GENTLEVIEW INVESTMENTS LTD v. ROAD AND TRACK MOTORSPORT LTD

HCA 285/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 285 OF 2013

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JUDGMENT
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A. NATURE OF THE ACTION AND THE TRIAL

1. This is an action for damages arising from the failure to return property. The property involved is an Aston Martin race car and spare parts associated with it, all belonging to the plaintiff, which were burned down to ashes while being kept in a locked garage in Malaysia while in the custody and care of the defendant.

2. The defendant ceased having legal representation some time before the trial came on. No witness statement was exchanged by or on behalf of the defendant at the expiry of an Unless Order made by MasterLevy on 5February 2014. As a result, the defendant was debarred from and made no attempt to adduce any factual evidence at the trial. The trial took place in the defendant’s absence.

B. ISSUES FOR DECISION

3. The bases of the plaintiff’s claim having been trimmed down at the pre-trial review, the issues to be determined at trial were confined to the following:

(1) Is the defendant liable to compensate the plaintiff for the value of the car and the spare parts for:

a) breach of duty as a bailee for reward, and/or

b) breach of contract for bailment?

(2) What is the amount of compensations that the defendant ought to pay?

4. MrLiu, for the plaintiff, confirmed at trial that he would no longer be relying on implied terms of contract based on a previous course of dealings between the parties, nor on the doctrine of res ipsa loquitur for establishing a claim in tort.

C. UNDISPUTED BACKGROUND FACTS

5. The material facts upon which the plaintiff bases its claim are largely undisputed. These are set out below.

6. MrPhilipMaChingYeung (“PhilipMa”), one of the plaintiff’s director, has a keen interest in motor racing. The particular vehicle, an Aston Martin GT2 race car purchased from the manufacturer, was to be used by him to take part in a motor race in Malaysia. Prior to the destruction of the vehicle in question he had participated in motor racing in various countries around the world, and had used the services of the defendant on occasions.

7. The defendant (“RTM”) is a Hong Kong company which carried on business in servicing race cars and providing engineering, consultancy and supporting services for participants of car racing events worldwide. At the material time, RTM’s managing director was MrBarryJohnForth.

8. The first of the motor races that PhilipMa intended to participate in using his new acquisition was to take place in Malaysia between 6to 8August 2009. The arrangement between PhilipMa and Barry Forth was for RTM to provide supporting services for his motor racing activities using the newly purchased vehicle. The services to be provided by RTM included arranging for the vehicle to be transported from the UK through Hong Kong to Malaysia for test driving, and later for racing. For the same purpose, a number of spare parts were acquired, and these were also shipped to and kept in Malaysia.

9. On 7April 2009, the vehicle arrived in Hong Kong from the UK and was delivered into the custody and care of RTM. RTM then shipped the vehicle on behalf of the plaintiff to Malaysia for test drive. Between 2June 2009 to 10August 2009, the plaintiff had paid a total of HK$775,506 for the services provided by RTM.

10. The car race in which PhilipMa participated using the subject vehicle took place between 6to 8August 2009 in Sepang International Circuit (“SIC”), Malaysia. Following the race, as admitted in the Defence, the vehicle was duly delivered back into the possession, control and custody of RTM for its safekeeping and proper and due care, to be returned on request.[1] It is not disputed that the engine, gearbox and fuel tank (“the Removed Items”) were removed from the vehicle and shipped back to England for servicing. [2] On 9August 2009, PhilipMa left Malaysia and returned to Hong Kong.

11. According to the Defence filed on 6May 2013, after the race, the vehicle was kept in locked-up garage space No27 within the SIC complex rented by RTM. On 13August 2009, a fire had broken out in Garage Nos26 and27 of the SIP complex. It led to the total destruction of both the plaintiff’s car and the associated spare parts stored in garage space No27. These facts are largely repeated in a translated discovery document headed “Police Report of Malaysia” as statements of the Claimant “IdrisBinIbrahim”, who, I was told, was a member of staff or agent of the defendant in Malaysia. The cause of the fire was unknown. There is also a fire report of the Malaysian Fire Brigade and Safety Control Department that corroborates the date and location of the fire. The occupant of the garage is stated to be “Classic Car Club Hong Kong”. The percentage of destruction caused by the fire is stated to be “100%”.

