DFS TRADING LTD. AND ANOTHER v. SWISS AIR TRANSPORT CO LTD. AND ANOTHER

HCCL248/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.248 OF 1995

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J U D G M E N T

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INTRODUCTION

1. On the morning of 13 March 1995 Swissair flight No.SR170 arrived at Kai Tak Airport. On board was a consignment of 39 packages which were being shipped by Duty Free Shoppers, Geneva, to Duty Free Shoppers, Hong Kong. Some 33 of these packages contained expensive Swiss watches, predominately of the Rolex brand, representing a full resale value of approximately HK$12 million.

2. The freight forwarder responsible for the shipment was Jacky Maeder, Geneva ("JM Geneva"), which was sending the goods in question to Jacky Maeder, Hong Kong ("JM Hong Kong") for onward delivery to DFS, Hong Kong.

3. Had matters gone to plan, such delivery was scheduled by JM Hong Kong for early the following day, 14 March 1995. This did not occur. Because at or around 8.00 pm on 13 March this consignment of 39 packages was collected from Hong Kong Air Cargo Terminals Limited ("HACTL") by an unauthorised third party, a lorry driver named Fong Kwai Hui, who had been given the necessary document of title for the goods, the Shipment Release Form ("SRF"), at Market Street carpark, Yamatei, by an unknown person who had instructed him that they be collected from the airport. Upon Mr Fong's return to Market Street with the goods, the rogue and his confederates duly made off with them, and efforts to trace the stolen property have met with no success. Neither has any person been arrested nor been charged with this theft, despite extensive police investigations.

THE PRESENT PROCEEDINGS

4. This incident spawned the present action, wherein subrogated insurers of DFS Trading seek compensation for this loss.

5. Not all claims have gone to trial. The plaintiffs' action against the 2nd defendant, Cathay Pacific Airways Limited, was discontinued by consent, whilst the actions against Swissair, the 1st defendant and HACTL, named as 3rd defendant, have been stayed by agreement.

6. Accordingly, the claim with which this judgment is concerned pits the Geneva and Hong Kong DFS companies, the 1st and 2nd plaintiffs herein, against their Jacky Maeder counterparts in Geneva and Hong Kong, the 4th and 5th defendants in this case.

7. When this cargo claim was originally pleaded, a considerable number of issues arose on the pleadings, including, inter alia, the scope of the contractual and statutory duties of JM Geneva and JM Hong Kong, and whether these entities were in breach of any relevant duty under the Warsaw and Guadelejara Conventions, alternatively whether liability arose on the basis of bailment, conversion and detinue.

8. For present purposes, however, these various issues are no longer 'live', nor, as both leading counsel have agreed, is there any necessity in the analysis of liability in this case to draw any distinction between the DFS entities on the one hand and the JM entities on the other - an approach which is singularly helpful and which has done much to smooth the path of what regrettably became an attenuated trial, the hearing of which took place in two tranches spanning a period of some eight months.

THE FUNDAMENTAL ISSUE

9. The sole focus of this action is the attempt by the plaintiffs to break limit under the Amended Warsaw Convention ("AWC"), the provisions of which apply to Hong Kong pursuant to Schedule 1 of the Carriage by Air Ordinance, Cap.500.

10. It follows, therefore, that the fundamental question for determination in the case is whether the 4th and 5th defendants' liability is limited by AWC, Article 22 or unlimited by reason of the operation of Article 25.

11. There is no controversy over quantum per se, in terms either of the limited or unlimited figures. On behalf of Jacky Maeder Mr Haddon-Cave SC accepts that under Article 18 of the Convention, DFS are entitled to the Article 22 limit, which in this case has been calculated at HK$101,668.50 (that is, 753.1 kg x HK$135). Mr Fok SC, on the other hand, maintains that his clients, DFS, are entitled to judgment in the sum of HK$10,992,241 (for the cargo) and ￡16,213.33 (representing survey fees). The unlimited figure for the cargo represents the sound arrived value of some $12.75 million, reduced to reflect discounts to the full retail price of the watches which otherwise would have been effected at the point of sale.

12. In addition to the main point, a subsidiary issue also has been raised by the defendants, namely whether the plaintiffs caused or contributed to the loss of the goods within the terms of AWC, Article 21.

THE WARSAW REGIME

13. The AWC is an exclusive code relating to compensation for injury to or death of a passenger or loss of or damage to baggage or cargo during international carriage.

14. In terms of cargo, Article 18(1) of the Convention imposes primary liability :-

"The carrier is liable for damage sustained in the event of the destruction or loss of, or of damage to, any registered baggage or any cargo, if the occurrence which caused the damage so sustained took place during the carriage by air."

15. It is common ground that at the time of the loss in this case the carriage had not ceased.

16. Article 22 sets out the basic package liability limit (250 francs per kilogram of cargo absent a special declaration of value at delivery, which did not occur in this case), whilst Article 21 makes provision for the finding of contributory negligence :-

"If the carrier proves that the damage was caused by or contributed to by the negligence of the injured person the court may, in accordance with the provisions of its own law, exonerate the carrier wholly or partly from his liability."

17. As earlier observed, this Article is invoked by the defendants in this case.

18. It is, however, Article 25 which lies at the heart of this action. This provision provides as follows :-

"The limits of liability specified in Article 22 shall not apply if it is proved that the damage resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result; provided that, in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment."

19. It is accepted that Article 25 provides a means by which a plaintiff may escape the prima facie limits of liability imposed, albeit the requirements imposed by Article 25 are strict, the burden being on the plaintiff to prove the requisite conduct and knowledge.

20. It is further common ground that Jacky Maeder are entitled to limit their liability to the sum of HK$101,668.50 unless DFS can prove either (a) intent to cause damage or (b) recklessness with knowledge that damage would probably result. In the latter context the case law that has emerged on the point clearly establishes that this rubric imposes a subjective test, namely actual knowledge at the time that the act or omission in question will probably result in damage; see, for example, the following leading authorities from four common law jurisdictions : Goldman v. Thai Airways International Ltd, [1983] 1 WLR 1186 (Eng CA); SS Pharmaceutical Co. Ltd v. Qantas Airways Ltd, [1991] 1 Lloyds 288 (Aus CA); Ka Da Watch Co. Ltd v. Skyworld Air Express Ltd, [1991] 1 HKC 184 (CA); Gurtner v. Beaton, [1993] 2 Lloyds Rep 369 (Eng CA); Hang Seng Bank Ltd of New Zealand v. Cathay Pacific Airways Ltd and Air New Zealand Ltd, unrep., HCCL37 of 1990, Waung J, 15 August 1997; Nugent v. Michael Goss Aviation Ltd, (CA, England, Transcript 14 April 2000); Rolls Royce PLC & anr v. Heavylift-Volga Dnepr Ltd & anr, [2000] 1 Lloyds Rep 653 (Eng Com Ct); and Fujitsu Microelectronics & ors v. Singapore Airlines Ltd & ors, Civil Appeal No.21 of 2000, unreported, (Sing, CA).

THE UNDISPUTED FACTS

21. The bulk of the primary factual material in this case has not been the subject of dispute. And whilst a good deal of argument at this trial revolved around what might popularly be referred to as 'whodunnit' (and, indeed, who else could have done it), there was little if any controversy over when, where and basically how this theft took place. Accordingly, it may assist now to outline the principal events of 13 and 14 March 1995, and shortly thereafter.

