BEWISE MOTORS CO LTD v. HOI KONG CONTAINER SERVICES LTD

FACV No. 4 of 1997

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 4 OF 1997 (CIVIL)

(ON APPEAL FROM CACV No. 178 OF 1996)

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Between:

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J U D G M E N T

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Chief Justice Li :

1. I have read the judgment of Mr Justice Ching PJ and agree with it. For the reasons which he gives, I would dismiss the appeal with costs. I also agree with the judgment of Mr Justice Nazareth NPJ as regards the construction of the exemption clause.

Mr Justice Litton PJ :

2. I agree with Mr Justice Ching PJ's judgment, a draft of which I have read, except on one point: The proper construction of clause 4(a) of the Defendant's Trading Terms and Conditions. The facts of the case are succinctly set out in that judgment and need no repetition here. The Defendant stood in the position of a bailee vis-a-viz the Plaintiff in respect of the four cars entrusted to its care, for the purpose of containerization and storage prior to shipment. The bailment was upon the Defendant's own terms of business: terms which, as Mr Justice Ching PJ has explained in his judgment, the Plaintiff must be deemed to have accepted, even though it had no contractual relationship with the Defendant. The issues which I shall endeavour to address in this judgment are: (i) whether the Defendant's terms were effective to exempt the Defendant altogether from liability for the loss of the four cars and (ii) if not, whether the Defendant could limit its liability to a small fraction of the total loss (US$139,000) suffered by the Plaintiff by invoking clause 11 of its own terms of business.

Approach to construction

3. In construing clause 4(a), I bear in mind Steyn J's observations in Associated Japanese Bank v. Credit du Nord [1989] 1 WLR 255 at 257D:

"Throughout the law of contract two themes regularly recur - respect for the sanctity of contract, and the need to give effect to the reasonable expectations of honest men."

4. The Defendant's business was that of a container-depot operator and, by its very nature, involved taking care of other people's goods as a bailee. In that capacity - exemption terms apart - the obligation imposed by law on the Defendant was to take such care of those goods as if they were its own goods. If the goods were lost or damaged, the owner would recover damages without the necessity to prove neglect or default on the Defendant's part: To escape liability, the Defendant must show that the loss or damage was not due to its own neglect or default.

5. As an honest container-depot operator, one would not expect the Defendant to say: "We have no responsibility whatever for loss or damage however caused." Were it to say so in plain terms, it is difficult to see how any cargo owner would voluntarily deal with the Defendant, or any insurer would insure goods bailed to the Defendant without charging an extortionate premium. Thus, when it comes to the proper construction of clause 4(a), one starts with the presumption that the Defendant did not mean to exempt itself from all liability for loss or damage.

6. Loss or damage to goods can be caused by a wide variety of circumstances. Confining attention to loss alone, and leaving aside the question of damage, the evidence indicates that theft of goods from the Defendant's depots was a predominant - perhaps the only - cause of loss within its common experience. It is therefore not difficult to imagine the Defendant as an honest container-depot operator saying: "If goods entrusted to our care be stolen, we are not liable unless such loss was due to our neglect or default". This, in effect, reverses the burden of proof, and requires the cargo owner - a stranger to the Defendant's internal operations - to prove neglect or default on its part: no easy task for the cargo owner, as the facts to establish neglect or default would be peculiarly within the knowledge of the Defendant. But can one imagine an honest operator going one step further to say: "If your goods are stolen, that's just too bad; unless the theft was by our own people (call them employees, agents, servants, subcontractors, what you will) we are not liable". This is in effect to avoid all liability for theft. Thieves operate by stealth. They do not advertise their identities. A cargo owner can, perhaps, with the court's assistance (by the process of discovery, interrogatories and the like) examine the Defendant's systems and operations to see if it has taken reasonable care of the goods: But to expect the cargo owner to establish the identity of the thief is to demand the impossible. The supposed exception from the sweeping exemption in clause 4(a) in the event of theft - where the taking has been by the Defendant's own employees etc. - means nothing in practice. That exception has so little practical value it might just as well not be there. As was put in the course of the hearing by counsel: Assuming that the Defendant had left the cars parked near the entrance, the keys in the ignition, the gates unlocked and no-one on the premises, would the Defendant nevertheless escape liability unless the Plaintiff proved that the theft was by the Defendant's own people? Is this how clause 4(a) is to be construed?

Clause 4(a) of the Defendant's Terms and Conditions

7. For convenience's sake I set out below clause 4(a) as it appears in the Defendant's Trading Terms and Conditions:

"(4) Defences

(a) The company shall not be liable for any loss or damage whether direct or consequential or loss of market suffered by a Customer or Merchant due to fire, explosion, theft unless by employees of the Company, its agents, servants or subcontractors, riots or civil commotion, strikes, lock outs or labour restraint, inherent vice in any equipment or container or goods, typhoon, floods, lightning or Act of God, delay or detention of any vessel, containers or cargoes, act of omission of the Customer or merchant as a result of compliance by the company with the instructions of the Customer or Merchant, or for any other loss or damage unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the Company or its employees, nor for any loss damage or expense arising from or in any way connected with the packing, labelling, marks, brands, weights, numbers, contents, quality or description of any goods however caused."