12. On the same day RTM notified the plaintiff of the fire and that it would not be able to return the vehicle or the spare parts to the plaintiff.

D. ANALYSIS

D1. Proof of breach of duty as bailee for reward

13. As explained above the plaintiff is mounting cumulative or alternative claims both in breach of duties as bailee for reward and breach of contract. The two claims can undoubtedly co‑exist.[3]

14. This is a classic case of bailment for reward, where property is entrusted to the bailee for safekeeping. The transaction of custody of the vehicle and the spare parts in the circumstances of this case arises collaterally to the contractual relationship of provision of race support services from the bailee to the bailor.[4] The duty of the bailee is to exercise reasonable care to:

(a) safeguard the goods with reasonable care and redeliver them (reasonable wear and tear expected) in the condition in which they were bailed; and

(b) return the goods to the bailor or to his appointed agent at the time and place agreed.

See Palmer, opcit, §14‑010 at pp757‑760; 14‑052 at pp798‑799; Brabant & Co v King [1895] AC632 at640 perLordWatson; Dense Billion (supra) at110B‑C perLiuJA; Samsung Electronics Ltd and others v J & C Cargo Services Co Ltd and another [2008]2 HKLRD243 at 252(§52) perStoneJ; Wong Tung Fuk v Tang WingSzeIrene [2013]2 HKLRD627 at638 (§25) perDHCJMarleneNg.

15. The plaintiff’s case is that the failure to return the vehicle and its spare parts was a breach of the reasonable duty of care owed by defendant under the both the agreement and as a bailee for reward.[5]

16. On the burden of proof in an action against a bailee for reward, counsel for the plaintiff MrLiu submits it is a two-stage process. Initially it is for the bailorto prove:

(1) The goods have been “delivered” to the bailee, iethat a sequence of events has taken place as a result of which the goods came into the bailee’s possession.

(2) Loss or injury has taken place.

(3) The loss or injury occurred during the bailment.

See Palmer (op cit), §14‑010 at pp757‑760.

17. Once these threeinterdependent facts have been established by the bailor, it is then for the bailee to “show that any established loss or injury to the chattel did not result from a failure on his part to exercise such care and circumspection as could reasonably have been expected from a bailee of his trade and standing in all the circumstances of the case”. He may defend himself by demonstrating that he has taken reasonable care of the goods, or his acknowledged or established failure to take reasonable care did not contribute to the loss. However, “in either events, the burden of proof rests upon him”: Palmer (opcit), §14‑010 at pp757‑760.[6]

18. “If a custodian declines either to produce the chattel entrusted to him when required to do so by the owner, or to explain how it had disappeared, the refusal amounts prima facie to evidence of breach of duty on his part”: Halsbury’s Laws of England (opcit), §149 at pp100‑101; Coopers Payen Ltd v Southampton Container Terminal Ltd [2004]1 Lloyd’s Rep331 at §29 perClarkeLJ (as LordClarke then was).

