ERICSSON LTD AND ANOTHER v. KLM ROYAL DUTCH AIRLINES AND OTHERS

HCCL 202/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NOS. 202 OF 1999 and 2 OF 2000

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HCCL 2/2000

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INDEX TO JUDGMENT

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J U D G M E N T

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Introduction

1. On Saturday 8 November 1997 a consignment of 2000 mobile telephone handsets, packed in wooden crates and weighing 2.78 tonnes, arrived as air cargo at Kai Tak airport on board KLM flight number KL 887.

2. This consignment, which attracted an invoice value of HK$4.13 million, was stolen later that day from the warehouse of Hong Kong Air Cargo Terminals Ltd (‘HACTL’) at Kai Tak.

3. Some ten weeks later, on Saturday 17 January 1998, a further consignment of 4,500 mobile telephones, also packed in wooden crates and weighing 4.966 tonnes, again arrived as air cargo at Kai Tak airport on board KLM flight number KL 887.

4. This consignment, representing an invoice value of HK$12.352 million, also was stolen, in this instance upon the following day, Sunday 18 January 1998, from the HACTL warehouse at the airport.

5. These two cases, HCCL 202 of 1999 and HCCL 2 of 2000, which have been heard together over a period of fifteen days, and which are conducted upon the instructions of subrogated insurers, represent the belated by-product of these unfortunate events.

6. Although these cases have become somewhat complicated procedurally, the primary issue for decision is whether the plaintiffs, whose shipments of mobile telephones were the subject of these two thefts, in each instance can successfully break limit pursuant to the provisions of the Amended Warsaw Convention and of the Guadalajara Convention, whose terms have been accorded the force of law in Hong Kong by virtue respectively of sections 3 and 10 of the Carriage by Air Ordinance, Cap. 500.

The parties

7. The 1^st and 2^nd plaintiffs in these actions are Ericsson Limited, a Hong Kong company, and Ericsson Mobile Communications AB, a Swedish entity.  Although for the most part the generic description ‘Ericsson’ will suffice, where distinction is necessary, I will refer to them as ‘Ericsson Hong Kong’ and ‘Ericsson Sweden’.

8. It was the latter which was sending these consignments of mobile phones to its Hong Kong counterpart, and these companies conduct these two actions as “the owners of and/or the persons entitled to immediate possession” of the stolen goods. 

9. If and in so far as the plaintiffs’ case is made out in each of these suits, in practical terms it does not seem greatly to matter to which Ericsson plaintiff judgment is awarded, although the inter-company invoicing arrangements have given rise in each case to legal argument as to quantum.

10. In both cases arising from these thefts, the plaintiffs have issued and served that which Mr Sussex SC, for the plaintiffs, characterized as “grapeshot writs”.  Accordingly, it may be useful immediately to identify the parties to whom the plaintiffs variously have attributed responsibility for these losses.

11. The 1^st defendant is KLM Royal Dutch Airlines (‘KLM’), and for present purposes is the only airline entity with which the court need be concerned; I am told by Mr Sussex that the second named defendant, KLM Cargo, is no more than a name given to a division within KLM, and has no legal personality.  I therefore make no further reference to the 2^nd defendant in this judgment.

12. It is common ground in the actions between Ericsson and KLM that KLM was the ‘actual carrier’ within the Conventional meaning of that term.

13. The reason that KLM is involved in these cases is that the cargoes of mobile telephones the subject of these actions had been carried from Stockholm’s Arlanda airport to Hong Kong via Amsterdam.

14. KLM was the ‘actual carrier’ of the first consignment of telephones under Master Airway Bill No. 074-4793 5344 dated 5 November 1997, and likewise of the second consignment under Master Airway Bill No. 074-4793 9396 dated 14 January 1998.

15. However, whilst KLM was the ‘actual carrier’, it was not the ‘contracting carrier’ within the meaning of that term under the Amended Warsaw and Guadalajara Conventions.

16. The ‘contracting carrier’, which had entered into the contract of carriage with Ericsson Sweden, was the 3^rd defendant, now named Danzas AEI Continental AB, but at the relevant time known as ‘ASG Air & Sea AB’, which for convenience of reference I will henceforth describe as ‘ASG Sweden’.