8. Clause 4(a), as can be seen, lists a range of circumstances under which loss or damage might occur: some of which could conceivably be due to the Defendant's neglect or default, and some such as typhoons etc clearly not. One view of clause 4(a) is that, however inelegant it may be in terms of grammar and syntax, the words "unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the company ...." qualify the causes of loss or damage going before. Thus, apart from loss or damage due to fire, explosion etc, it would qualify damage due to "inherent vice in any equipment". Accordingly, if the Defendant continued using lifting equipment knowing that there was inherent vice in such equipment, and goods got damaged as a result, the Defendant would be liable. And if loss by theft were due to the Defendant's neglect or default, it would likewise be liable. As regards theft the Defendant has in theory assumed an additional burden: If the theft was done by the Defendant's "employees, agents, servants, or sub-contractors" then, whether or not it be in neglect or default, it would still be liable. Accordingly, if the cargo owner were able to show (against all odds) that the goods were taken away by the Defendant's own employee, the Defendant would be liable, irrespective of whether the cargo owner could go one step further and prove that in engaging that employee the Defendant had failed to take the usual precautions such as checking on his past record, taking references from previous employers etc. This would strike a reasonably fair balance between bailor and bailee. Do the words in clause 4(a) prevent the court from reaching this result?

9. Quite apart from "rules of construction" which require courts to construe standard exemption clauses against the party putting them forward (the contra proferentem rule), there is this further consideration to bear in mind: The court in its task of interpretation should look at the exemption clause broadly as a whole, in the same way as any business person would in assessing the allocation of risk. Thus, if on one view, clause 4(a) would lead to extreme results, and on another view it would conform with the reasonable expectations of honest men, the court would incline towards the latter unless the words used compel the opposite conclusion.

Test of reasonableness

10. It must be borne in mind that the Control of Exemption Clauses Ordinance, Cap 71 has been on the statute book for some years and exemption clauses like clause 4(a), to be effective, must pass the "reasonableness" test in section 3. Is it to be presumed that the Defendant (or its solicitors) would risk fashioning clause 4(a) in such a way as to verge on absurdity, thus exposing the Defendant to the possibility of the clause being nullified under section 3, when a more moderate construction can be put on clause 4(a)?

Microscopic search for meaning

11. Mr Thomas, in argument, invited us to break up clause 4(a) into subparagraphs so that the words "or for any other loss or damage unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the Company or its employees" stand on their own, without qualifying the preceding causes of loss or damage: fire, explosion etc. The short answer to this argument is that clause 4(a) is not broken up into subparagraphs. The full-stop occurs only once, at the end of the twelve lines of text. If one has a pre-disposition to accept Mr Thomas' construction as to the meaning of clause 4(a) one would of course break-up the clause in the way he suggests: But if one were to take a neutral stance and read clause 4(a) in one breath, taking a break at the word "nor" (the only time that word occurs) then Mr Thomas' argument immediately fails.

12. Further, Mr Thomas invited us to give a disjunctive meaning to the word "or" in front of "for any other loss or damage unless it is conclusively proved ... etc" because of the presence of the comma immediately before it in that phrase. This is in effect to invite the Court to go back to the days when testamentary instruments were scrutinized microscopically for their 'literal' meaning, irrespective of the true intentions of the testator. Any such approach to construction should be firmly resisted.

13. On any view, clause 4(a) is inelegantly expressed. The word 'or' occurs a total of fourteen times in clause 4(a): ten before the one in question, and if it is to be read in the same sense as all those going before, then what the clause means is simply this: Whether the loss or damage be due to fire, explosion etc or any other cause, the Defendant is not liable "unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the Company ... etc". For theft, the Defendant is additionally liable if that was by its own employees etc. If the clause, read as a whole, is capable of this construction, then this construction must prevail. It is consistent with reasonableness and good sense.

Conclusion on the construction point

14. In my judgment, the construction of clause 4(a) contended for by Mr Ma S.C. counsel for the Defendant is correct. It follows that the Defendant's liability for the loss of the four cars by theft is not excluded altogether by clause 4(a). But the Defendant has a second string to its bow: It says that on account of clause 11 of its Trading Terms and Conditions its liability is limited in one of two ways:

(i) by clause 11(a)(iv) to a total of US$2,000 for the four cars (the "US$500 per package" sub-clause), or

(ii) by clause 11(a)(iii) to a total of US$12,424, it being common ground that the four cars weighed a total of 6,212 kilograms (the "US$2 per kilogram of the goods lost" sub-clause).

15. If both sub-clauses are applicable, the Defendant is entitled to rely on "the least" of these limitations of liability.

Clause 11 of the Defendant's Terms and Conditions

16. Clause 11 reads:

"(11) Limit of Liability

Subject to the terms herein, in the event that the Company is liable to compensate the Customer or Merchant, unless the Hague or Hague Visby Rules are compulsory applicable in which case the relevant limitation amounts set out therein shall apply, the compensation shall not exceed in any circumstances whatsoever the following:

(a) In the case of physical loss or damage to the goods, not exceeding the least of

(i) the value of the goods lost; or

(ii) the reasonable costs of repair in the case of damage; or

(iii) US$2 per kilogram of the goods lost or damaged; or

(iv) US$500 per package."