19. The bailee’s liability cannot be qualified or excluded by the bailor’s knowledge of the condition of the premises for the safekeeping of the property. In Brabant & Co v King [1895]1 AC62 at 641‑642 LordWatson held that:

“It would be very dangerous doctrine, for which there is not a vestige of authority, to hold that a depositor of goods for safe custody, who, by himself or his servants, has had an opportunity of observing certain defects in the storehouse, must be taken to have agreed that any risk of injury to his goods which might possibly be occasioned by these defects should be borne by him, and not by his paid bailee. The authorities relating to the vexed maxim ‘Volenti non fit injuria’ have no bearing whatever upon the point. From the very nature of the transaction the depositor is entitled to rely upon the care and skill of his bailee. The duty is incumbent upon the latter, in the due fulfilment of his contract, of considering whether his premises can be safely used for the storage of explosives or other goods, and, if they cannot, to take immediate steps for placing the goods in a position of safety. If the defects of these Government magazines were as apparent to the servants of the appellant company as the jury have found they were, they ought to have been equally patent to the official storekeeper, with whom the duty of safe custody rested.” [Emphasisadded]

20. In Palmer on Bailment, 3^rdEdition, §14‑026, the position of the burden of proof upon the bailee who has had property in his custody destroyed by fire is described as follows:

“The bailee is not liable for accidental fire unless special circumstances made him an insurer of the goods; nor is he bound to furnish an accurate explanation of how the fire occurred. But the damage or destruction of the goods by fire casts upon him a duty to establish, on the balance of probabilities, that this was not caused by a breach of his duty of care. If he cannot do this, the court will infer that he has broken that duty and that the breach precipitated the loss.

…

In places like garages where hazardous operations are often carried on, the burden of disproving fault in a case of fire damage will often be a very weighty one …” [Emphasisadded]

21. The duty of the bailee in a bailment for reward is non‑delegable. In Samsung Electronics Ltd v J & C Cargo Services Ltd [2008]2 HKLRD243StoneJ had the occasion to review the authorities on the subject. The following is an extract of his conclusion (§§53, 59 and63):

“[53] … 1^st defendant, qua bailee for reward, was obliged by itself and through its servants or agents to take proper and reasonable care of the bailed goods, and thus that the 1^st defendant could not escape liability qua bailee for reward simply by the expedient of delegating the task of looking after the goods to an independent contractors.

…

[59] Further, absent a direct employment situation, utilisation by the bailee for reward of an independent contractor, which then acts negligently or in breach of contract, does not suffice to avoid liability on the part of the bailee; thus in British Road Services v. Crutchely & Co Ltd., op cit., Lord Pearson observed (at 820D)

‘Although there can be bailment without a contract, there usually is and was in this case a contract, and the obligation of the bailee can be formulated as an implied term of the contract. This may help to bring out clearly the nature of the obligation. The bailor could not reasonably be expected to be content with a contractual promise of the bailee to take proper care of the goods or engage a competent contractor to do so. If that were the contractual promise, then in the event of default by a competent contractor duly selected by the bailee, the bailor would have no remedy against the bailee and would have to rely on the possibility of an action in tort against the contractor. To give business efficacy to the contract, the bailee’s implied promise should be that he will himself or through his servants or agents take proper care of the goods…’

whilst in the same case Sachs LJ stated (at p 824H):

‘… I am in full agreement with the view expressed by Lord Pearson and by the trial judge, that the defendants must accept responsibility for the negligence of the third parties in the same way as if the patrolmen had been the defendant’s own employees. The bailee is responsible for proper care being taken of the goods and to my mind he cannot escape from that liability merely by employing sub‑contractors for that purpose, however reasonable may be his confidence in them. Any contrary decision would make a serious and unjustifiable inroad on the rights of bailors, and for this inroad there does not appear to me to be any authority.’

…

[63] It follows from the foregoing review that the principle that a bailee for reward is liable for the acts and omissions of an independent contractor to whom responsibility for the goods has been entrusted is well-established; …” [Emphasisadded]

22. RTM admits to having agreed to provide race support services for reward to PhilipMa for the race at SIC, “including shipping to and storing the vehicle at SIC before and after the racing”. No dispute arises as to whether the safekeeping of the spare parts with the race car was likewise collateral to the contract to provide race support services, with a like duty of care on the part of RTM in respect thereof. It also admits to having taken delivery of the vehicle in question and being under a duty as a bailee for reward to exercise reasonable care for the safety of the vehicle and being liable to return the vehicle on demand to the plaintiff.[7]

23. RTM however argues that it has exercised reasonable care and diligence in carrying out its duties and therefore is not liable for its inability to return the vehicle and its spare parts. In the Defence, it gives a number of reasons as to why it has discharged its duty of reasonable care. In so far as they purport to address the discharge of its duty as bailee, they can be broadly summarized as three reasons:

(a) Delegation to SIC as providing the locked storage for the car and spare parts was reasonable.