22. The 39 packages (33 of which contained watches, four containing flammable liquid, one containing shoe care products and one containing handkerchiefs) were carried pursuant to four House Airwaybills, wherein JM Geneva acknowledged receipt of the goods from DFS Geneva, and a Master Airwaybill, No.085-42872502 dated 10 May 1995, whereby JM Geneva consigned the goods to JM Hong Kong.

23. This consolidated cargo, with regard to which, as I have said, there had been no special declaration of value, was carried on Swissair flight SR7905 from Geneva to Zurich, and thence on SR170 from Zurich to Hong Kong. In fact, this consolidated shipment arrived somewhat earlier than had been anticipated - it had originally been designated for the like Swissair flight on 15 March 1995 - so that staff of JM Hong Kong had no advance warning of the pending arrival of these goods.

24. On arrival at Kai Tak at 10.35 am on 13 March 1995 the consolidated consignment was unloaded from the aircraft, and in accordance with the relevant procedures, was stored in the import terminal of HACTL pending completion of Customs formalities and collection by JM Hong Kong.

25. HACTL broke down the consolidated load and stored the various items in six different locations within the import terminal. HACTL also produced an SRF - the document which has assumed considerable profile in this case - which was then transmitted to the import cargo office of Cathay Pacific, which in this instance was the handling agent for Swissair. The airwaybills relating to this consignment were also sent to Cathay Pacific's import cargo office.

26. Jacky Maeder's office at Kai Tak was in Office 343 of the New Cargo Complex office block. It maintained a number of employees there on a regular basis. Other, generally more senior officers of the company, were based in the Jacky Maeder town office at San Shan Road, Tokwawan. As might be expected, there was regular liaison between the two offices. So it was that at about 3.30 pm on 13 March 1995, Mr Danny Kiang Lip Shing, the Import Manager of the Air Freight Department who worked in the town office, telephoned Mr Horace Shum, an Assistant Supervisor in the Import Department who worked in the airport office. In this call Mr Kiang instructed Mr Shum to obtain from Cathay Pacific the Airwaybills and the SRF for the consignment in question. Accordingly, Mr Shum sent Mr Terence Lam, an Import Operations clerk, to collect the Master Airwaybill and the SRF for this cargo, and Mr Lam duly returned to Office 343 with these (and other documents relevant to other cargoes) at about 4.20 pm.

27. At this stage Mr Lam, assisted by the other Jacky Maeder Assistant Import Supervisor based at the airport, Mr Lai Yiu Nam, began to sort the documents arising from the shipment, a process which in evidence Mr Lam described as "cutting" the documents :-

"We would separate those documents which would be required to be presented at the warehouse in order to get the goods from those documents which would not be required at the warehouse. Those documents which would not be required at the warehouse would be sent back to our head office ..."

28. One of the documents which was required to remain in the airport office was the SRF, or "gate paper", as Mr Lam also described it, which document came in triplicate, the individual leaves being coloured pink, white and green respectively. This particular SRF, together with the other retained documents, was placed by Mr Lam in "a drawer specifically assigned for this purpose, to store this type of document"; there is some suggestion in Mr Shum's evidence that it was Mr Lai who in fact put the documents, including the SRF, into the drawer, but it does not greatly matter : Mr Lai was clearly assisting Mr Lam at the time. In any event, this desk drawer was unlocked, and could not be locked, although it was almost invariably used for the storage of cargo documents in this manner. At the time, Mr Lam also recorded the relevant shipment details in a logbook used for this purpose.

29. Had matters taken their usual course, the SRF would have remained in the drawer overnight pending its presentation at the time of collection of the shipment the following morning. As a freight forwarder regularly importing consignments and using the airport facilities, Jacky Maeder had a designated daily time slot for collection from HACTL, namely, from 6.00 am to 11.00 am; it also used a retained contracted haulier, one Champion Transport Company, for its deliveries, which in this particular instance, of course, would have been to the DFS Hong Kong premises in Kowloon.

30. At the time that the SRF for this particular DFS consignment was placed in the desk drawer, there were five Jacky Maeder employees present in Office 343 : Mr Shum, Mr Lam and Mr Lai, together with two others, Mr Mak Tak Wo, a Senior Import Operations clerk, and a Mr Daniel Ho, another Import Operations clerk. There was also one other gentleman, one Ah Bing, a Panalpina employee, who was asleep in the corner of the office. Curiously this appeared not to be an unusual occurrence : as Mr Ho said in evidence "at that time many people would come into our office and sleep in our office". Be that as it may. Mr Ho appears to have been the first to leave the office that evening, between 4.30 and 5.00 pm. Mr Shum, who had been on an errand to collect airwaybills relating to other consignments had returned, and had played cards with Mr Mak and Mr Lai until about 5.30 pm, then leaving with those gentlemen at around 5.45 pm. Ah Bing had already left a little earlier, at about 5.30 pm.

31. This left Mr Lam alone in the office. His evidence was that he was due to attend a Mandarin class, and he had stayed on before leaving to go to that. In any event, at about 6.00 pm Mr Raymond Chan, an Import Supervisor working in the town office, had telephoned the airport office and had spoken with Mr Lam, who had been asked to arrange to take delivery of another cargo; to this end Mr Chan informed Mr Lam that a colleague would later be delivering to the airport office an authorisation letter from a customer which would enable the SRF for that other cargo to be obtained. In the event, these documents were delivered at about 7.05 pm, when Mr Au Kwong Wai had slipped them under the locked door of Office 343, Mr Lam already having departed at 6.30 pm to attend his class. It appears that on his departure Mr Lam did not double lock the door (as was possible), simply relying on the Yale lock to engage when he closed it.

32. At about the time Mr Au was putting documents under the door of Office 343, Mr Fong Kwai Hui, a self-employed haulier, was contacted at home by his radio controller, and was instructed to proceed to a carpark entrance in Market Street, Yaumatei, where he would receive instructions from a person referred to as 'Chin' or 'Ching'. Mr Fong duly went to the Market Street location and there met this person, who gave him instructions to collect goods from the HACTL Terminal and to deliver them back to the Market Street location. Mr Fong was given the SRF which had been placed in the desk drawer in Office 343; as Mr Fong's police statement makes clear, he was not expecting to go alone to collect the goods from HACTL, and he was paid an extra sum for this service.

33. Mr Fong duly proceeded to the HACTL Terminal, arriving there at about 7.55 pm. After producing the SRF relating to the consignment, and upon giving his ID number (which was recorded on the SRF) and upon signing for the consignment on the same document, he was given delivery of the 39 cartons comprising the consignment. Mr Fong duly conveyed these cartons in his vehicle to Market Street, where at about 9.25 pm he delivered them to 'Ching', who was with two other men. Mr Fong was directed to unload the cartons onto the pavement, which he did, and after receiving payment of $500 for his services, he left.

34. The use of the stolen SRF to obtain the goods from HACTL lies at the core of this case. Its absence from the desk drawer in Office 343 appears to have been noticed later that evening. Pursuant to the instructions which earlier had been given to him by Mr Chan, Mr Lam had returned to Office 343 at 10.00 pm. He was required to deal with the documents relating to the other cargo, which documents he found now slipped under the door, but his evidence is that upon his return he also noticed that the SRF for the DFS shipment was missing from the desk drawer. Nevertheless he then did nothing about this, thinking, he said, that the SRF had been taken for safekeeping by his supervisor, Mr Shum. Accordingly, no action was taken about the missing document, and shortly afterwards Mr Lam left for the Cathay Pacific office to present the documents to obtain the SRF for the other cargo. He returned to Office 343 at about 10.45 pm, and finally left the office at about 11.00 pm that night.