17. There is no issue but that ASG Sweden was the contracting carrier in respect of both shipments of telephones : it had issued House Air Waybill No. STOAA 127338 dated 5 November 1997 and House Air Way Bill No. 129673 dated 14 January 1998 with respect to the first and second consignments.

18. The 4^th defendant, now known as APC Asia Pacific Cargo (HK) Limited, was at the material time known as ASG (Hong Kong) Ltd.

19. The relationship between ASG Hong Kong and ASG Sweden is a matter of contention, and will necessitate a finding of fact.

20. For the present, suffice to say that the role of ASG Hong Kong within the factual matrix was as the entity responsible for collection of the arrived consignments of telephones, and their transmission to the designated consignee.  ASG Hong Kong, in other words, was the designated local transport agent/freight forwarder which, in normal course, was to pick up the telephones from the airport and to transport them, as directed, in one of its trucks.

21. The 5^th defendant is HACTL.  At the material times HACTL enjoyed a monopoly over the provision of cargo handling services to airlines using Kai Tak airport. 

22. When unloaded from the carrying aircraft, all goods arriving at Kai Tak were processed utilising the services of HACTL and, after completion of the various import formalities, HACTL was the entity which, under the system then in force, handed over those goods to whomever was carrying a ‘Shipment Release Form’ (‘SRF’), a bearer document the possession of which entitled the bearer to collect the goods itemized thereon.  Simply put, under this system handing over an SRF was tantamount to handing over the cargo.

23. This was the origin of the problem in the present cases, which arose precisely because, albeit in differing manner, thieves were able to get their hands upon the SRF’s relating to these two consignments, in each instance to collect and thence to purloin the large quantity of mobile telephones constituting these two consignments.

24. Given HACTL’s position at Kai Tak, it provided its services to individual airlines upon the basis of individual written agreements.  In the case of KLM, such services were provided pursuant to a written agreement dated 1 April 1976 entitled ‘Agreement governing the use of Cargo Terminal Facilities at Hong Kong International Airport’.

25. The 6^th defendant, Jardine Airport Services Limited (‘JASL’), provided document handling and other administrative services to airlines, including KLM.  When air cargo arrived, there would be close liaison between JASL and HACTL, with employees of the latter collecting from JASL the ‘pouch’ of documents, including the relevant air waybills, which were referable to the cargo which was stored at HACTL.  There is more to say about the relationship between JASL and HACTL, and in particular about the system under which the SRF’s were printed, but this at any rate represents the broad picture.

26. Like HACTL, JASL also was KLM’s agent, and at the material times there was in place a ‘Ground Handling Agreement’ dated 8 July 1996 between JASL and KLM.

27. These, therefore, are the parties to the two instant disputes, and it will be necessary in this judgment to examine the manner in which the plaintiffs variously assert liability against each of these defendants. 

28. However, prior to focusing upon the individual causes of action, it may be useful to outline the broad structure of the Amended Warsaw and Guadalajara Conventions, and the manner in which these treaties seek to govern the rights and obligations both of contracting and actual carriers, and of their servants or agents.

The Amended Warsaw and Guadalajara Conventions: the broad legislative framework

29. By virtue of section 3 of the Carriage by Air Ordinance, Cap. 500, the Warsaw Convention, as amended by the Hague Protocol of 28 September 1955, is given the force of law in Hong Kong.

30. Similarly, by virtue of section 10(1) of the Ordinance, Guadalajara Convention also is given the force of law.

31. The Amended Warsaw Convention (‘AWC’) is set out in full in Schedule 1 to the Carriage by Air Ordinance, and the Guadalajara Convention is set out in Schedule 2.

32. The result of this legislative framework is that the provisions of these Conventions “are to be treated as if they were part of directly enacted statute law”, albeit since they are international conventions, they are to be given “a purposive rather than a narrow, literal interpretation” : see the observations of Lord Diplock in The “Hollandia” [1983] AC 565, at 572, when commenting upon the correct approach to the Hague-Visby Rules, which similarly had been given the force of law in the United Kingdom.

33. It should also be borne in mind that the AWC, as modified by the Guadalajara Convention, contains an exclusive code relating to compensation for damage to or loss of cargo during international carriage. 

