parking, the judge was satisfied that the whole exercise was to reduce the risk of theft. Except for the padlocks provided by the third party driver for the goods compartment, there were no other security precautions taken.

5. The judge concluded that "by failing to carry out instructions, failing to park the loaded vehicle at the defendant's carpark, and by failing to contact Miss Lau to receive instructions, (the third party driver) was in breach of his obligations under the contract of employment". (Emphasis supplied). In this sense, the third party driver was said to have been "in breach of his contract with the defendant". The judge asked himself the correct question: "was the third party also negligent?" The judge continued: "negligence is the breach of duty of care, so one has to examine the nature of duty before deciding whether or not there has been a breach. Clearly, the third party had a duty towards the defendant to take care of the goods". (Emphasis added). It was on the basis of the driver's duty of care as the agent of a bailee for reward that the judge should have proceeded to resolve the simple question posed for his consideration at the trial.

6. As a bailee for reward, the defendant owed a duty of care to the plaintiff in the safe keeping of the goods. In discharging that duty of care, "it (was) impossible (for the defendant) to say that no precautions needed to be taken", however slight the foreseeable risk of loss, having regard to the value and ready disposability of the silk fabrics. Pitt Son & Badgery Ltd v. Proulefco SA, (1984) 52 ALR 389 at p. 391. The risk of loss by theft in unattended open-parking in Hong Kong was foreseeable by the defendant. The defendant took great pains in urging compliance with its said instructions for minimising that risk. Despite what the third party driver said about never having "heard of any theft from this open space" with 40-70 vehicles left there over night, he did not exclude the risk of theft nor condemn the "mandatory requirement" asked of him as being pointless. He merely asserted that he defied his company's instructions for personal convenience and that his company's car park in Sun Tin had never been used before (not, be it noted, after) 11 November 1992. These mandatory instructions were given to the third party driver when he was employed. They were "standing instructions", and Miss Lau impressed upon the third party driver on the day in question to park his lorry in the defendant's car park which was fenced with a locked gate. A contact number was left with him. In fact, the judge found it to be his mandatory employment obligation. "The third party knew he was carrying a valuable cargo". It is incredible, in the circumstances, for the defendant to claim that all reasonable care had been taken of the silk fabrics by leaving it unattended in a lorry parked in an open space near the driver's home. The third party was negligent. If a bailee for reward should entrust the duty to the care of the goods to his servant or agent, he is equally answerable for the acts or omissions of his servant or agent. Port Swettenham Authority v. T W Wu & Co. (M) Sdn Bhd [1979] AC 580 at p. 590B.

7. A bailee for reward is obliged to return the bailed goods safely at the end of the bailment, and he could only escape liability by discharging his burden of proving that he had taken appropriate care or that his failure to do so did not cause the loss. See British Road Services Ltd v. Arthur V. Crutchley & Co Ltd, [1968] 1AER 811 at pp. 820a & 824 C & G. That is all of the applicable principles one needs to remind oneself of.

8. The judge did not focus on the liability of the defendant as a bailee for reward, nor on the negligence arising from his breach of duty of care through its driver, the third party. The judge seems to have overlooked the bailee's burden of proof. The judge was swayed by submissions made on the wholly irrelevant decision of Weld-blundell v. Stephens [1920] AC 965.

9. In Weld-Blundell v. Stephens, the plaintiff principal gave his defendant agent a libellous letter which was carelessly left by the agent's partner at the office of one of the three persons defamed. Two of the persons defamed sued in libel and recovered damages from the principal who sought in the action to recoup his loss from the agent. The issue was whether the principal could recover substantial damages against the agent for his negligence. The Law Lords were divided 3 to 2 : The majority held that the principal's liability for damages, which the principal had brought upon himself by his libel independently of the agency relationship, was not the direct consequence of his agent's breach of duty. In terms of causation, clearly the principal's libellous letter was not a consequence of the agent's negligence. See p. 995, per Lord Dunedin who at pp. 981-2, laid stress on causa causans and causa sine qua non. See also p. 998, per Lord Wrenbury. Their ratio was unconcerned with a principal's vicarious liability for his agent. The minority view expressed in their Lordships' House was that the institution of the action for recovering those libel damages was the direct consequence of the agent's breach of duty, i.e. the agent made it possible for the claimants to go to court. See pp. 970 & 986. Again, it was not based on vicarious liability.