35. The theft of the SRF, and of the correlative DFS consignment, apparently was discovered early the following morning, that is Tuesday 14 March 1995, when Mr Horace Shum went to Office 343 and found the SRF missing from the desk drawer. Urgent telephone calls were made to Mr Raymond Chan and Mr Lai Yiu Nam, and also to Mr Lam, who arrived at the office at 7.30 am. Inquiries to the clearing section of the HACTL cargo terminal revealed that the goods had been taken away the night before, and the police were alerted.

36. By fax of the same day, DFS Hong Kong were informed of the theft, whilst Mr Andreas Speiser, the Regional Managing Director of Jacky Maeder, reported details of the theft to Head Office in Switzerland by a flurry of faxes on 14 and 15 March, each fax being written as further information came to hand, wherein details of the theft were given and new procedures for high value cargoes such as watches were proposed; I note that one of his faxes of 15 March contained the observation that "we have most likely hired some staff with criminal background / intentions".

37. Further, by letter dated 16 March 1995 to the Hong Kong Association of Freight Forwarders ("HAFFA") the authorisations of Lai Yiu Nam and Terence Lam Wing Tai to take delivery of documents of title were withdrawn, and on the same day both Mr Lai and Mr Lam were dismissed "with immediate effect" by JM Hong Kong.

THE EVIDENCE

38. The course of the evidence in this case did not run smooth, being interrupted by the adjournment of the hearing. This adjournment was necessitated by certain evidence which was given at the outset of the defendants' case, which in turn caused inquiries to be made as to whether, as then was asserted, HACTL (as opposed to airline handling agents such as Cathay Pacific) had in place a system of internal computer verification as to the identity and authority of the bearer of an SRF at the time of actual collection of cargo; this in turn posed the question of whether the SRF was a 'bearer' document in the accepted sense, or was it a 'conditional bearer' document, subject always to HACTL verification?

(i) The plaintiffs' witnesses of fact

39. This latter aspect of the case provided a significant diversion, and signally affected the course of this trial. Originally, the plaintiffs' factual evidence had consisted of but two witnesses : Mr Jean Jacques Bourguignon, the current General Manager of DFS Geneva, at the date of this theft Director of Export Administration; and one witness under subpoena, Mr Au Kwong Wai, the independent contractor who worked for JM Hong Kong making deliveries, and who was questioned about the content of his police statement concerning his delivery of documents to Office 343 at about 7.05 pm on the evening of 13 March 1995.

40. So far as Mr Au was concerned I did not find his evidence of particular import, but I accept his statement that when he made the delivery in question the door of Office 343 was locked, and that he had slipped the documents he had been required to deliver under the door - the same documents which, of course, had been found on the office floor by Mr Lam upon his return to the office that night at about 10.00 pm.

41. As to Mr Bourguignon, I accept his evidence in its entirety. He described the nature of the goods regularly shipped by DFS Geneva - "usually highly sensitive cargo in the sense that it is highly desirable fashion merchandise" which was sold in Asia, the United States and Oceania - and the specific DFS requirements for a freight forwarder, namely, highly reputable, with an international network which was also very good on the routes DFS served, and which was accustomed to handle the type of goods DFS normally shipped. The usual modus operandi was that DFS made consolidated shipments of their own products - as here - and in this instance JM Geneva had effected the consolidation, and had prepared and cut the House Airwaybills. In fact, DFS Geneva had been using JM Geneva to ship by air to Hong Kong since 1973, and JM Geneva "were well-known as being the watch shipper specialist out of Switzerland".

42. Mr Bourguignon also stated that shipment as "valuable cargo" commanded a premium to be paid by the shipper at "200 per cent of the general cargo rate", and that, with the exception of shipments to Hawaii, "95 per cent of all watch shipments from Switzerland are dispatched as non-valuable cargo", albeit immediately post-incident for a short period only DFS Geneva did ship watches to Hong Kong as valuable cargo; however in 1996 costs issues resulted in reversion to the normal practice of shipping watches through regular cargo. Nor had DFS taken up a JM Geneva suggestion made in late 1994 for the use of a service briefly offered by Swissair, known as the "SMI approach", which was a type of hybrid service falling between non-valuable and valuable shipments, considering it not worthwhile; in the event the Swissair SMI procedure was not long in effect and, said Mr Bourguignon, had been withdrawn "quite quickly".

43. This theft notwithstanding, Mr Bourguignon noted that DFS Geneva had continued to use JM Geneva as its freight forwarder until early 1997, when corporate concerns unconnected with this particular incident (namely, the purchase of Jacky Maeder by Swissair) had prompted a move to Panalpina.

44. Subsequent to the adjournment of the trial, and consequent upon the inquiries that were made as to precisely what system HACTL did or did not have in place in order to verify the credentials of a person presenting the SRF at the time of cargo collection, the plaintiffs called four additional witnesses of fact, witnesses cumulatively labelled by Mr Fok SC as 'the HACTL witnesses'.

45. Mr Stephen Kuk, presently a Manager in HACTL Operations Department, was at the relevant time the Terminal Manager of the T2 Terminal at Kai Tak, the terminal wherein these particular DFS goods were stored. He described in detail the HACTL operations procedures current in early March 1995, commencing at the point when a person appeared for collection of cargo at one of the four collection points (two on each terminal floor), including the necessity to record the ID number of the person presenting the SRF in the relevant box on the face of that document, the information relevant to the particular cargo appearing on a VDU screen at each collection point; this information included, for example, the AWB number, special handling code, agent code and so forth. He also described Technical Working Group Meetings whereby airline representatives had discussed with HACTL issues relevant to cargo processing, and highlighted memoranda relevant to discussions between the airlines, HAFFA and HACTL regarding measures to verify the identity of agent staff who came to collect documents, such as Airwaybills and the SRF, from the airline offices; such measures included the manufacture of a special chop together with computer verification of the name and relevant details of persons authorised to collect such documents from the airlines. Mr Kuk also specifically confirmed that there never had been a system whereby at the collection points in HACTL's Terminal 2 there was a verification process whereby only certain persons could present an SRF to collect cargo.

46. Mr Marcus Mok, another HACTL official, followed Mr Kuk. His evidence primarily related to his work, after the occurrence of an earlier incident in 1991, "to develop a computer system to store the names of individuals who worked for agent companies, freight forwarding companies, so that this could be verified by the airline staff when they issued the Shipment Release Form". This system, as developed pursuant to a programme described as "Functional Specification for agent staff identity number enquiry facility", was, he said, current in March 1995, and was in direct response to an airline request for a system to verify details of the person who came to the airline offices to collect the SRF. Mr Mok further confirmed that it was not possible to access the agent identity function from the VDU in the HACTL collection points, nor had this system been designed so that it should be.

47. In addition, Mr Mok referred to a Carriers' Liaison Group meeting on 14 June 1995 - that is, after the occurrence the subject of the present action - whereby committee members are recorded as "accepting the HACTL view" that current procedures should remain in place, which were as Mr Mok neatly expressed it :-

"That is, we only verify the ID of the one asking for the Shipment Release Form at the airline counter, but not at the warehouse."

48. This decision, said Mr Mok, was consistent with the industry not wanting to have the additional verification "because it would be very inconvenient for the whole process".