(b) Knowledge on the part of PhilipMa of the choice of delegation, with no objection raised.

(c) The property was destroyed by a fire with cause unknown and through no fault of the plaintiff.

24. Applying the legal principles stated above, against the primafacie evidence of breach of duty the burden is squarely on RTM to adduce evidence to explain how the vehicle and the spare parts came to be lost in the fire despite its having taken reasonable care of the goods, or that its failure to take reasonable care did not contribute to the loss of the property.

25. However, RTM has failed to exchange witness statements with the plaintiff, as a result of which it has led no evidence at all to discharge the burden of proof.

26. For the avoidance of doubt, none of the particulars advanced under paragraph8 of the Defence, even if proved in evidence, would have assisted in discharging the burden. As set out above, neither knowledge on the part of the plaintiff of any risks posed by the manner or facilities of storage nor the alleged reasonableness of the choice of sub‑contractor in delegating the performance of the duty of the bailee would absolve the bailee for reward from breach. The loss of the property by fire damage while under bailment imposes a heavy burden upon the bailee to disprove fault. RTM having made no attempt to adduce any evidence, the plaintiff’s case is proven upon primafacie evidence.

D2. Proof of breach of contract

27. The plaintiff argues that the agreement to keep the plaintiff’s vehicle and the spare parts safe and to take proper care of them contains terms that oblige RTM to exercise reasonable care and skill in carrying out the services and to carry out such services within a reasonable time. Alternatively, the plaintiff relies on sections5 and6 of Supply of Services (Implied Terms) Ordinance, Cap457 (“SS(IT)O”) to incorporate the said implied terms.[8] Section5 of SS(IT)O provides as follows:

“5. In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.”

28. As regards the implied term as to time for performance, section6 of the SS(IT)O provides that:

“(1) Where, under a contract for the supply of a service by a supplier acting in the course of a business, the time for the service to be carried out is not fixed by the contract, is not left to be fixed in a manner agreed by the contract or is not determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time.

(2) What is a reasonable time is a question of fact.”

29. Given the nature of the agreement between the parties and the admissions made by the defendant in pleadings, Iaccept without reservation that a duty of reasonable care owed by the defendant to the plaintiff is readily implied into the agreement with or without reliance on the statutory provisions.

30. Even if the statutory provisions have to be relied on, MrLiu submits that the duty under section5 of the SS(IT)O is by and large the same as the duty of a bailee for reward at common law.[9] Isee no reason to disagree with him.

31. The burden of proof in respect of whether that duty was properly discharged in contractual bailment is likewise the same as in the case of bailment for reward. The claimant needs only allege and prove a loss of the goods whilst in the possession of the defendant. That gives rise to an inference of negligence in the performance of their duties in breach of their contractual obligation where the exercise of a reasonable duty of care is an express or implied term.[10]

32. It follows that RTM is liable for breach of contract as a contractual bailee in the absence of evidence proving that the inability to return the property was despite its exercise of reasonable care, or that its failure to exercise reasonable care did not contribute to the loss of the property.

E. QUANTUM OF DAMAGES

33. The measure of damages for breach of contract and breach of duty as a bailee for reward is the same. In tort, it is the sum required to restore the bailor to the position which he occupied before the wrong was committed, and in contract it is the sum required to put him in the position he would have occupied had the contractual obligation been performed. On the facts of this case, under each head it is likewise the value of the chattel, together with incidental costs: Halsbury’s Laws of England (opcit) at §233, pp160‑164; see also Chitty (opcit), §33‑050 at p244 (on the contractual measure for breach of contract of bailment).

