NANYANG CREDIT CARD CO. LTD. v. YING WEI (HOP YICK) CARGO SERVICE

Headnote

Construction of liability exemption clause in home-made agreement for hoisting goods which did not contain express reference to negligence. Application of test in Canadian Steamship Lines v R.

IN THE COURT OF APPEAL

1992, No 119
(Civil)

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J U D G M E N T

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Nazareth, J.A. (giving the judgment of the Court):

1. The defendant appeals to this court against the order of Bokhary J. dismissing with costs its summons to strike out the plaintiff's statement of claim. The matter arises in the following way.

2. The defendant is a firm of movers and by a written contract with the plaintiff dated 28th November 1989 undertook to hoist some computer equipment up to the premises of the plaintiff, which were on the fifth floor of the building concerned

3. By its statement of claim the plaintiff averred that in pursuance of the written contract the plaintiff bailed its computer equipment to the defendant and the defendant undertook to hoist it to the fifth floor of the plaintiff's rented premises; that it was an implied term of the contract that the defendant would exercise reasonable care and skill in performing the hoisting operation; that it was an implied term of the contract that the defendant would take "ordinary" care of the chattel entrusted to it; and that in breach of the implied terms of the contract including the duty of care the defendant failed to exercise due care and failed to restore the chattel to the plaintiff in sound condition. It can be seen that the claim was made in contract and tort, and, it would seem, also bailment.

4. As far as the defence is concerned, it is only necessary for the purposes of this appeal to refer to the averment that it was an express term of the contract between the parties that no damage claims could be made to the defendant for the hoisting operation. That averment was founded upon the terms of the contract, which was made in letter form, signed on behalf of each party, in the following terms:

"Nanyang Credit Card Co. Ltd., 28 Nov., 1988 3/F., Nan Dao Bldg., No. 36 Queen's Road C., Hong Kong.

Dear Sir,

Re: Hoisting of equipment to Nanyang Credit Card Computer Centre

Please find herewith details of equipment shipped from UK to HKG total 18 packings under AMB057-2814-5596 FLT AF178 to arrive HKG Dec., 3 1988.

[18 packages are listed here giving their individual dimensions]

Hoisting operation to be done on night of 8 Dec., 1988

Location must be Wing Lok Street front of Nanyang Commercial Bank entery [sic], the machine will be hoisting up to 5/F., through the window to the computer room.

Total Price: HK$28,900.00

Notes:

- Price not included insurance charges.

- Insurance against damage should be covered by Nanyang Credit Card Co Ltd.

- Not damage claim to our company for this hoisting operation."

5. The defendant took out a summons under Order 18 rule 91 of the Rules of the Supreme Court to strike out the statement of claim on the grounds that:

"(a) it is frivolous and vexatious,

(b) it is an abuse of the process of the court,

(c) it discloses no reasonable cause of action in that :-

(i) the contract with the plaintiff expressly provides that the plaintiff was to arrange for insurance and that no damage claims was to be made to the defendant; and/or

(ii) the statement of claim discloses no or no sufficient facts to support an allegation of negligence on the part of the defendant."

6. The matter came before Bokhary J. on 30 June 1992, with the result mentioned. The appeal is not pursued in relation to paras (a) and (b) of the summons. The judge dealt with the matter with which para. (c) is concerned in the following way:

" Now, as far as the exemption clause is concerned, the point remains to be faced because the defendant is able to bring it into battery under its grounds (a) and (b) which I have read out.

When one turns to the contract relied upon, one sees that the particular clause which the defendant advances for the purposes of striking out the Statement of Claim form what are called 'Notes'; and these read as follows :

' - Price not included insurance charges.

- Insurance against damage should be covered by Nanyang Credit Card Co Ltd.

- Not damage claim to our company for this hoisting operation.'