49. Mr Au King Kong, presently the Security Manager for HACTL, was the plaintiffs' sixth witness, and the third from HACTL, who gave evidence both as to the well-known bearer nature of the SRF, and also as to the physical separation of the locations where SRFs were collected from the ground handling agents, such as the airlines, as compared with the cargo delivery points at HACTL's T2 Terminal at Kai Tak.

50. Finally, Mr Albert Lo, presently the Manager of the Cargo Service of Cathay Pacific, gave evidence under subpoena in his capacity as Chairman of the Carriers' Liaison Group. Mr Lo was a particularly helpful witness. He gave evidence, which again I accept in full, as to the procedures current in 1995 for the collection of cargo, emphasising that :-

"To my understanding, there is no requirement to verify whether or not the one who collects the cargo from HACTL is the true consignee or not. However, HACTL has the obligation to record the identity of the person who comes to pick up the cargo. The verification process of whether or not it is the true consignee or right consignee lies with the airline itself."

51. He also described in detail the way in which the airfreight industry consistently regarded the SRF in terms of the principle "the bearer is owner", which he said had worked for the industry for many years, indeed since HACTL came into the picture in 1976, and the fact that the SRF had "always been a bearer document", thereby facilitating the process of cargo collection.

52. Mr Lo also described the liaison and good relationship that existed within the various elements of the airfreight industry, wherein the airlines are represented by the Carriers' Liaison Group and the cargo agents by HAFFA, which bodies sat together regularly in order to refine and remind the other of various import procedures, of which the role of the SRF was one which had been discussed over the years. Emerging with clarity in Mr Lo's evidence was that one of the prime reasons why there had been no change in the verification process - and in fact an industry rejection of an airline suggestion that HACTL also should conduct agent authorisation vetting - was to permit cargo collection flexibility. The following extract from his evidence, amplifying the views reportedly earlier expressed by Pauline Hui, a former official of HAFFA, cautioning that limiting physical delivery of cargo to authorised agents only would prevent the use of trucking contractors, was helpful in the present context :-

" I can only speak from my experience, from all the years I worked in the cargo terminal. For the air cargo processing, there are a lot of subcontractors, they subcontract to a third party to do their handling for a particular party, so that is exactly why there are procedures in place to allow this flexibility, to allow a third party to handle the other people's work. So I think what Pauline has expressed - her concern is a genuine one, which we agree.

Q: When you refer to a 'procedure that allows for flexibility', what exactly are you referring to?

A: That is if we are referring to the collection of cargo itself, the airline has already done the part to verify the correct consignee over the counter. So by issuing an SRF, basically we are giving instructions to the cargo terminal operator, of which HACTL is the agent of the airline, to release the goods to the bearer of this SRF and allow the agent to have the freedom to ask a third party to take the physical delivery of the goods itself, based on this SRF.

Q: Your evidence is that from your experience in the industry, which goes back to 1976 and earlier, this was a common practice, was it?

A: It is the common practice."

53. Mr Lo was not cross-examined, and I harbour no reservations whatever about his evidence, nor indeed that of the three witnesses from HACTL.

(ii) The defendants' witnesses of fact

54. Two witnesses were called by the defendants prior to the adjournment, namely Mr Andreas Speiser, the Managing Director of JM Hong Kong in March 1995, and Mr Philip Fung, the Manager of the Air Freight Department of JM Hong Kong as at that date. Certain of Mr Fung's assertions at the end of his evidence were to prove the cause of the adjournment of the trial. In answer to a clarifying question put by his counsel, Mr Haddon-Cave QC, he responded :-

"If you want to collect the consignment of goods, you could not just simply produce an SRF, because when they receive the SRF, they would check it against the signature in the computer, together with the ID number, and if it matched, then they will release the cargo. Otherwise, no release will take place. ..."

55. Further re-examination by Mr Fok SC regarding his earlier description of the SRF as a 'bearer' document elicited the following exchange :-

" Q: The second thing arising out of that extra line of questions is this: you have never suggested anywhere that there was any form of authorised list of people who are restricted to presenting the SRF to HACTL, and you have told us before that it is a bearer document. Which is it?

A: The bearer would collect the goods, and when I am talking about the bearer, the bearer was the staff of our company, and I did not mention the internal procedure of collecting goods in respect of HACTL.

Q: You have never suggested anywhere in your statement or in any correspondence that you have produced that there was such a procedure with HACTL.

A: When I gave the statement, I was not asked about that. I was of the view that it was not necessary to mention that."

56. It was at this juncture that the trial was halted in order to permit the collection of what was subsequently termed 'the HACTL evidence'.

57. Upon resumption of the hearing, five further witnesses from JM Hong Kong gave evidence on behalf of the defendants. These were four of the staff who were working in the airport office, Office 343, at the time of the theft of the SRF, namely Mr Terence Lam, the clerk who had collected the SRF from Cathay Pacific on the afternoon of 13 March 1995, Mr Horace Shum, the supervisor who had discovered early the following morning that the SRF was missing from the desk drawer and that the goods had been collected from HACTL, Mr Daniel Ho and Mr Mak Tak Wo, two other operations clerks working in Office 343, and finally Mr Raymond Chan, who worked in the town office and who had telephoned Mr Lam at about 6.00 pm on the evening of 13 March requesting that he wait for certain documents.

58. I deal with certain aspects of this evidence later in this judgment. For present purposes, suffice it to say that not only did I find these witnesses of fact to be signally unimpressive, but also that I did not accept their evidence in relation to significant elements within this case.

59. One final witness was called by the defendants. Somewhat unusually, this was Mr Christopher Morley, the defendants' solicitor. His evidence covered his previous involvement in the case when acting for Swissair - including a particular letter he had written on 26 March 1997 - his attempts to track down two witnesses, namely Mr Lai Yiu Nam and Ah Bing, and further dealt with when he became aware of the 'Jacky Maeder bearer issue', in particular in terms of his instructions on the point, and the background to the five supplemental witness statements which had been prepared for the Jacky Maeder staff wherein each maintained what was now accepted to be a fundamentally incorrect understanding of the HACTL procedure.

(iii) The expert evidence

60. Two experts were called at the end of the factual evidence, namely Mr Dennis Phipps on behalf of the plaintiffs and Mr Kenneth Holmes for the defendants.

61. Both were accepted as experts in the security field. They had each submitted full reports, and as matters transpired there was little of substance between them. Both agreed that the SRF was a bearer document in the true sense - as Mr Phipps had put it, at paragraph 4.3 of his report :-

"Within the Hong Kong system, the Shipment Release Form was the document which conferred authority on the holder to take delivery of the goods from HACTL. As such, it was the document on which all the measures to safeguard the delivery / collection relied ...",

a statement with which, in cross-examination, Mr Holmes made clear that he agreed.

62. Nor did either expert display hesitation in characterising the nature of the security system employed by JM Hong Kong in relation to this type of cargo. In his report (at section 7) Mr Phipps usefully set out his evaluation of the JM Hong Kong system "for receiving, processing and safeguarding documentation relating to import cargo", which exercise yielded but one 'plus point' (namely, that there were appropriate measures to ensure that only authorised individuals were able to collect Shipment Release Forms from the issuing airline handling the consignment), and some eleven 'minus points' which, when read cumulatively, amounted to a severe indictment of the Jacky Maeder 'security system' purportedly in place.

63. This extensive critique was not something with which Mr Holmes took any real exception; indeed, at the outset of his evidence Mr Holmes accepted and agreed with Mr Haddon-Cave's characterisation that the system operated by JM Hong Kong was "very sloppy".