The limitation of US$500 per package

17. Before the trial judge counsel for the Defendant argued that if liability was not excluded altogether, the damages for the loss of the four cars should be limited to US$2000, as each car was a "package" for the purposes of clause 11(a)(iv). For reasons which need not be explored in this judgment, the point was not dealt with by the trial judge. In the Court of Appeal Mr Justice Bokhary said that a similarly worded clause in the Fast Trans terms (clause 14) had the effect of limiting the award to US$2,000, being US$500 for each of the four cars lost. Mr Justice Mortimer agreed with him. Mr Justice Liu, dissenting, concluded that the limitations of liability in clause 11 were unenforceable as being contrary to the test of reasonableness in the Control of Exemption Clauses Ordinance, cap 71. In the Court of Appeal there was no consideration given to the point whether a car could properly be regarded as a "package" in terms of clause 11(a)(iv). So, in effect, the point comes to this Court for the first time.

Is a car a "package"?

18. The question: Is a car a "package"? cannot be answered in a vacuum. It depends largely upon its condition when the bailee assumed responsibility for its safe-keeping. If it is delivered to a container-yard operator in a container, ready for shipping, then what the operator assumes responsibility for is the container and its contents. There would usually be a statement in the shipping documents to the effect that the container "is said" to contain a car: The operator would not normally be able independently to verify the accuracy of that statement. In these circumstances it would do no violence to language to say that the operator assumed responsibility for "the package".

19. But here the four cars were driven into the Defendant's No. 1 depot by the Plaintiff's drivers and parked there. After checking for damage the cars were locked and the keys handed over to the Defendant's staff. From that point on the Defendant assumed legal responsibility for the cars: No question of packaging was then involved: What the Defendant had on its hands were simply goods belonging to the Plaintiff: That and no more. In these circumstances how can it argued that the limitation of liability to "US$500 per package" applies?

20. The word "package" has no legal or technical meaning. For the purposes of clause 11(a)(iv) the limitation of liability to US$500 per package depends upon how the goods were delivered to and accepted by the bailee. In its ordinary meaning the word "package" relates generally to things packed, encased etc. or bundled up in some way as a unit for bailment or carriage: such as, for example, the two bundles of angle irons in New Zealand Railways v. Progressive Engineering Co. Ltd. [1968] NZLR 1053 referred to in the course of argument. There the carrier's liability was limited to "￡20 for any package or unit" and the question was whether a bundle of 35 lengths of angle iron was a "package" or whether the individual lengths of iron were separate units. The lengths of iron came from the makers tied into two bundles. They were delivered to the carriers for onward carriage as two bundles, and accepted by them as two bundles. The judge (Tomlin J) held (at p1055) that to determine the carriers' liability the essential point of time to consider the issue was when the goods came into the hands of the carriers. Tomlin J referred to Studebaker Distributors v. Charlton Steam Shipping Co. Ltd. [1938] 1 KB 459 where Goddard J was considering whether a car put on board a ship for ocean carriage without a crate or any form of covering was a "package" so as to limit the claim under the bill of lading to $250 per package. At p467 Goddard J said:

"I confess I do not see how I can hold that there is any package to which the clause can refer. 'Package' must indicate something packed. It is obvious that this clause cannot refer to all cargoes that may be shipped under the bill of lading; for instance, on a shipment of grain it could apply to grain shipped in sacks, but could not, in my opinion, possibly apply to a shipment in bulk. If the shipowners desire that it should refer to any individual piece of cargo, it would not be difficult to use appropriate words, as, for instance, 'package or unit', to use the language of the Hague Rules."

21. The logic of Goddard J's judgment is compelling. Here the Defendant assumed responsibility for safe-keeping four cars driven into their depot. They were not packaged in anyway. In my judgment the limitation of US$500 per package cannot refer to the four cars. The majority of the Court of Appeal was wrong to have so held.

Limitation under clause 11(a)(iii)

22. It was faintly submitted by counsel Mr Ma SC that the entire clause 11 - including clause 11(a)(iii) - failed the reasonableness test in the Control of Exemption Ordinance cap 71 and could not therefore be relied upon by the Defendant. But, as I understand him, the point was virtually abandoned at the conclusion of the hearing and it therefore requires no further elaboration in this judgment.

23. There can be no doubt that the four cars come within the expression "the goods lost" in clause 11(a)(iii), limiting the Defendant's liability to US$2 per kilogram. As it is common ground that the four cars weighed a total of 6,212 kilograms, the Defendant's liability on the Plaintiff's claim is limited to the sum of US$12,424.

Conclusion

24. I would allow the Plaintiff's appeal, discharge the Court of Appeal's judgment and order that judgment be entered for the Plaintiff in the sum of US$12,424, together with interest.