10. In this case, loss was caused by the driver's own negligent act. The third party driver as agent was a "mere conduit pipe through which consequences" flew from the principal (defendant) to the claimant (plaintiff). See Weld-Blundell v. Stephens, supra. p. 986. The principal (defendant) here was sued on its own negligence and on his vicarious liability for its driver's negligence. The negligent act of the driver as its agent, for which the defendant was vicariously liable, happened to be also a breach of his contractual duty with the defendant as principal. In Weld-Blundell v. Stephens, there was no question of vicarious liability but simply a breach of the agent's duty to his principal. But for that breach of duty, the principal's libel would not have been made known and the loss flowing from it would not have been sued for. What was under consideration in Weld-Blundell was the agent's liability to his principal, not to the claimant, as to whether or not he, the agent was liable to recoup his principal for the libel damages which his principal had paid or "to give reparation for the damage done". Weld-Blundell v. Stephens, supra. at p. 986. Moreover, as Findlay, J. rightly pointed out, in that case the degree of foreseeability of loss on the part of the agent for attracting liability must be "fairly high", "at least.....something very likely to happen". In Weld-Blundell, a different concept in liability was examined and a different test of an agent's liability was canvassed, hence an entirely different question was under review. It was also not a case of bailment where the bailee would be responsible for the safe return of bailed goods.

11. Insofar as his conclusions on facts and in law were drawn upon the decision of Weld-blundell v Stephens, the judge cannot be supported. Insofar as his findings were made or purportedly made against the plaintiff independently of Weld-blundell v Stephens but apparently on a different burden of proof, such as "the loss was (in this case not) even reasonably foreseeable", "it is not alleged that the defendant suffered any loss as a result of any breach of this duty (duty of care)", "(the defendant) took all reasonable care of the goods in its custody", they run counter to the weight of the evidence led on behalf of the defendant he had accepted and are erroneous.

12. I ought to deal specifically with ground 4(f) of the Notice of Appeal. By ground 4(f), the plaintiff as appellant rests its challenge to the judge's dismissal on the contention that the judge should have held the defendant liable for the loss of silk fabrics because of its failure to fit the vehicle with any anti-theft devices or alarms. Suffice it to say that pleading difficulty aside, there was no evidence to suggest that extra anti-theft installations were at all necessary in the light of the defendant's mandatory instructions or that they would effectively increase security against theft or that their absence in fact caused or contributed to the actual loss in this case. This ground fails.

13. The defendant had given adequate instructions for meeting "the risk of theft" it had foreseen, but the defendant stood vicariously liable for its driver's breach of "a mandatory requirement" in his terms of employment by negligently parking the lorry in a place, particularly an open space other than that stipulated in the mandatory instructions so that risk of theft was not minimised or altogether avoided. The defendant did not discharge its burden of proof that it had taken appropriate care for the bailed goods. It is therefore liable to the plaintiff as claimed.

14. Damages in the sum of $475,863.45 were implicitly found proved by the judge. Save for the "exemption clause" and "scope of employment" to which I will soon turn, this appeal should be allowed.

15. Was the third party driver acting within the scope of his employment? Not every deviation from the manner in which a task is to be performed would take it out of an employee's course of employment. It is largely a matter of degree. Whether disobedience to instructions given would take the performance out of an employee's course of employment would generally depend upon whether it provides merely a different mode of carrying out the task or whether it in fact constitutes a different "class of act which the employee is employed to perform". See paras. 5-30 & 5-23 at pp. 181 & 177 respectively. Clerk & Lindsell on Torts, 17th Ed. The third party driver was instructed in his employment to deliver goods from Nam Hoi to San Po Kong. He interrupted the journey for the lateness of the day and it was to be resumed, delivery made the very next morning. It was an arbitrary selection for his own convenience of a less safe place to park. The judge concluded that the instructions given "had an impact only in the way the third party was enquired to carry out the work he was employed to perform". I am in entire agreement with that conclusion.

16. Finally, the exemption clause: there is no disagreement as to how clause 6 should in effect be read, that is to say, "During transport, all risk caused by wind or fire or water and other accident shall be the responsibility of the consignor." It is conceded that clause 6 was part of the contract. In Canada Steamship Lines Ltd v. The King [1952] AC192 at p. 208 in delivering the judgment in their Lordships' House, Lord Morton of Henryton said this:

17. Negligent was not expressly referred to in clause 6. I agree with the judge that the language of clause 6 was not wide enough, in its ordinary meaning, to cover negligence. In any case, wind, fire or water accidental risks are clearly referable to other exempting grounds than that of negligence. However, the third criteria in Canadian Steamship and section 7(2) of the Control of Exemption Clauses Ordinance need not be considered. I would uphold the interpretation of the judge.

18. It is quite unnecessary to deal seriatim with the grounds of appeal and the matters raised in the respondent's notice. For the reasons I have given, I would allow the appeal, set aside the order of the judge and grant judgment in the sum as claimed to the plaintiff with interests thereon at the usual commercial rate of one over prime from the date of the writ to today.