64. At the end of the day, therefore, this case did not turn out to be one which turned on the evaluation of expert evidence, given that resolution of the primary question, namely whether DFS was able to break limit, itself depended upon determination of a number of contentious factual matters.

THE KEY QUESTIONS FOR DECISION

65. In order to succeed in this case pursuant to the provisions of Article 25, DFS needed to succeed on one or both of the following matters :-

first, did one of the Jacky Maeder employees steal the SRF, and hence the goods?; and

second, was the system Jacky Maeder operated to safeguard SRFs and/or the manner in which the SRF was kept by the defendants' personnel reckless, and did those concerned know that loss of cargo would probably result from theft of the SRF?

66. In considering these issues I bear firmly in mind that the burden of proof lies upon the plaintiffs to satisfy the court upon the balance of probabilities that either of these allegations is made out on the evidence. I further accept that in civil cases involving serious allegations of misconduct, the degree of probability established must be commensurate with the allegation, so that in the words of Lord Nicholls in Re H (Minors), [1996] AC 563 at 586, cited with approval by Lord Hoffmann NPJ in Aktielskabet Dansk Skibsfinansiering v. Brothers & Ors, (2000) 3 HKCFAR 70 at 79, this approach involves :-

"... a means by which the balance of probability standard can accommodate one's instinctive feeling that even in civil proceedings a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters."

67. Or, as Langley J helpfully expressed the point in Malca-Amit Ltd & Ors v. British Airways PLC, Folio 1254 of 1996, English Commercial Court (unreported), a case involving the theft of air cargo :-

" The only other matter of law of any consequence is the standard of proof appropriate when addressing allegations of the gravity of those made in this case. Plainly any finding that a valuable cargo had been intentionally removed at one or other airport involves a matter of serious concern generally but in particular to any individual or individuals who may be identified as implicated in it. Whilst it is well established that the standard of proof nonetheless remains the ordinary civil standard of the balance of probabilities that must be approached with the important caveat that the more serious the allegation the less probable it is and so the more careful the court must be before concluding it has been proved to that standard. ..." (emphasis added)

68. Against this backdrop, I turn now to the fundamental factual issues requiring determination. I take them in reverse order.

(1) 'Recklessly and with knowledge that theft would probably result'

69. Of the two elements contained within this head, one poses significantly less difficulty than the other in terms of the facts of this case.

70. As to recklessness, I have no hesitation in finding that the so-called "system" operated by Jacky Maeder for the handling and safeguarding of SRFs, once collected from the airlines, was reckless. The weight of the expert evidence (for example, Mr Phipps' extensive listing of "minus points") provides a damning indictment of the lax procedures adopted by Jacky Maeder, and I note that it was Mr Speiser's view also that one of his supervisors, Mr Danny Kiang, had failed to implement a proper system. The contrast between the security claims made by Jacky Maeder in correspondence with DFS and the reality are stark; at times in this case it was hard to resist the notion that instead of functioning as a serious and efficient workplace focusing upon important matters such as the security of air cargo, Office 343 was treated as a venue for high stakes pai kau gambling sessions (Mr Shum's evidence particularly refers) and as a dormitory and general home from home for itinerant acquaintances within the New Cargo Complex office block.

71. In short, the recklessness element is not an aspect of the case which in my opinion requires elaboration. The evidence of slack, undisciplined and uncontrolled practice is incontrovertible.

72. Which brings me to the issue of knowledge, which has constituted a crucial aspect within this case; on behalf of the defendants Mr Haddon-Cave suggested that the heart of Jacky Maeder's case lay in the "unshakeable belief" that only authorized Jacky Maeder personnel could use SRFs to collect cargo from HACTL by reason of the belief that HACTL performed a computer verification check upon the presenter of the SRF against an authorized list of Jacky Maeder personnel. It followed, submitted Mr Haddon-Cave, that if Jacky Maeder staff did not think that the SRF could be used by anybody other than an authorized Jacky Maeder employee, they lacked the required subjective knowledge that the "admittedly sloppy" manner in which they kept the SRF would probably result in loss of the cargo.

73. In considering this issue, it is difficult not to bear firmly in mind the curious manner in which this aspect of the case unfolded, commencing with the unexpected adjournment of the trial consequent upon Mr Fung's assertions that there was in place a system of HACTL verification regarding the authority of the bearer of the SRF, and thus that the SRF was not a true 'bearer' document, and culminating in the obvious determination of the five Jacky Maeder employees who gave evidence post-adjournment to continue directly to contradict what by then had been established to be entirely the converse position, namely that there was no such HACTL vetting system in place.

74. Let me state at the outset that I do not accept that these facets of the evidence had always represented the Jacky Maeder case : I am, for example, quite unable to read Mr Speiser's contemporary fax correspondence with Geneva in this light, so that I cannot accept his disavowal of knowledge that the SRF "had such a power". Nor am I able to read Mr Fung's witness statement as importing the concepts subsequently introduced in his evidence. In this connection, also, I do not consider that the so-called "Widmer letters" provide the defendants with any assistance. These are letters dated 18 July and 3 August 1995 written by Mr Peter Widmer, Executive Vice President of Jacky Maeder Zurich, to the company loss adjusters, wherein he suggests that HACTL had acted "against the rules/law" in delivering the cargo to an unknown individual, later purporting to confirm "our findings on HACTL's behaviour and the mechanism which was not observed by HACTL". These accusations are, however, never amplified, they make no further appearance on the papers, and as a matter of history appear to have been summarily dropped. Nor has Mr Widmer being called to give evidence as to what he had in mind, and in the circumstances it seems an entirely justifiable inference that the point as then raised was investigated and found to lack substance.

75. In my view, therefore, this entire issue constituted a new development in the case, which in turn led to supplementary witness statements being prepared for the five Jacky Maeder staff called to give evidence post-adjournment, albeit these supplemental statements were clearly and obviously prepared upon an incorrect factual premise, as the subsequent evidence from the HACTL witnesses made clear. Not only was there industry-wide recognition of the status of the SRF as a true bearer document, but the absence of any HACTL computer verification as to the identity of the SRF bearer was put beyond doubt. So much so that Mr Haddon-Cave, leading counsel for Jacky Maeder, was constrained to accept at the outset of the adjourned hearing that this indeed represented the position although, he said, ultimately this did not matter given that what was relevant was that at the material times all Jacky Maeder personnel thought that this was the position.

76. I have reflected at length upon this contention. I reject it. I do not believe that the Jacky Maeder personnel in question were under any illusions about the power or importance of the SRF.

77. In forming this view I have been influenced not only by the manner in which this point emerged, but also by the overwhelming additional evidence assembled by the plaintiffs to the effect that it was widely known within the small air cargo handling community at Kai Tak that the SRF was a true bearer document. Indeed, it appears that HAFFA had sent reminders to its members (vide its Circular of 16 March 1995) regarding the necessity to "safekeep your SRF as it is more or less equivalent to a cash cheque", and Mr Albert Lo had made the point that not only was the industry well aware that the bearer of the SRF was entitled to delivery of the cargo, but that this position had been stated to the industry for many years.