Mr Justice Ching PJ :

25. The Plaintiff is in the business of importing and exporting motor cars. In 1993 it had imported four new left hand drive models which it sold to an associated company in Shanghai on C.I.F. terms for a total sum of US$139,000. It entered into a contract with Fast Trans International Co., Ltd., which was to have them shipped in containers. Fast Trans had a set of standard terms of contract and it is conceded by the Plaintiff that it had sufficient notice of them and that it had assented to them. Fast Trans in turn contracted with the Defendant who was to have the cars put into containers and put aboard ship. The Defendant also had its own set of standard terms of contract of which Fast Trans knew and to which Fast Trans assented. At the request or upon the instruction of Fast Trans the cars were delivered by the Plaintiff's drivers to the Defendant's No. 1 Depot in the afternoon of 5th November, 1993. Later the same day they were lashed into two containers by sub-contractors of the Defendant. In the early hours of the next day some men entered the depot, overpowered the watchman, broke open the containers and stole the cars. The Plaintiff claimed the whole sum of US$139,000 from the Defendant which pleaded exemption from liability and alternatively limitation of liability. At first instance judgment in the full sum was given in favour of the Plaintiff but this was reversed by a majority in the Court of Appeal which held the Defendant not liable and which went on to hold that if the Defendant had been found liable it would have been entitled to limit its liability to the sum of US$500 for each car. The Plaintiff now appeals to this Court against both parts of the judgment.

26. Clause 15 of each set of standard terms consists of an identically worded Himalaya clause which reads, in part,

"Extension of terms.

Each and every servant, agent or sub contractor of the Company shall have the benefit of these terms .... In entering into any contract pursuant to these terms, the Company does so not only on its own behalf but as agent and trustee for such servants, agents or sub contractors."

The Fast Trans terms also contain clause 4(b)(ii) which, so far as it is relevant, reads,

"The Customer expressly authorises the Company to do such acts and enter into such contracts on behalf of the Customer so as to bind the Customer by such acts in all respects .... The Customer agrees that the Company is not obliged to consult the Customer before the Company enters into any such contracts or does any such acts. The Company is not obliged to advise the Customer of the terms and conditions of such contracts or details of such acts unless specifically requested by the Customer in writing ...."

The Plaintiff, which was a customer in accordance with clause 1 of the same terms, never requested Fast Trans, which was the company in accordance with the same clause 1, for any details of the transaction between Fast Trans and the Defendant.

27. The dispute between the Plaintiff and the Defendant on liability arises because of the difference in the degree of exemption contained in the two sets of terms. Clause 13(a) of the Fast Trans set provides, in part, that

"... the Company shall not be liable for loss or damage to goods or failure to deliver the goods unless it is conclusively proved ... that such loss or damage or failure to deliver the goods was due to the wilful neglect or default of the Company or its own servants ...."

28. The phrase 'wilful neglect or default' is one well known to the law and was authoritatively expounded upon by Romer, J., in In re City Equitable Fire Insurance Company, Ltd., [1925] Ch. 407. In the present case liability due to wilful neglect or default constitutes an exception to the exemption from liability and it would be for the Plaintiff to prove. The Courts below did not so find against the Defendant and we refused leave to the Plaintiff for it to be argued in this Court. We therefore need not delay over it save to say that it follows that if this clause applied the Defendant must succeed.

29. Clause 4(a) of the Defendant's set is more readily understood if it is set out in tabular form as follows (numbers supplied) :-

"The Company shall not be liable

(1) for any loss or damage ... suffered by a ... Merchant due to

(i) fire,

(ii) explosion,

(iii) theft unless by employees of the Company, its agents, servants or sub contractors,

(iv) riots or civil commotion, strikes, lock outs or labour restraint, inherent vice in any equipment or container or goods, typhoon, floods, lightning or Act of God, delay or detention of any vessel, containers or cargoes, act of omission of the Customer or merchant as a result of compliance by the Customer or Merchant, or

(2) for any other loss or damage unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the Company or its employees, nor

(3) for any loss damage or expense arising from or in any way connected with the packing, labelling, marks, brands, weights, numbers, contents, quality or description of any goods however caused."

That part of the clause in (3) is irrelevant to our considerations. As for the rest it is enough to notice, for the moment, that that part of the clause in (1)(iii) deals specifically with theft and that there is no exception by way of wilful neglect or default.

30. The cars were undoubtedly stolen and it is conceded by the Defendant that the theft was due to the negligence of its servants or agents. Before us it was argued, albeit faintly, by the Plaintiff that they were stolen by or with the participation of the employees of the Defendant, its agents or sub-contractors. The circumstances of the theft show that the thieves must have been given information as to the presence of the cars at, and their location in, the depot. The Judge at first instance went very carefully through the evidence and found that that information was most probably provided by a servant or agent of the Defendant. We have some doubts as to that but it is unimportant, for the Judge declined to take the further step of holding that the informant was a participant in the theft and, like the majority in the Court of Appeal, we see no reason to interfere with this.