34. As Lord Hope expressed the position in Sidhu v. British Airways [1997] AC 430, at 453 :

“I believe that the answer to the question raised in the present case [the issue of time bar under Article 29 of the AWC] is to be found in the objects and structure of the Convention.  The language used and the subject matter with which it deals demonstrate that what was sought to be achieved was a uniform international code, which could be applied by the courts of all the high contracting parties without reference to the rules of their own domestic law.  The Convention does not purport to deal with all matters relating to contracts of international carriage by air.  But in those areas with which it deals – and the liability of the carrier is one of them – the code is intended to be uniform and to be exclusive also of any resort to the rules of domestic law.”

35. The AWC and the Guadalajara Conventions not only focus upon the liability of the actual and contracting carrier for cargo loss or damage, but also further deal with the liability of the servants or agents of the contracting or actual carrier.

36. The broad Conventional scheme is that the contracting carrier, defined in Article I (b) of the Guadalajara Convention as “a person who as principal makes an agreement for carriage governed by the Warsaw Convention with a …consignor or with a person acting on behalf of the … consignor”, is under Article II thereof subject to the provisions of the AWC “for the whole of the carriage contemplated in the agreement”, whilst the actual carrier, defined within Article I (c) as “a person, other than the contracting carrier, who, by virtue of authority from the contracting carrier, performs the whole or part of the carriage contemplated in paragraph (b)…”, is liable under Article II “solely for the carriage which he performs”.

37. Article 18 (1) of the AWC imposes liability upon the carrier for damage to or loss of any cargo “if the occurrence which caused the damage so sustained took place during the carriage by air”, which means that the carrier is liable, without proof of fault, unless he can set up one of the defences as set out in the Convention.

38. The concomitant of this doctrine of strict liability is that Article 22 provides the statutory limit to the amount of damage which may be recovered, limiting the carrier’s liability to 250 francs per kilogramme unless – and this is not the position in these cases – a “special declaration of interest in delivery at destination” has been made and a supplementary sum paid, in which case the statutorily recoverable limit is varied to a sum not exceeding the declared sum.

39. However, Article 25 provides for that question which fundamentally is at issue in the present cases, namely that of ‘breaking limit’ which, as earlier observed, represents the focus of this litigation. 

40. Article 25 reads 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.”

41. Article 25A extends the right so to limit to servants or agents of the carrier, although once again this right to limit can be broken if it can be shown that the damage in question arose from an act or omission of a servant or agent done with intent to cause damage or with knowledge that damage would probably result.

42. Precisely whose servants or agents are relevant to this inquiry is canvassed by the Guadalajara Convention, Article III(1) providing that “the acts or omissions of the actual carrier and of his servants or agents acting within the scope of their employment shall, in relation to the carriage performed by the actual carrier, be deemed to be also those of the contracting carrier”, whilst Article III(2) provides in like terms for the converse situation, deeming the acts and omissions of the contracting carrier and of his servants or agents to be also those of the actual carrier, although that article imposes the limitation that no such act or omission shall subject the actual carrier to liability exceeding the limits specified in Article 22 of the AWC.

43. Finally, Article V of the Guadalajara Convention provides that in relation to the carriage performed by the actual carrier, any servant or agent of that carrier or of the contracting carrier, if he proves that he acted within the scope of his employment, shall be entitled to limit his liability “unless it proved that he acted in a manner which, under the AWC, prevents the limits of liability from being invoked”.

The primary facts: the modus operandi of the two thefts

44. The theft the subject of the first case took place on Saturday 8 November 1997.

45. The plaintiffs’ cargo of 2000 mobile telephones had arrived at Kai Tak on board KLM 887 at approximately 0915 hours, and, after appropriate documentary processing, should have been collected from HACTL by the 4^th defendant, ASG Hong Kong, at 0730 hours on the following Monday morning, which in normal course was the next designated collection time-slot reserved by HACTL for ASG Hong Kong.

46. This did not occur. 

47. That which happened was that a valid release document, the relevant SRF, which duly had been issued for this cargo, was cancelled by a person or persons unknown, and the creation of a replacement SRF was effected, again by a person or persons unknown, which replacement thereafter was transferred into the hands of the thief or thieves who used it to obtain possession of the goods from the HACTL warehouse.