19. In the third party proceedings, the defendant is clearly entitled to the indemnity it seeks. See para. 37 - 057 Chitty on Contracts 27th Ed. Vol. II. I would give judgment accordingly against the third party.

Bokhary JA:

20. There must be judgment for the plaintiff customer against the defendant transportation firm in respect of the loss of the goods. And, in turn, there must be judgment for the defendant transportation firm against the third party driver for an indemnity. I too would allow this appeal accordingly.

21. The relevant law is clear. Both counsel are, as I am, content to take it from this summary in 2 Halsbury's Laws of England (4th ed.) p. 856, para. 1839:

"Apart from special contract, the bailee is not an insurer and therefore, in the absence of negligence on his part, he is not liable for the loss of or damage to the chattel due to some accident, fire, the acts of third parties, or the unauthorised acts of his servants acting outside the scope of their employment. But if he entrusts the duty to take care of the chattel to a servant or agent, he is answerable for the manner in which that servant or agent carries out his duty."

22. Here, the transportation firm rightly apprehended the reasonably foreseeable risk of leaving loaded vehicles unattended in the street. So it set up a system under which its loaded vehicles had to be parked in its own car park.

23. If that system had been followed, the loss in question would not have occurred. That is plain since the customer's goods were lost when the vehicle on which they were loaded was stolen when left unattended in the street overnight. It was so left because the driver, being the transportation firm's servant to whom it had entrusted its customer's goods, flouted its instructions to him and departed from its system. That deprived the customer of the reasonable precaution for its goods to which it was entitled. And that deprivation resulted in the loss.

24. Sensibly, Mr Cheung for the transportation firm does not seek to defend Findlay J's view that the loss here would not be recoverable unless it was "at least ... something very likely to happen" or that there was "a fairly high degree of foreseeability" of such loss. That view is contrary to the law of bailment, and is based on a misapplication of the decision of the House of Lords in Weld-Blundell v. Stephens [1920] AC 965.

25. Mr Cheung does, however, seek to support the judge's view that the loss here was not even reasonably foreseeable.

26. In taking that view, the judge said this: "To steal the goods would involve considerable effort by a knowledgeable and determined criminal, probably a gang of professional criminals, the crime would have to be committed in a place frequented by others, the padlock would have to be overcome, and means provided to transport and 'fence' a large quantity of heavy silk."

27. That line of reasoning is, I feel bound to say, faulty from start to finish. First of all, a gang of knowledgeable and determined professional criminals is precisely what a transportation firm having custody of a large consignment of valuable goods would naturally fear the most. Secondly, there is no evidence that the place at which the vehicle was parked was so frequented all night as to deter or pose insuperable difficulties for such criminals. Thirdly, the padlock was plainly something which such criminals could easily overcome. Fourthly, transportation was no problem since the vehicle itself provided that. Finally, there is no reason to imagine that professional thieves have difficulty in obtaining the services of professional handlers.

28. In truth, the risk of leaving loaded vehicles unattended in the street overnight was an obvious one.

29. Four grounds are put forward in the Respondent's Notice.

30. The first reads:

"The Defendant was at all material times and is entitled to rely on Clause 7 under the heading "Notice to Consignor" of a delivery order, of which the Plaintiff had knowledge and had accepted, to exempt its liability, if any, to the Plaintiff in that the said clause

31. Now, the clause itself reads:

"During transport, all risk caused by wind or fire or water and other accident shall be the responsibility of the consignor."

Whatever that covers, it cannot on a fair reading cover exposing the goods to the foreseeable risk of theft while in an unattended vehicle in the street overnight in violation of the transportation firm's policy never to leave loaded vehicles unattended in the street.

32. Turning to the second ground in the Respondent's Notice, it reads:

"Further or alternatively, the Defendant was and is in any event not liable to the Plaintiff by reason of the fact that the Third Party, being its employee, had at all material times acted outside the scope of his employment, in that he parked goods vehicle EL 5358 loaded with goods by the side of a public road and left the same unattended overnight despite clear instructions given to him by the Defendant (a) at his recruitment and (b) on 11th November 1992 to return the said goods vehicle and the goods therein to the possession and control of the Defendant during night time."

33. In Port Swettenham Authority v.T.W. Wu & Co. [1979] AC 580 at p. 591E - G the Privy Council said:

"When a bailee puts goods which have been bailed to him in the care of his servants for safe custody, there can be no doubt that the bailee is responsible if the goods are lost through any failure of those servants to take proper care of the goods. The heresy that any dishonest act on the part of a servant employed to take care of the goods is necessarily outside the scope of his employment and that the master cannot be liable for the dishonest act unless done for his benefit or with his privity, was exorcised by Lloyd v. Grace, Smith & Co. [1912] A.C. 716. It was on the basis of this heresy that Cheshire v. Bailey [1905] 1 K.B. 237 laid down the startling proposition of law that a master who was under a duty to guard another's goods was liable if the servant he sent to perform the duty for him performed it so negligently as to enable thieves to steal the goods, but was not liable if that servant joined with the thieves in the very theft. This proposition is clearly contrary to principle and common sense, and to the law: Morris v. C.W.Martin and Sons Ltd. [1966] 1 Q.B. 716, 740. Their Lordships agree with the decision in Morris v. C.W.Martin and Sons Ltd. and consider that Cheshire v. Bailey mis-stated the common law."