31. We digress for a moment to correct a misunderstanding by the Court of Appeal as to the decision in Morris v. C.W. Martin & Sons, Ltd., [1966] 1 Q.B. 716 so far as it deals with the liability of a bailee for theft by its own servant. Each of the majority in the Court below read the decision as meaning that a bailee could never be liable for such a theft unless that servant had been entrusted with the article by the bailee. With respect, that is not what the case decided. In reading the judgments in that case it is important to bear in mind that the bailee was found not to have been negligent in any way. The question before the Court was whether the bailee was nevertheless liable for the theft by its servant. It was held that it was on a vicarious basis, a bailee remaining liable for its responsibilities when it delegates in that way. Subject to any modifying terms, the duty of a bailee is to take reasonable care of the article bailed to it. It follows logically that if a bailee negligently allows the article to be stolen it is liable whether the theft is committed by a stranger or by a servant or agent whether entrusted with the article or otherwise. So, in Swiss Bank Corporation v. Brink's-Mat [1986] 2 Lloyd's Rep. 79 the Defendant was found not to have been negligent. The employee who had participated in the theft of the money was not one entrusted with the safe custody of it and the Defendant was held not liable. Clearly the decision would have gone the other way if either the Defendant had been negligent or the servant had been entrusted with safe custody.

32. Mr. Geoffrey Ma, S.C., who appeared for the Plaintiff argued that neither set of terms applied and alternatively that only one set, that of the Defendant, applied. Mr. Michael Thomas, S.C., who appeared for the Defendant, argued that both sets of terms applied, alternatively if it were necessary to choose or to ratify the application of the Fast Trans terms the Defendant had done so by pleading them in its Defence. He based his arguments upon the Himalaya clause and what was referred to before us as the doctrine of sub-bailment. Mr. Ma took the position that neither basis could apply upon the facts.

33. The Himalaya clause takes its name from the vessel involved in the case of Adler v. Dickson [1955] 1 Q.B. 158. Its genesis, rationale and development are too well known to require elaboration here. In order for the Defendant to take advantage of the Fast Trans clauses it would have to bring itself within the conditions, mutatis mutandis, laid down by Lord Reid in Midland Silicones, Ltd., v. Scruttons, Ltd., [1962] A.C. 446 at 474 as subsequently confirmed and applied in New Zealand Shipping Co., Ltd., v. A.M. Satterthwaite & Co., Ltd., (The Eurymidon) [1975] A.C. 154 and Port Jackson Stevedoring Pty., Ltd., v. Salmon and Spraggon (Australia) Pty., Ltd., (The New York Star) [1981] 1 W.L.R. 138. There was no dispute as to the fulfilment of these conditions except for the third which in the words of Lord Reid was that

"...the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice ..."

It was not shown that the Defendant had authorised Fast Trans to contract on its behalf. As already noted above, Mr. Thomas relied upon ratification by the Defendant when it pleaded the Fast Trans terms in its Defence well after the event. Mr. Ma took the point that the terms of any contract or bailment, including a sub-bailment, must be fixed when the parties entered into the transaction.

34. So far as the so-called doctrine of sub-bailment is concerned it is unnecessary to go further back than the decision in Morris v. C.W. Martin & Sons, Ltd., (Supra). More recently, in The Pioneer Container [1994] 2 A.C. 324 the headnote of the report, which accurately summarises the judgment, reads,

"... where goods had been sub-bailed with the authority of the owner, the obligation of the sub-bailee towards the owner was that of a bailee for reward and the owner could proceed directly against the sub-bailee under the law of bailment without having to rely on the contract of sub-bailment between the bailee and the sub-bailee; that a sub-bailee who voluntarily took goods into his custody could only invoke terms of the sub-bailment qualifying or otherwise affecting his responsibility to the owner if the owner had expressly consented to those terms or had ostensibly authorised them ..."

The Defendant was unarguably a bailee of the cars when they were stolen but Mr. Ma pointed to the fact that Fast Trans had never been in the possession or custody of them so that the Defendant could not have been a sub-bailee. He therefore argued that the so-called doctrine of sub-bailment had no application. Mr Thomas accepted that Fast Trans had never had actual possession or custody of the cars but argued that by reason of a number of facts revealed in the evidence it was a quasi-bailee with the result that the Defendant was a sub-bailee and that the doctrine was brought into play.

35. We heard a great deal of detailed argument and were read a large number of authorities upon the issues involved. It is not out of disrespect that we do not rehearse them. There is, instead, a more basic point raised by Mr. Ma which we would address. Both the Himalaya clause and the so-called doctrine of sub-bailment are mechanisms designed to extend the benefit of the terms between the original parties to the sub-contractor or sub-bailee. Neither, however, are mechanisms which can supervene over the actual terms of a sub-contract or a sub-bailment. So, in logic, where a sub-contractor or a sub-bailee expressly declines to enter into a transaction except upon his own terms alone there can be no room for the incorporation of the terms of the contractor or bailee, still less ratification of those terms after the event. No reported decision produced to us dealt with such a question. It is necessary, then, to turn to the terms upon which the Defendant contracted with Fast Trans or the terms upon which it accepted the cars into its bailment or sub-bailment.

36. Fast Trans and the Defendant were members of the same group of companies, namely the Jardine Pacific Business Group. On 8th June, 1992, there was a meeting attended by the Defendant and other freight forwarders, including Fast Trans, in the group. It was held to try to come to a consensus on trading terms. The result as put by Mr. Cheung Kam Keung, the general manager of the Defendant, was that

"At the meeting it was agreed that Hoi Kong's Standard Conditions of Business would be adopted and a copy was given to Hoi Kong's main customers, including Fast-Trans. Hoi Kong were also provided with the Standard Conditions of Business which it was agreed would be adopted by the freight forwarders, including Fast-Trans."