48. This was a theft disarming in its simplicity, and, as also was to be the situation in the circumstance of the second theft, served to exploit a ‘window of opportunity’ between the arrival of the relevant flight on the Saturday morning and the following Monday morning, when cargoes arriving over the weekend in normal course would have been documentarily processed and thereafter legitimately collected. 

49. The theft the subject-matter of the second case, which took place just over two months later, on Sunday 18 January 1998, was the more complex in execution, although once again it depended upon the thieves getting possession of the all-important SRF.

50. Since the circumstances of this incident are less straightforward than that of the first, and thus responsibility therefor is less clear, it is this second theft, and the events leading thereto, which has occupied a significant part of the factual evidence in this trial, and these events will be dealt with in more detail later in this judgment, since it is a matter of dispute that this occasion represented that which colloquially may be referred to as an ‘inside job’.

51. As earlier noted, this second incident involved a total of 4,500 mobile phones which Ericsson had arranged with ASG Sweden to transport from Sweden to Hong Kong, and which were carried from Arlanda via Schipol to Kai Tak and had arrived on flight number 887 on Saturday 17 January 1998.

52. These phones once again were packed in large wooden crates, with a volume of 20.45 cubic meters and a combined weight of approximately 170 kilos.  At the time that this consignment was delivered to HACTL three of these crates were found to have been broken open, thereby presumably facilitating knowledge of their contents.

53. The operative wrongful act upon this occasion – in fact the second attempt made by the thieves on Sunday 18 January 1998 in order to obtain the necessary documentation to secure the release of the goods – was that a man impersonating a person known as Man Kin Ying, whom otherwise was a legitimate employee of the 4^th defendant, had turned up in the afternoon of that day at the HACTL counter, had presented that which now is known to be a false ID card and a false ASG Hong Kong ‘chop’, and duly had obtained the SRF in question from the HACTL employees on duty at the time. 

54. Once again, possession of this bearer document of title facilitated collection of this very large consignment of telephones from the HACTL warehouse collection point, there to be loaded onto a lorry and thereafter to disappear.

55. A closed-circuit television recording of the collection of this SRF within the HACTL office has been available for scrutiny at this trial, and the events depicted on that recording have been the subject of argument and conflicting submissions.

The evidence

56. A considerable amount of documentary evidence was placed before the court, and in addition thirteen witnesses of fact gave viva voce evidence.

57. In light of the issues before the court, it is fair to observe that these cases did not turn upon the evidence of any particular individual, given that the greater bulk of this evidence went to the surrounding circumstances of these unsolved thefts and to the inferences that reasonably could be drawn therefrom.

58. For the plaintiffs two witnesses were called (Alan Lai Kar Fai and Loo Kin Sang), for the 1^st defendant one witness (Chin Tak Man), for the 4^th defendant five witnesses (Hung Wing Lun, Wong Chi Wai, Man Kin Ying, Wong Wan Sang and Bengt Sjoeberg), for the 5^th defendant three witnesses (Au King Kong, Cheung Ping Kwong, and Wong Yee Him), and for the 6^th defendant two witnesses (Poon Chun Chung and Wong Kin Wing).

59. In addition, two expert witnesses were called : Mr D.A.M. Phipps on behalf of the plaintiffs and Mr Steve Vickers on behalf of the 5^th defendant.

60. As subsequently appears, in the particular circumstances of these two thefts, and in light of the view which has been taken thereon, this is not a case in which the court materially was assisted by the expert opinion, which was called solely upon the ‘recklessness’ issue within the second limb of Article 25 of the AWC.

Issues of law

61. Against this background, it is necessary to consider the validity not only of the particular allegations maintained by the plaintiffs against the individual defendants, but also the attribution of fault as maintained by the defendants inter se.

62. There are, however, a number of specific legal issues which have been raised by these two cases, and which have formed the basis of defences mounted by all or some of the defendants against the claims as now pursued against them.

63. Accordingly, given this element of ‘commonality’, in whole or in part, of such defences, it may be useful briefly to canvass these arguments at the outset.  There are four such issues which are woven into the tapestry of this litigation.  I take them in turn.

(i)      The Amended Warsaw Convention : An ‘exclusive code’ precluding pursuit of concurrent common law causes of action?

64. I have earlier referred to the characterization of the writs in these actions as “grapeshot writs”, by which is meant that the pleader has cast his net wide in terms both of defendants and causes of action. 