78. In fact, knowledge of such industry practice also appears to have reached the defendants' solicitors; in a letter dated 26 March 1997 to the plaintiffs' solicitors (albeit when he was acting for Swissair, the 1st defendant in these proceedings, and not for Jacky Maeder), Mr Morley had noted that, following collection of the SRF, "... it is normal industry practice for the forwarder to ask a sub-contractor to collect the shipment", continuing that "This sub-contractor does not need any formal authorisation but must bring with him the SRF. The possession of the SRF is sufficient to allow the release of the cargo to the holder of the SRF."

79. With regard to the defendants' evidence, I have earlier indicated scepticism about the evidence of Mr Speiser and Mr Fung on this issue; it is perhaps unfortunate that they gave their evidence prior to the adjournment, and before the correct picture had emerged (or, for that matter, that they were not recalled to deal with the new evidence). However it was what I regarded as the unsatisfactory evidence and the at times evasive and obstructive demeanour of the additional five Jacky Maeder witnesses which threw the point into sharpest relief.

80. Regrettably the two supervisors, Mr Danny Kiang and Mr Lai Yiu Nam were not called (there is some evidence from Mr Morley that there were difficulties in locating Mr Lai). However, the five witnesses who did appear - Messrs Lam, Shum, Ho, Mak and Chan - created a most unfavourable impression. Each of these gentlemen appeared to harbour no doubt as to the significance and importance of the SRF - as Mr Raymond Chan stated : "obtaining the gate paper equals to obtaining the goods" - but in turn each of them rigidly maintained the notion, as reflected in their supplemental witness statements, that HACTL possessed, and used, its own computer verification facility. In fact, Mr Raymond Chan, who was a curiously belligerent witness, proffered the observation that if HACTL's evidence was that there never was any verification system to check the names of presenters of gate papers against an authorised name list, then "in my opinion HACTL lies to the court".

81. The strikingly uniform intransigence of these witnesses in the face of what had been accepted by the defendants to be a fundamentally incorrect understanding of the position, skilfully characterised by Mr Haddon-Cave as "the legend lives on", buttressed the submission that since Jacky Maeder management and employees maintained this incorrect belief, there was therefore a lack of the relevant subjective knowledge required by Article 25 of the Convention.

82. The difficulty with this engaging submission is that I did not, and do not, believe it to represent the position. I have little doubt, and so find, that in terms of knowledge of the status and effect of the SRF, the Jacky Maeder personnel who gave evidence were at the material times well aware that the SRF was a bearer document in the accepted sense.

83. As Mr Speiser had observed in a fax to Jacky Maeder Zurich of 14 March 1995 : "The form was valid until 14.3.95 and allows the person presenting the form to get hold of the cargo at the terminal"; equally Mr Fung appears to have been in no doubt, as paragraph 4 of his witness statement makes clear : "It was the bearer of the import documents who became entitled to obtain the cargo from HACTL. One document in particular - the Shipment Release Form authorised the bearer of the Shipment Release Form to have the cargo released to him from HACTL." Whilst so far as the staff of the airport office were concerned, I formed the very strong impression that their evidence was not to be relied upon, and that in giving evidence they had little intention of doing other than maintaining adherence to what in my view Mr Fok was justified as describing as "a party line" : a distinct and recognisable pattern began clearly to emerge as the evidence unfolded, with each of these witnesses, and in particular Messrs Shum, Lam & Chan, becoming noticeably evasive and unrealistic under cross-examination when faced with difficulties arising in their evidence.

84. In summary, upon the issue of knowledge, I disbelieve the evidence of the Jacky Maeder witnesses. I do not accept that they thought that there was an authorisation procedure at HACTL at the time of presentation of SRFs for cargo collection. There clearly was not. The necessity to record the ID number of the SRF presenter upon the face of the document (as occurred in the instant case, wherein Mr Fung's ID was thus recorded) effectively has been elided into the authorisation procedure now asserted. Similarly, the fact that in normal course the bearer of the SRF for Jacky Maeder-designated cargo would be a Jacky Maeder employee likewise has been elided into the concept of bearer equating to "Jacky Maeder bearer". I emphatically reject these contentions. In my opinion there is, and was, never any doubt about the nature of this document, whatever the witnesses belatedly now seek to say. In this context, it is hard to disagree with Mr Fok's observation that if Jacky Maeder truly had believed that there was an authorisation procedure at HACTL, it is simply not credible that the defendants' solicitors, Messrs Haldanes, were not then instructed to pursue this avenue in order to deflect liability from Jacky Maeder to HACTL.

85. The result of the foregoing, therefore, is that I find that liability is established under this head and that, in the words of Article 25, the plaintiffs' loss has resulted from acts or omissions done "recklessly and with knowledge that damage would probably result".

(2) The theft of the SRF

86. The alternative, indeed the basis of liability first developed by Mr Fok SC, was that the cargo in question had been stolen by or with the participation of one or more of the Jacky Maeder staff who worked from Office 343, namely, Messrs Lai, Shum, Mak, Lam or Ho. The manner in which this allegation is pleaded in paragraph 12(a) of the Re-Amended Points of Claim is that on the balance of probabilities the plaintiffs' goods were stolen by any or all of the five named employees whether acting alone or in concert with one another or in concert with dishonest third parties, a pleaded case which in my view adequately spans the gamut of possibilities.

87. Put simply, therefore, was this theft an "inside job", to adopt Mr Fok's phrase? If such could be established, there was no dispute that, to revert to the language of Article 25, the plaintiffs' loss will have "resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage ...".

88. Mr Fok argued strongly that the circumstances of the theft of the SRF, and the subsequent collection of the goods from HACTL via the use of the innocent dupe, the lorry driver Mr Fong, pointed to a level of detailed knowledge and a degree of obvious opportunity and pre-planning which necessitated the submission that, on a balance of probabilities, a Jacky Maeder employee stole the SRF or participated in its theft. He submitted that the primary suspect in this regard must be Mr Lai Yiu Nam, the Office Supervisor who was sacked immediately after the incident and who was not called to give evidence, or that if it was not Mr Lai then Mr Shum, Mr Mak, Mr Lam or Mr Ho were responsible, each also being in possession of the requisite knowledge and opportunity in order to perform or to participate in this theft.

89. Mr Haddon-Cave strongly opposed this submission. He argued that there was no direct evidence against any of these employees, none of whom had criminal records, to the effect that they were involved in the theft, and further that there were a "significant number of others with the requisite knowledge, access and opportunity" who could have stolen the SRF. This latter point formed a constant theme within the argument, which rehearsed the number, variety and apparent opportunity of a range of third parties using Office 343. The location of Office 343 and the geography of the building also were prayed in aid, as were the security features of the Jacky Maeder airport office.