I am unable to say that it is clear beyond reasonable argument to the contrary that those provisions put the plaintiff out of court when they allege that the defendant negligently dropped one of the crates in which the computer was contained. The term 'hoisting operation' may require examination for its full import. And that examination is best done in the context of all the facts as eventually found. It may be one thing if the property is bumped a bit or rattled a bit inside its container as it is being lifted. It may be quite another if the whole container is dropped. Hoisting seems to be one thing and dropping seems to be another. Then again, the exemption clause, if that is what it is, does not mention negligence in terms."

7. The several grounds of appeal in the defendant's notice of appeal were pursued by Mr Nelson Miu, who also appeared for the defendant below, in the following way. He submitted that the learned judge based his decision on the following two considerations:

(1) that the alleged negligence may not fall within the ambit of the clause because the term "hoisting operation" is not clear; and

(2) that the exemption clause does not mention negligence in terms.

8. As to Mr Miu's first point, prima facie, it is difficult to see how the "hoisting operation" would not include the dropping of the particular package of computer equipment in the course of hoisting it. However Mr Reyes for the plaintiff, who did not appear below, submits that what the judge had in mind was that only proper hoisting i.e. with due care and with reasonable skill, was within the contemplation of "hoisting operation" in the contract. Mr Reyes submits that "hoisting operation" may only cover non-negligent acts, i.e. acts carried out properly and not negligent acts. He points to Barkway v South Wales Transport Ltd [1950] 1 AER 392 and Henderson v Henry E. Jenkins & Sons [1970] AC 282, as providing examples. We do not find those cases of assistance, a fortiori, given the context of the words "hoisting operation", the preceding two notes being plainly directed to the provision of insurance to cover negligence at the very least. Mr Reyes' contention would deny the exemption clause any real effect or credible meaning.

9. As to the "hoisting operation" itself, the facts do not appear to be in dispute and are stated in three affirmations put in by the plaintiff and made by three different individuals who were present at the operation. They establish quite clearly that the container or package fell from the fifth to the fourth floor in the course of being hoisted. We cannot see that if the matter went to trial any different construction of the expression "hoisting operation" could emerge. Clearly the damage occurred in the course of that operation.

10. Therefore, even if the clause is construed contra proferentum, we are not able to conceive of how the dropping of the container or package could be said not to be included within the "hoisting operation". It is convenient at this point also to add that equally we reject Mr Reyes' contention that the exception clause is not clear because it is not grammatical and not even a sentence, and that it may be necessary to adduce parole evidence. Its plain meaning, in our view, is that no damage claim against the Defendant is to be made in respect of the hoisting operation.

11. We turn then to Mr Miu's second point. The judge was right in being concerned about the absence of any mention of negligence in the exemption clause. There is authority that general words in an exemption clause do not ordinarily exempt the party seeking to rely upon the exception from liability for his own negligence or that of his servant (per Somervell L.J. in James Archdale & Co Ltd v Comservices Ltd [1954] 1 WLR 459 at p. 461). The relevant test, as formulated by Lord Morton in Canada Steamship Lines Ltd v R [1952] 1 Lloyds Rep 1; [1952] AC 192 was quoted by Donaldson L.J. in The Raphael [1982] 2 Lloyds Rep 42 at 44:

"Their Lordships think that the duty of a court in approaching the consideration of such clauses may be summarised as follows:

(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called 'the proferens') from the consequence of the negligence of his own servants, effect must be given to that provision. (Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v Pilkington.)

(2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens (in accordance with article 1019 of the Civil Code of Lower Canada: 'In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation').

(3) If the words used are wide enough for the above purpose, the court must then consider whether 'the head of damage may be based on some ground other than that of negligence', to quote again Lord Greene in the Alderslade case. The 'other ground' must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene's words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of this servants.