37. This is somewhat ambiguous and it is unfortunate that it was not addressed in cross-examination. Nor was it dealt with in either of the Courts below. Having regard to the purpose of the meeting and having regard to the differences between clause 13(b) of the Fast Trans terms and clause 4(a) of the Defendant's terms it is apparent that the meeting failed to arrive at a consensus other than that the parties agreed to differ, with the freight forwarders, including Fast Trans, agreeing to use their own terms in contracts with its customers while the Defendant would use its own with the freight forwarders. On each of the Defendant's documents as between itself and Fast Trans there is a legend which reads

"All transactions which are entered into with the company incorporate the company's trading terms and conditions a copy of which is available on request."

It may be said that this is also ambiguous since it does not say that only the Defendant's terms will apply. There is, however, clause 2(a) in the Defendant's terms to the same effect, followed by sub-clause (b) which reads

"If the customer wishes to contract with the Company otherwise than on these terms, this is subject to special arrangements which will only apply if reduced to writing and signed by a director of the company. Save as aforesaid, no agent or employee of the company has authority to vary, cancel or waive these terms."

Mr. Thomas rejected any argument that Fast Trans had contracted with the Defendant as agent of the Plaintiff and Mr. Ma advanced no such argument. The argument put forward by Mr. Thomas was that even if it were the position that the Defendant would only contract on its own terms with Fast Trans this had no application to any bailment. We cannot accept that.

38. It is quite clear that Fast Trans had authority to contract so as to bind the Plaintiff to whatever terms these might have been. Clause (b)(ii) of the Fast Trans terms, however, did not stop short at contract. It authorised Fast Trans to do any act and to bind the Plaintiff by all such acts upon whatever terms there may have been. In addition, it is difficult to conceive of any bailment upon terms in which there is not a contract which would supply those terms. In the present case the Plaintiff must be taken to have known of the Defendant's terms and to have assented to them. It would be unusual for a freight forwarder to have its own containerisation facilities and vessels. In the month before, the Plaintiff had had two similar transactions with Fast Trans in which the Plaintiff had been requested or instructed by Fast Trans to deliver the cars to another depot of the Defendant. Clause 4(b)(ii) of the Fast Trans terms clearly envisaged that Fast Trans might well sub-contract or otherwise enter into transactions with other persons in the course of fulfilling its obligations and in fact the Plaintiff had been asked to and did deliver the cars to the Defendant's No. 1 Depot. Whether or not Fast Trans acted as an agent for the Plaintiff in contracting with the Defendant and whether or not Fast Trans was a bailee, Fast Trans effected the bailment to the Defendant upon the Defendant's terms. If the Plaintiff, knowing of and assenting to the Defendant's terms, had dealt directly with the Defendant there can be no doubt that the Defendant's terms would have applied either in contract or in bailment. It makes no commercial sense or logic to say that the position, so far as bailment is concerned, must be different simply because an intermediary was used. The Plaintiff authorised Fast Trans to effect the bailment on those terms. It follows that upon the facts in the present case we reject the argument of Mr. Thomas that both sets of terms applied or could apply just as we reject Mr. Ma's argument that neither applied. We accept Mr. Ma's alternative argument that the Defendant's terms applied. It remains to be decided whether the Defendant's clause 4(a) exempted the Defendant from liability.

39. No argument was advanced that that clause was void or unenforceable by reason of the provisions of the Control of Exemption Clauses Ordinance, Cap. 71, or otherwise. We therefore turn to its interpretation. It begins with a blanket exemption for any loss or damage due to the matters listed. There are two exceptions. The first, in that part of the clause numbered (1)(iii) above, is for theft committed by the employees of the Defendant, its agents, servants or sub-contractors. On the findings of fact already mentioned the exception has no application. The second, in that part of the clause numbered (2) above, is for loss or damage due to the conclusively proven neglect or default of the Defendant or its employees. If that part numbered (1)(iii) is unqualified by that part numbered (2) there is a total exemption from liability for any theft other than that specifically mentioned. It comes as something of a shock to think that a party such as the Plaintiff would entrust valuable property such as these cars to a container depot such as the Defendant's No. 1 Depot with its parlous lack of security on terms that the Defendant would not be liable for theft by, for instance, strangers. This is especially so in the light of the evidence that it was well known at the time that theft of cars from container yards was a serious problem. We must, however, construe the clause as we find it. After anxious consideration we have concluded that it is not possible to read that part numbered (1)(iii) as being qualified by that part numbered (2) for a number of reasons. First, the layout of the various parts of the clause, or its language, does not allow it. After the words, 'The company shall not be liable' each of the three parts begins with the word 'for' which indicates the beginning of a separate category. A small, although only a small, amount of support is given to this by the presence of a comma and the word 'or' between the end of part (1) and the beginning of part (2). Secondly, part (1) contains a list which is long but which is not comprehensive. It does not, for instance, cover loss or damage caused by wantonly destructive acts of hooligans. Part (2) is therefore clearly applicable to loss caused otherwise than by acts covered in part (1). Thirdly, part (2) applies to 'any other loss or damage' which in plain language excludes the matters in part (1). Then the rest of part (2) provides the exception already mentioned where it is conclusively proved that such loss or damage was due to proven neglect or default. 'Such loss or damage' must refer to 'any other loss' and not to the matters in part (1). Part (2) is most naturally read as referring to any loss or damage other than that in part (1). It is a sweep-up provision.