90. Mr Haddon-Cave further submitted that unless the plaintiffs could prove specifically which of the five employees named had been responsible for the theft, that this must result in the court concluding that the plaintiffs had failed to prove their case. I do not understand why this should be so. I do not accept that in this regard a civil court should be placed in this type of evidential straitjacket. I bear firmly in mind the necessity to approach what remains, at bottom, a balance of probability standard with an appropriate degree of caution given the seriousness of the allegation, but I decline to be placed in what amounts to an 'all or nothing' position. In the context of a civil liability issue it seems to me that there is no overwhelming reason preventing a court from taking a view in all the circumstances, whilst nevertheless refraining from specific attribution of responsibility. This was the approach adopted by the Federal Court in Swiss Bank Corp. v. Air Canada, (1981) 29 DLR (3d) 85, wherein Walsh J observed that since the investigation of the theft of a parcel of Canadian dollar banknotes from Dorval Airport, Montreal at the time did not uncover any evidence enabling blame to be attributed to any specific individual, such "certainly cannot be done now", but that nevertheless he had "no doubt" that the parcel was stolen by one or more of the Air Canada employees having access to it and to the covering documents. Upon appeal, sub.nom. Air Canada v. Swiss Bank Corp. et.al., (1987) 44 DLR (4th) 680, the point of contention was that if the specific employee responsible could not be so identified, it could not be known if he was acting within the scope of his employment. The appeal was dismissed. One of the appellate judges, Pratte J, felt able to say, on the evidence, that either employee X or employee Y was responsible, thereby going further than the trial judge, although he considered it "beyond question" that the judge was right in saying that the parcel was stolen by one or more of the Air Canada employees. For his part Marceau J agreed, although he stated that in any event the finding that an unidentified employee with free access to the parcel had stolen it, or at the least had participated in the theft, was sufficient to displace the limitation of liability :-

" I have no hesitation in saying with my brother judge that the trial judge had before him what he needed to conclude that, in all probability, the theft was committed by employees X or Y, or at least with their connivance and at a time when they had custody of the parcel. However, I persist in thinking nevertheless that, in order to apply art. 25 of the Warsaw Convention as amended ... that the appellant had lost the benefit of the limit on liability it was attempting to assert under art. 23 of the said Convention, the judge did not need to say any more than he did, namely that the parcel had been stolen and the theft committed by an employee or group of employees of the appellant. It seems to me that once these two findings of fact were made, it became apparent that the two conditions for application of art. 25 of the Convention had been met ..."

91. I agree with these observations. I reject the contention that a specific finding that a particular individual was responsible for the theft is a prerequisite, as was submitted. I see no difficulty in taking the broader approach, and on that basis I find, upon the balance of probabilities, that the theft indeed was an 'inside job'. Certainly the management of Jacky Maeder immediately thought so, and at the time reacted thus : Mr Lai and Mr Lam were summarily dismissed, Mr Speiser opining, in his fax of 15 March 1995 to Geneva, that they had been harbouring staff with "criminal background / intentions", whilst in a subsequent fax he referred to the 'theft' of the release form, and in my view his efforts under cross-examination to explain the judgment he clearly then had made were unconvincing, and tended to obfuscate and avoid the issue.

92. In considering this matter, and in particular the thesis pressed by the defendants to the effect that this theft must have been exclusively the work of any one of a litany of unconnected third parties, I am struck by the narrow window of opportunity which thus would have been afforded to such unknown third party thief. Given that Mr Lam did not leave Office 343 on the day in question until 6.30 pm (and in this regard I can discern no reason why this part of his evidence should be regarded as untrue), and given that Mr Fung Kwai Hui, the self-employed haulier, was liaising the rogue 'Chin' at Market Street carpark not long after 7.00 pm, and then was given the SRF for the goods in question, there clearly was very little time available for any felonious entry into Office 343 (whether by use of plastic credit card insertion into the Yale lock or otherwise), the removal of this particular SRF from several then in the desk drawer, and the transmission of the same to Market Street in time to be given to Mr Fong - which is the scenario suggested by the defendants. It is possible, of course, but in my judgment on the probabilities unlikely.

93. Nor do I accept Mr Haddon-Cave's submission that it would not have been any one of the Jacky Maeder airport employees given that that they had all thought that the presenter of the SRF was subject to HACTL vetting against an authorised list, and thus would have realised that successful presentation of the SRF by Mr Fong would not have been possible - as the earlier part of this judgment makes clear, I have rejected the notion that these employees genuinely entertained this erroneous idea.

94. In my view, also, particular difficulties arise in terms of the evidence of Messrs Lam and Shum. I have earlier made clear that I considered them to be unimpressive witnesses - some of Mr Shum's responses to questions about the theft and its aftermath bordered on the risible - and I found parts of the suggested sequence of events curious to say the least. If, as alleged, no-one had known anything about what was going on, it is not clear, for example, why upon his return to Office 343 at 11.30 pm that Mr Lam specifically should have noticed the absence of this particular SRF (the evidence is that several others were in the drawer), or why he says that he thought that maybe the missing SRF was in Mr Shum's locked drawer, given the latter's express disavowal ("It should be impossible") that he was inclined to keep "val" SRFs in his own drawer. Nor, for that matter, do I understand why Mr Shum specifically should have checked for reference to this SRF at the time when he obtained, from HACTL, the print-out which set out the Jacky Maeder cargoes scheduled to be picked up that day in the normal Jacky Maeder collection period : he "suspected" the DFS cargo was not on the list, he said, although he gave no reason why, on a print-out that was some two feet in length, that he should immediately have become suspicious or why he particularly noted the absence on this list of this cargo given that at 6.45 am on that morning neither had he yet made any telephone call nor had he been contacted about the missing cargo.

95. In my judgment Mr Shum did not make every effort to tell the truth, and in terms of the sequence of his own movements early that morning, and his responses thereafter to what had occurred, he cut an unconvincing figure, claiming that he was "not interested to know" why his colleagues Lam and Lai had summarily been dismissed shortly after the incident, nor, for that matter, had he been concerned about who had stolen the SRF and the cargo : "I have not thought about it. I have no idea ...", whilst later, in response to a question from Mr Fok :-

"Q: You have given the impression to the court at some stages that you are not concerned or do not care who stole the SRF.

A: Right."

Such apparent lack of interest on the part of Mr Shum was mirrored, albeit to a lesser degree, by the other Jacky Maeder witnesses who worked in Office 343.

96. Over the course of his evidence I formed the firm impression that, if not personally responsible for what had taken place, Mr Shum knew considerably more about this event than he was prepared to admit. I also formed the view that he knew how to locate Mr Lai, notwithstanding Mr Morley's stated ignorance in this regard. Mr Shum appears to have been on very good terms with his colleagues - possibly by reason of the fact that, on his own admission, he operated an interest-free bank for the high-stakes pai kau games which were held in Office 343, and that several of his colleagues, including Mr Lai and Mr Lam, were or had been indebted to him in not insubstantial sums. And whilst I agree with Mr Haddon-Cave's unexceptional argument that a propensity to gamble in itself does not indicate a propensity to steal, I can see no justification for simply ignoring the existence of such gambling debts, which are reflective of the culture that clearly existed within Office 343, and which at the least are capable of providing a reason for that which occurred.

97. Looked at in the round, in light of the fundamentally lax procedures and general lack of discipline within the Jacky Maeder airport office - Mr Phipps justifiably characterized this as "a casual and unconcerned attitude in respect of the value of SRFs and the care and handling necessary to safeguard such documents" - it is in my view clearly more probable than not that this theft was occasioned by, or took place with, the assistance and knowledge of one or more of these Jacky Maeder employees. As earlier indicated, in this regard I am disinclined to point a specific finger, and do not do so. But the circumstances of this theft -the early arrival of this cargo, the fact that this SRF was one of several in the drawer and that only this SRF was taken, and the degree of preplanning necessary to facilitate collection of the cargo - in my view all strikingly point to the conclusion that, as Mr Fok had submitted, this was not an opportunistic 'spur of the moment' crime, and that it seems far more likely than not that responsibility for what occurred lay with one of the Jacky Maeder airport staff. Indeed, whilst for present purposes it may not be necessary to go this far, in my view it is also more likely than not that the SRF was not taken in the narrow window of opportunity between 6.30 and 7.00 pm on the day in question, but that it had been spirited from the desk drawer and out of the office before Mr Lam had left at 6.30 pm that night, which would have facilitated the arrangements that were necessary in order to obtain the services of Mr Fong and his lorry, and thereafter to make off with the 39 DFS cartons which, Mr Fok has reminded the court, together weighed some 753 kilograms.