12. Applying that test to the circumstances of the present appeal, (1) does not apply. As to (2), on its plain meaning construed in accordance with dicta to which we shall come, the exception clause excepts all claims for damage (i.e. physical damage) including those founded in negligence; indeed, it is difficult to see that the parties could not have had in mind primarily claims for negligence. That view of the exception clause is, in our view, placed beyond question by the immediately preceding two "notes" in the agreement, noting that the contract price did not include insurance charges, and that insurance against damage had to be provided by the Plaintiff. We have no doubt it easily meets the officious bystander test applied by Lord Morton in the Canada Steamship case, and by Donaldson L.J. (as he then was) in The Raphael. In our view, the clause is plainly wide enough in its ordinary meaning to cover negligence on the part of the servants of the proferens in this case i.e. the defendant. Proceeding then to (3) it was this limb that was recognised as posing the main difficulty that had to be addressed in this appeal. Can the head of damage be based on some ground other than of negligence? As may be expected Mr Miu submits not, whereas Mr Reyes on the other hand submits that construed contra proferentum against the defendant the clause embraces several grounds other than negligence.

13. It is helpful at this point to remember that:

"the exercise upon which the Court is engaged is one of construction, that is of deciding what the parties meant or must be deemed to have meant; the guidelines or tests which are referred to in the many authorities are only to be used by the Courts as aids to the successful and correct solution of such exercise" per May L.J. at p. 49 of The Raphael.

14. Returning then to the guidelines, it is clear the grounds that can be relied upon to displace negligence by implication, "must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it" per Lord Morton in Canada Steamship Lines case quoted by Donaldson L.J. in The Raphael at p. 45. Commenting upon that test at p. 49 of The Raphael, May L.J. said that in dealing with that matter the court:

"should discard any ground to which, on a reasonable assessment of all the circumstances at the time underlying the contract was made, it is unlikely that the parties would have addressed their mind".

Stephenson L.J. at p. 51 added that:

"the Court is under no duty to seek out, or think up, remote and far-fetched possibilities in order to defeat the intention, which would otherwise be derived from the plain meaning of the clause, to protect the party relying on it from liability for negligence".

15. Finally, also of assistance is the following passage from the judgment of May L.J. at p. 50 following his rejection of an "over-legalistic" approach:

"When two commercial concerns contract with one another, they do not, neither should they be deemed to, concern themselves with the legal subtleties of the law of private nuisance or the like. They in fact approach the problem, and so also should the Courts, with a much broader brush. They consider, or must be deemed to have in mind, their respective responsibilities one to another more from a factual standpoint than from a legalistic one. In seeking to apply Lord Morton's third test, we should not ask now whether there is or might be a technical alternative head of legal liability which the relevant exemption clause might cover and, if there is, immediately construe the clause as inapplicable to negligence. We should look at the facts and realities of the situation as they did or must be deemed to have presented themselves to the contracting parties at the time the contract was made, and ask what potential liabilities the one to the other did the parties apply their minds, or must they be deemed to have done so."

16. In the light of the forgoing we turn to the grounds to which Mr Reyes points as alternative bases upon which liability for negligence may not be excepted. First, the Judge's observation, to which we have already referred, that if the exception clause does effectively give rise to an exclusion, it may not exempt gross negligence but only minor acts of inadvertence e.g. the property being "bumped a bit or rattled a bit". That, Mr Reyes submits, would not only produce ambiguity, but also require the defendant's degree of culpability to be determined by trial. He does not cite any authority for the construction upon which he seeks to rely, which in any event does not seem to us to be open on the plain meaning of the exception clause, a fortiori on the dicta in McCawley v Furness Railway Co. (1872) LR 8 QB 57):

"The terms of the agreement under which the plaintiff became a passenger exclude everything for which the company would have been otherwise liable. They would have been liable for nothing but negligence, and they would have been liable for negligence whether gross or of a minor degree ..." (per Cockburn C.J. at p. 59)

"Negligence, even gross, is the very thing which the contract stipulates that the defendants shall not be liable for ..." (per Quain J. at p. 60)

Therefore, given the way indicated in which negligence has been excepted, it matters not whether it was gross negligence or minor acts of inadvertence. We accordingly reject this ground.