40. It must be accepted that there is an argument that the clause might be read differently. Setting it out again, in brief, it could be as follows:-

41. The company shall not be liable

(1) for any loss or damage ... due to

(i) fire

(ii) explosion

(iii) theft (with exceptions)

(iv) riots, etc., or

(2) for any other loss

unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the company or its employees ....

Again, we need not concern ourselves with part (3). Read in this way the words 'unless it is conclusively proved ...' would qualify both part (1) and part (2). The words 'unless it is conclusively proved' and 'proven neglect or default' would reverse the burden of proof and so the clause would not be simply repeating the common law position. The difficulty, however, is that reading the clause in this way would unnecessarily strain the language having regard to the matters in part (1)(iv). It is difficult to see how the neglect or default of the Defendant's employees could cause a loss due to the matters in that part.

42. The interpretation of the clause is not without difficulty. In the final analysis the choice is between the two constructions discussed. The second of them involves straining the language whereas the first reads easily and naturally however extreme the result. It means that the Defendant is not to be liable for theft save for the exceptions set out in part (1)(iii) but that is not as startling as it might seem at first, for clause 13 of the Defendant's terms warns that it will not effect insurance on any goods except upon express instructions so in effect advising the customer to obtain its own cover if desired. It follows that, negligent and in default as the Defendant was, the Defendant is exempted from liability for theft. In addition, ordinary language cannot permit the words 'unless it is conclusively proved ...' to qualify only the word 'theft' but not the other words in part (1)(iii). Finally, if those other words were so qualified it would make a nonsense of their inclusion since part (1)(iii) would then provide that the Defendant would not be liable for any loss or damage due to theft unless it was due to the proven neglect or default of the Defendant or its employees and then go on again to provide that the Defendant would be liable for theft by employees of the Defendant, its agents, servants or sub-contractors if it was a loss due to the proven neglect or default of the Defendant or its employees. That cannot be the right construction.

43. In the circumstances it is unnecessary for us to decide upon the question of limitation of liability. We simply add that the limitation found by the Court of Appeal was that provided in clause (11)(a)(iv) of the Defendant's terms which limited the recoverable loss to 'US$500 per package.' We are far from satisfied that a motor car can be a package but we need not decide this. This appeal is dismissed with costs.

Mr Justice Nazareth NPJ:

44. I also agree with the judgment of Mr Justice Ching PJ. There is nothing I wish to add to what he has said save as to the only matter upon which there is dissent, i.e. the construction of clause 4(a) of the Defendant's Trading Terms and Conditions ("clause 4(a)"). That clause, in the form it appears in those Trading Terms and Conditions, is reproduced in the judgment of Mr Justice Litton PJ; and it appears in the judgment of Mr Justice Ching PJ split into three successive parts ("part (1)", "part (2)" and "part (3)") to reflect the construction contended for by the Defendant ("the Defendant's construction").

45. The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say, the meaning of the document or a particular part of it is to be sought in the document itself (Chitty on Contract, 27th Ed, Vol 1 para 12-040). It has not been suggested that that the remainder of the Defendant's Trading Terms and Conditions assist in the construction of clause 4(a). Its meaning, therefore, falls in the first instance to be ascertained from its own words. A plain meaning, i.e. the Defendant's construction, does emerge from clause 4(a) itself, as Mr Justice Ching PJ has demonstrated by his clear and cogent reasons. There are other minor reasons that may be added.

46. True, it is that "or" occurs fourteen times prior to the fifteenth such occasion, i.e. at the end of part (1) where it is for the only time in the entirety of clause 4(a) preceded immediately by a comma. But it is not any of this upon which the Defendant's construction or Mr Justice Ching PJ's splitting-up of clause 4(a) into three parts turn. Clause 4(a) can be seen to plainly and naturally provide that the company will not be liable in three successive respects -

(1) For loss or damage due to the several causes specified in the first of those three parts, i.e. fire, explosion, theft etc.

(2) For any other loss or damage unless such is conclusively proved to be due to the proven neglect or default of the company or its employees.

(3) For any loss damage or expense connected with packing, labelling etc.

47. It is this grouping into those three plainly separate and different parts that is reflected in the splitting up of clause 4(a), as I see it, to facilitate its construction. Whether spilt up or not, there are unquestionably the foregoing three separate ways in which exception from liability is expressed. It should be noted that part (3) is neutral in its significance and does not contribute to or against the Defendant's construction.

48. Returning then to the fifteenth occurrence of "or" and the comma that precedes it, while it is not these that create part (1), they are consistent with being markers of the end of part (1); more than that, appearing for the first and only time in conjunction in clause 4(a), they positively point to that situation.

49. Likewise "nor" signals the end of part (2), a fortiori in conjunction with the immediately preceding comma. And "other" in the opening words of part (2): "for any other loss or damage" must mean loss or damage other than the loss or damage previously mentioned i.e. in part (1). It should be noted that the expression used is "any other loss or damage" not "any other cause" which would not lend the same support to the Defendant's construction.