34. For the valuation of its loss the plaintiff relies on the Expert Report and a Supplemental Valuation Report of MrAndrewWilliamson. MrWilliamson is a chartered engineer with 10years of experience working for Prodrive Motorsports Ltd that designs and constructs and race cars including for Aston Martin. Between2012 and2013, he was Head of Customer Programmes in Aston Martin Racing, and since then to date has been occupying the same position in both Prodrive and Aston Martin Racing. In particular, he has sevenyears of experience in valuing high-end automobiles, including Aston Martin racing cars. Having read the evidence on his qualification and experience, Ihave no hesitation in accepting his expertise on the valuation of the subject vehicle and parts.

35. In his Expert Report dated 17October 2014 MrWilliamson reckons that the correct approach is to adopt the date of 8August 2009, the date of the delivery of the car into the custody of RTM, as the valuation date. The value of the vehicle was assessed at the valuation date by:

a. applying a depreciation rate to the purchase price of the vehicle on the assumption that it remained used to arrive at its depreciated value at 0km condition; and

b. subtracting from this depreciated value the costs of bringing the vehicle back to the condition of an unused car.

36. Before MrWilliamson gave evidence Ipointed out to counsel for the plaintiff, MrLiu, that the valuation evidence covered by the Expert Report omitted to account for the Removed Items, which the plaintiff agreed were removed for servicing in the UK before the vehicle was stored in the garage and burned down.

37. Over the lunch adjournment, MrLiu submitted a Supplemental Valuation Report from MrWilliamson. The Supplemental Valuation Report deals with the valuation of the threeremoved parts, and corrects an arithmetic error in the computation of the valuation of one group of the spare parts stated in GBP. The correct figures for the lost spare parts are set out again in the Schedule annexed to the Supplemental Valuation Report. He then gave oral evidence to confirm his valuation in the expert report as supplemented by the Supplemental Valuation Report.

38. According to him, the lost items have the following value as on 8August 2009:

I. Vehicle
Purchase price of the Vehicle	GBP 300,000.00
Less: decline in Vehicle value being 10% of the	(GBP 30,000.00)
purchase price of the Vehicle
Less: cost of restoring vehicle to 0km condition	(GBP 24,000.00)
Less: estimated second-hand resale value of the	(GBP 57,407.00)
Removed Items
	____________
Market value of the Vehicle (without the	GBP 188,593.00
Removed Items)
II. Spare Parts
US$ 22,512.48 + GBP 121,792.04 + HK$ 21,748.80

39.In the absence of contrary evidence, Ifind no reason to disagree with his valuation set out above. Accordingly, Idecide that the plaintiff is entitled to damages in the following sums:

(1) GBP 310,385.04 ( = GBP 188,593.00 + GBP 121,792.04 )

(2) US$ 22,512.48

(3) HK$ 21,748.80

F. Order

40.Consequent upon the trial of this action and the foregoing judgment, Imake the following order:

(1) There is to be judgment for the plaintiff against the defendant in the sums of:

(i) GBP 310,385.04,

(ii) US$ 22,512.48, and

(iii) HK$ 21,748.80.

(2) Interest is to run on the said sums from the date of 14February 2013 to the date of judgment at the rate of 1% over HSBC’s best lending rate for the respective currencies from time to time prevailing, and thereafter on the aforesaid principal sums at the judgment rate from time to time prevailing until payment.

(3) There is to be an order nisi as to the costs of the action against the defendant in favour of the plaintiff, such costs to be taxed if not agreed.

(4) Such order nisi as to costs is to become absolute unless application be made to vary the same within 14days from the date of judgment herein.

41.It remains for me to thank counsel for his able assistance.