98. Accordingly, I am in favour of the plaintiffs' claim under this head also, so that, in terms of AWC, Article 25, I find that this loss has "resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage ...".

(3) Other heads of liability advanced

99. Having found in favour of the plaintiffs under each of the foregoing heads, no necessity arises to consider in detail Mr Fok's variant upon the "recklessness and with knowledge" basis to the effect that unlimited liability accrued in any event given that, on their own case, the relevant servants or agents of Jacky Maeder knew that the SRF was a "conditional" bearer document, nor his third theory to the effect that Jacky Maeder were reckless in their acts or omissions by failing to ascertain the true nature of the SRF, and to promulgate a proper security system for the handling and safeguarding of that document.

100. As to the former, which for the sake of argument accepts the premise that the state of knowledge of the employees merely was that the SRF achieved 'conditional bearer' status, there are, in my view, difficulties for the plaintiffs in terms of the damage element. Mr Fok argued that Jacky Maeder must have known, for example, that if an SRF was misplaced it would probably cause economic damage, at least in the form of delay, because of the need to find the original or to obtain a new SRF, and that such knowledge would be sufficient to satisfy the requirements of AWC, Article 25. Although in the present circumstances I do not need to decide this point, I am attracted to the view that this argument accords insufficient importance to the requisite knowledge of probable consequence arising from the reckless act or acts in question. As Dyson J observed in Nugent and Killick v. Michael Goss Aviation & ors, [2000] 4 LR 222 at 232 :-

"... Knowledge must add something to 'recklessly'. It is a requirement of Art.25 that the act or omission should be done recklessly and with knowledge that damage would probably result ... It is sufficient for recklessness that a person should act regardless of the possible consequence of his acts. What Art.25 requires is that there should be knowledge of the probable consequences ..." (emphasis added)

101. In short, in the context of this sub-head of liability, in terms of damage sustained it seems difficult to square the theft of the goods, such as occurred in this instance, with the general concept of "economic damage at least in the form of delay", which was Mr Fok's formulation. To paraphrase the example given by Eveleigh LJ in Goldman v. Thai Airways Ltd, op.cit. at 1196 (regarding injury arising from the spilling of a cup of tea), "if all that can be anticipated" is some lesser form of economic damage, "it seems wrong" that the door is thereby opened to liability for a considerably more serious form of damage. If this be correct (and if I properly have understood his argument), Mr Fok's alternative formulation would fail, at least in the circumstances of this case.

102. The third theory advanced, namely that Jacky Maeder was reckless in failing to ascertain the true nature of the document and in effecting a proper security system, again does not arise in light of the specific findings which have been made as to knowledge of the significance of the SRF, on which core issue this court has disbelieved the defendants' witnesses. In the circumstances, therefore, I make no finding on this theory, which was not extensively rehearsed, although in my view it also is susceptible to the like difficulty in terms of establishing knowledge of the probability of such damage as in fact resulted.

(4) Contributory Negligence

103. Mr Haddon-Cave QC submitted that if the court was satisfied that the plaintiffs were otherwise entitled to break limit, the defendants would rely on AWC, Article 21, and say that DFS caused or contributed to their own loss because for reasons of cost they shipped these goods as consolidated (CONSOL) cargo rather than as valuable (VAL) cargo. And consequently that the theft of the SRF would not have occurred if the consignment had been shipped as VAL cargo because the VAL procedures were much tighter. The evidence in this regard was that there was a quite different approach taken to VAL cargo (which costs some 200% more than CONSOL shipments) involving a separate secure area of the HACTL premises and a regimented and strict SRF presentation procedure.

104. In this context Mr Haddon-Cave further referred to certain minor pilferage incidents which had taken place in 1994, which had led Mr M. Bourguignon of DFS to consider increased security, specifically with the then available "SMI" procedure (which in fact had not been adopted), and noted that even after the theft the subject of this case, and a brief spate of shipping watches as VAL cargo, DFS nevertheless had reverted to shipping as CONSOL cargo simply by reason of cost-effectiveness.

105. I dare say that the contributory negligence argument was a submission that Mr Haddon-Cave felt constrained to make. In my view it manifestly fails to get off the ground. The uncontradicted evidence was as to the widespread industry practice of shipping goods of this type as general consolidated cargo. As Mr M. Bourguignon explained, "most of the Swiss watchmakers do ship their products as non-valuable cargo", and currently available information from his present freight forwarder had yielded the data "that about 95%" of all watch shipments from Switzerland, including those from Rolex, continue to be sent in this manner.

106. Against such an industry-wide standard, it seems to me that it is difficult to begin to raise an AWC, Article 21 case. And it is even more difficult for such a case to be raised by a freight forwarder which, in this instance at least, failed utterly to demonstrate the basic minimum standard of care required on the part of a freight forwarder; as Mr Fok crisply remarked, the plaintiffs can hardly be criticized for taking at face-value the representations made by Jacky Maeder, in its fax dated 10 August 1993 to DFS Geneva, updating their client "on our security measures in force which will ensure a proper and safe handling of the goods in our possession" in whatever manner the cargo was to be carried.

107. I reject, therefore, the contributory negligence plea made pursuant to AWC, Article 21.

ORDER

108. The result of the foregoing is that in my judgment the plaintiffs have succeeded in their attempt to break limit under the provisions of AWC, Article 25. As earlier indicated, there has been agreement between counsel upon the appropriate figures to be applied in the event the plaintiffs were, or were not, successful in this action. Accordingly, the Order of this court is that there is to be judgment in favour of the 1st and 2nd plaintiffs against the 4th and 5th defendants in the principal sums of HK$10,992,241.00 and ￡16,213.33.

109. As to interest, whether there is to be an award of pre-judgment interest is contentious. In this connection, Mr Haddon-Cave has brought the attention of the court to the view of Bingham J (as he then was) in Swiss Bank Corp. v. Brink's-MAT Ltd & Others [1986] 2 All ER 188, wherein the learned judge held that where damages payable by a carrier are limited by the Convention, the court had no jurisdiction to award interest upon such damages, albeit interest might be awarded up to the Convention limit if such damages were less than that limit.

110. This, however, does not represent the situation in the present case, nor does the basis of the reasoning of Bingham J in Brinks' Mat, op.cit. (namely, that on the Convention as a whole, the proper construction indicated that the limits specified are global and comprehensive of every expense to which a carrier may be put as a result of any claim subject to the limit), have any application. The Convention limit in this case has been broken, and I see no difficulty in awarding interest in the usual manner, as indeed was the course adopted in Swiss Bank Corp. v. Air Canada, op.cit. by Pratte J in the appellate court.

111. I make an order nisi that interest is to run upon the respective judgment sums at the rate of 1% over prime from the date of the issue of the writ herein, namely 16 February 1996, to the date of judgment herein, and thereafter at the judgment rate from time to time prevailing until payment.

112. With regard to costs, in light of the conclusions I have reached in this judgment, I can discern no basis for any order other than that costs should follow the event. Accordingly, I make an order nisi that the defendants are to pay the plaintiffs their costs of this action, such costs to be taxed if not agreed.

113. The progress of this case has not been without its difficulties, and I am indebted to both sets of counsel for the considerable assistance they have rendered to the court.