50. It is not suggested that part (3) does not relate to a third category of exempted loss or damage.

51. That no word should be denied its meaning without compelling reason is an elementary rule of construction. There is no reason at all why "other" with reference to loss or damage at the beginning of part (2) should be denied its clear meaning, and, indeed, disregarded altogether. But that is what the Plaintiff's construction of necessity does entail.

52. I have adverted to the foregoing minutiae of clause 4(a) and their implications not for their significant support of the Defendant's construction (which they clearly do provide) but to demonstrate that they do not undermine that construction.

53. Reverting then to the position at the end of the opening stage of the construction process, the Defendant's construction emerges very clearly as the plain meaning of the relevant words in the context of clause 4(a) and the Defendant's Trading Terms and Conditions. That would ordinarily spell the end of the construction exercise in the absence of any of the recognised reasons for going further, emerging in a compelling way. Those of such reasons that might apply here, simply stated, are resulting absurdity, inconsistency with other parts of the Defendant's Trading Terms and Conditions, and any countervailing rules or principles of law.

54. As I have said, it is not suggested that there is any resulting inconsistency within the Defendant's Trading Terms and Conditions that flows from the Defendant's construction.

55. It is, however, suggested that there is an element of absurdity in a bailee of the nature here, whose very duty it is to take care of a customer's goods, being able to repudiate that duty. Likewise, it falls to be considered whether the nullifying of that fundamental duty by the Defendant's construction does not require the rejection of that construction in the light of the observation of Steyn J, as he then was, in Associated Japanese Bank v Credit du Nord [1989]1 WLR 225, 251D, referred to by Mr Justice Litton PJ.

56. Both points can conveniently be addressed together. The appropriate starting point is whether a bailee is entitled to contract upon terms. That entitlement seems obvious and has not been questioned by the Plaintiff in these proceedings. Nor has the Plaintiff sought to rely upon the Control of Exemption Clauses Ordinance Cap. 71. Accordingly, it must be accepted that the Defendant as a bailee was free to contract upon terms and to thereby limit its liability as a bailee. It must follow, therefore, that however distasteful its action in doing so may seem, the terms specified will prevail in the absence of good reason to the contrary.

57. As to absurdity, the evidence is that the Plaintiff well knew of the Defendant's insistence upon contracting on its own Trading Terms and Conditions. The Plaintiff was warned by the Defendant of the necessity of getting its own insurance. And it was charged a total fee of only $3,648 for the Defendant's services, hardly the sort of sum that would suggest an intention to accept liability for the safety of goods of the value of some $1m. I, therefore, see nothing of absurdity in the arrangements (made not for the first time) but an ordinary business transaction by commercial organisations in conditions of equality with no suggestion of the implications not having been fully appreciated.

58. As to Steyn J's observation in the Associated Japanese Bank case, this would presumably fall to be considered as a rule or principle of law. However, it does not seem to me to have that status. What Steyn J said was this:

"Throughout the law of contract two themes regularly recur - respect for the sanctity of contract and the need to give effect to the reasonable expectations of honest men. Usually, these themes work in the same direction. Occasionally, they point to opposite solutions."

59. I am unable to read this philosophical observation as authority for what may be perceived by the courts to be the reasonable expectations of honest men, to be utilised at large to modify or reject the plain meaning of the words in a contract, particularly a commercial contract, nor a fortiori to be utilised as the starting presumption here. Moreover, the observation forms no part of the ratio of Steyn J's decision. It is also significant that when Steyn J in his actual reasons for his decision came closest to possibly relying upon the need to give effect to such expectations (at p.263G), he relied upon merely the reaction of "reasonable men" without any reference to "honest". Significantly, insofar as Steyn J gave effect to the expectations of reasonable men, he did so upon the already established basis in Shirlaw v Southern Foundries (1926) Ltd [1939]2 KB 206, 227 i.e. a term which although not expressed in the contract could be implied if the court were satisfied that reasonable men faced with the term would without hesitation say: yes of course, that is "so obvious it goes without saying".

60. It remains to say that if such expectations were permitted to be utilised in the foregoing manner, that would be destructive of the sanctity of contracts and of the certainty that commercial men seek to secure by their words deliberately used upon legal advice. For my part, if there were here a clash between the two themes (there is plainly not in my view), I have no doubt the sanctity of the Defendant's Trading Terms and Conditions contractually adopted, and the plain meaning of the words used should prevail.

61. In concluding, it must be acknowledged that the wording of clause 4(a) is neither elegant nor ideal. But its meaning from a careful reading is so clear and compelling as to leave no room for ambiguity and obscurity. In the absence of these, there is neither need nor warrant to resort to secondary rules of construction, including the contra proferentem rule. In any case, the latter itself applies only where there is ambiguity or obscurity.

62. I would, therefore, also dismiss the appeal with costs.

Sir Edward Somers NPJ :

63. I am in agreement with the judgment of Mr Justice Ching PJ and that of Mr Justice Nazareth NPJ on the construction of the exemption clause. Accordingly, I too would dismiss the appeal with costs.

Chief Justice Li :

64. The Court, by majority, (Mr Justice Litton PJ dissenting) dismisses the appeal with costs.