17. Mr Reyes sought also to rely upon inherent defect, not detectable through due diligence and therefore not negligence, which might have caused the rope to snap and the package of computer equipment to fall. There is not the slightest evidence or suggestion that this happened and it is clearly remote and far-fetched, and could hardly have been within the contemplation of the parties. We pause to mention that Mr Reyes in this context too, sought support in Barkway v South Wales and Henderson v Henry E. Jenkins & Sons, the facts of both of which were very different, and neither of which we find of assistance. We cannot see that so fanciful and remote a possibility can displace negligence from the scope of the exception clause.

18. Lastly, Mr Reyes relies upon the ambiguity that he contends exists in the words "Not damage claim". He puts his point in the following way. Those words do not state what sort of damage is envisaged. Read contra proferentum, the words may simply mean that no claims for purely consequential or economic loss are to be brought against the defendant, even where the action is for breach of contract, but that claims for compensation for physical damage as a result of negligence would not be excluded. That seems to us to be the sort of "over-legalistic" approach rejected by May L.J. at p. 50 of The Raphael and which is particularly inappropriate to the proferens of the home-made instrument in this case, a small firm of movers clearly acting without anything like legal advice. Moreover, once it is accepted as we have held, that damage is excepted by the exception clause, then one simply does not get to questions of the nature of damages or loss, which cannot therefore avail for the purpose of opposing the defendant's application to strike out.

19. We are satisfied that the grounds sought to be relied upon to displace negligence from the scope of the exception clause are far-fetched and remote, and could not have been within the contemplation of the parties as being required to be protected against.

20. That disposes of the grounds pursued before us at the hearing of the appeal. However, on consideration it seemed to us the claim having possibly been pleaded, albeit less than clearly, also upon bailment, that without addressing the latter, the appeal could not be wholly disposed of. We accordingly relisted the matter for further submissions.

21. In the course of those, Mr Reyes contended, and it must be emphasised that this was for the first time, that on the pleadings and affirmations, there was an arguable case that the defendant was also liable as a common carrier, particularly as there was no evidence that the defendant had reserved the right not to carry goods. The object of that new line of submission was to rely upon a common carrier's strict liability for damage to by pass the exemption provided in the letter of agreement. We have no hesitation in rejecting that submission as being unsustainable on the pleadings and the affirmations. What the letter of agreement provided for was merely hoisting of equipment to the fifth floor. The affirmations which are remarkably clear on the material facts leave no room for the contention that the defendant may have been acting as a common carrier.

22. In the alternative Mr Reyes submitted that "there is no longer any rule of law that, if the only liability of the proferens is for negligence, the clause must be construed so as to cover negligence otherwise it would lack subject matter: the duty of the Court is always to construe the wording of the clause in question to see what it means" (Chitty on Contracts 26th ed. para. 951 at pp. 578 and 579). However, we do not find it necessary to deal with that submission for, as already indicated, the wording of the exception in the letter of agreement, in our view clearly excludes all damage whether caused by negligence or otherwise, a fortiori in the context of the immediately preceding two notes, which necessarily imply that the insurance the plaintiff was enjoined to procure was intended to cover all such damage.

23. Finally, we have no hesitation in accepting Mr Mui's submission that the exemption, if effective in respect of contractual liability (as we have held) must be equally effective against liability in bailment particularly since the bailment arises out of and cannot be proved without reliance upon the contract (see Johnson Matthey v Constantine Terminals Ltd [1976] 2 Lloyd's Rep 215 at 222).

24. For the reasons we have endeavoured to give, the claim is unsustainable and must be struck out. We accordingly allow the appeal, set aside the order made by the Judge and in lieu order that the statement of claim be struck out and judgment be entered for the defendant, with costs below. As to the costs of this appeal, prima facie we can see no reason why they should not follow the event and would order nisi that they be to the defendant.

25. Finally we would add in fairness to the Judge that he does not appear to have had the benefit of the very full submissions supported by numerous authorities, with which we were favoured.