34. Since an employer cannot escape liability on the basis that his employee was acting outside the scope of his employment when stealing third parties' goods put under his care by the employer, an employer can hardly escape liability on that basis when the employee merely failed to take the necessary precautions against the theft of such goods.

35. The third and fourth grounds in the Respondent's Notice can be taken together. The third one reads:

"Further or in the further alternative, the Defendant was and is in any event not liable to the Plaintiff in that the Defendant had established by sufficient and convincing evidence that it or its servant including the Third Party had taken reasonable steps or precautions, or, further or alternatively, had acted reasonably to guard against the loss of the Plaintiff's goods."

And the fourth one reads:

"In the further alternative to 3 above, if, which is denied, the Defendant had failed to establish by sufficient and/or convincing evidence that it or its servant including the Third Party had taken reasonable steps or precautions, or had acted reasonably, to guard against the loss of the Plaintiff's goods, such failure to take reasonable steps or precautions, or to act reasonably, did not cause or contribute to the loss of the Plaintiff's goods."

36. There is a short answer to both. The driver should have followed the obviously sensible system of parking loaded vehicles in the transportation firm's car park. And if he had done so, this loss, which resulted from the theft of a loaded vehicle left unattended in the street overnight, would not have occurred.

37. Before concluding this judgment, I wish to express my thanks to counsel on both sides for their able arguments, which they helpfully foreshadowed in carefully prepared skeleton arguments.

Nazareth V-P:

38. I agree for the reasons given by Liu and Bokhary JJA that the appeal must be allowed and judgment entered for both the plaintiff against the defendant and the defendant against the 3rd party. I would concur in the orders they propose.

39. It is unfortunate that and not entirely clear why the matter came to be finally addressed primarily as one of a general claim in contract as opposed to one specifically in bailment. At the very outset the judge recorded the facts that clearly establish this as one of the most common types of bailment.

40. Properly viewed in that way, the legal position in relation to what I regard as the two central questions in this appeal is clear. The first question being as to the duty to take reasonable care of the goods entrusted, and the second question as to the liability of a bailee for articles entrusted to a servant or agent. The law in point is clearly stated in the following passages in Halsbury's Laws of England, 4th Edn Vol. 2 para. 1839:

41. In the context of the first question, the judge came first of all to focus upon the foreseeability of the loss. He found that a reasonable man would not have foreseen to the required degree in the circumstances of this case that the silk would have been stolen. I find it necessary only to say, and without recounting the relevant facts which have been adumbrated by my Lords, that I am wholly unable to accept that inferential finding which I think on the plainest considerations wrong. On any view of the facts, the theft was foreseeable and indeed must have been foreseen in the particular circumstances.

42. I reject Mr Cheung's ingenious submission that although there may have been some foresight of the general risk initially, it was displaced by the vehicle being parked in what the third party driver regarded as a safe place. Also, it was on the absence of foresight that the judge can be seen to have concluded that there was no breach of duty to take care.

43. Returning the to the first question: was reasonable care exercised? Again, I do not find it necessary to canvass the facts and considerations, which have been dealt with by my Lords. I have no hesitation in concluding that reasonable care was plainly not exercised. On the defendant's own assessment of the position, the vehicle should have been placed in its own secure car park. But this was not done. Moreover, on the law, there is an onus upon a bailee to prove that he took reasonable care to discharge his duty to secure the safety of the goods entrusted to him. The defendant has not done so in this case.

44. Proceeding to the second question, this is the liability of the defendant for the acts of its agent. The law is that I have already stated. Under that it can be seen that the act of the driver, even if it was unauthorised, this matters not if it was in the course of employment. In stopping overnight in the process of transportation of the silk to the plaintiff, and I stress that was what the driver was doing, transporting the silk to the plaintiff, the driver was, in my view, simply adopting a different mode of carrying out the defendant's orders so that on the authorities, this was within the course of employment.

45. On both these central questions, therefore, the defendant fails.

46. As to the other questions raised in this appeal, I do not think there is anything useful that I can add to what my Lords have said.

47. The appeal is accordingly allowed and there will be judgment in favour of the plaintiff against the defendant and in favour of the defendant against the third party. We will hear counsel on the precise terms.