65. There is no doubt that the pleaded approach which has been adopted has made these proceedings complex and cumbersome; in fact, in the context of an AWC case it may fairly be said that the pleadings in these actions are idiosyncratic, given that claims under the AWC and Guadalajara Conventions were not pleaded in specific terms until amendment of the Statements of Claim, amendments which did not occur until March 2003, over two years after the issuance of the generally indorsed writs.  This fact now is contended to lead to particular consequences.

66. First, it is asserted by the 4^th, 5^th and 6^th defendants, ASG Hong Kong, HACTL and JASL, that since in principle the plaintiffs have no right to bring a claim against the carrier’s servants or agents under the Amended Warsaw Convention and further – and this is the nub of the present point – that since, as Lord Hope observed in Sidhu, op cit., the Conventions provide an ‘exclusive code’, it thus is not open to a plaintiff concurrently to mount a claim at common law against a carrier’s servant or agent.

67. The argument is that the appropriate way to mount an action under the Conventions is to implead the carriers, contractual or actual, thereby enabling these defendants to bring any claim against its servants or agents in third party proceedings – as indeed has been the situation in both these cases in terms of the third party proceedings as brought by HACTL against KLM.

68. This latter proposition is true, of course, but does the converse apply if this accepted pattern is not followed?  Given that these claims in fact have emerged in this manner, the question for resolution is whether the approach which in fact has been adopted in this case is bad in law, and whether the existence of the Conventional claims necessarily precludes the concurrent mounting of common law causes of action?

69. From the vantage of the 4^th, 5^th and 6^th defendants, this argument has obvious attraction – if it be correct then, subject to any third party/contribution proceedings, if follows that effectively they are off the hook.

70. However, notwithstanding the enthusiasm variously invested in the point, I am unconvinced that this represents the law.

71. In Sidhu, op cit., Lord Hope says in terms (at 453D) that the AWC is an exclusive code “in those areas with which it deals”.  It is clear, also, that the liability of the carrier, whether contractual or actual, is one of the matters dealt with by the AWC, as modified by the Guadalajara Convention, whereas the liability of a servant or agent of a carrier is not an area to which the Conventions sound.

72. Although Articles 17, 18 and 19 of the AWC impose in terms liability upon the carrier, there is nothing which imposes liability upon a servant or agent, although Article 25A envisages that an action may be brought against a servant or agent of the carrier (as does section 7(1) of the Carriage by Air Ordinance), and both provisions contemplate that such action can be brought “arising out of damage to which this Convention relates”.

73. As Mr Sussex has pointed out, the extent to which rules of domestic law could impact upon this uniform code was considered by the English Court of Appeal in Western Digital Corporation v. British Airways, [2000] 2 Lloyd’s Rep 142, wherein Mance LJ (as he then was) observed as follows (at 155-156) :

“The unamended Warsaw Convention referred to a carrier and not to its servants or agents.  The Hague Protocol introduced amendments into arts. 25 and 25A to refer to ‘servants and agents’.  Article 25 as amended, deals simply with the extent to which the carrier’s liability under art. 22 may be affected by acts or omissions of his servants or agents.  Article 25A gives any servant or agent, acting within the scope of his employment by carrier, an entitlement to avail himself of the limits of liability which the carrier is entitled to invoke under art. 22.  Nothing in arts. 17-21 or in art. 25A itself imposes any liability on a servant or agent.  Following Sidhu the language of art. 25A (‘damage to which this Convention relates’) may restrict the nature of the claim which may be made against any responsible servant or agent.  But that is a different matter.  Whether a servant or agent may be held liable at all must, on the face of it, be determined by domestic law; as to that, see Midland Silicones Ltd. v Scruttons Ltd. [1961] 2 Lloyd’s Rep 365…Servants or agents do not have under the Convention the protection of other provisions, for example, the two year time limit in art. 29, although that is specifically provided under English law by s. 5(1) of the 1961 Act.  Accordingly, art. 25A appears specifically to contemplate and to regulate tort claims, which would necessarily be brought by the owner or person with an immediate right to the possession of baggage or cargo…”

74. In this connection the court’s attention also was drawn to a Singapore Court of Appeal case, Seagate Technology International v. Changi International Airport Services Pte Ltd, [1997] 3 SLR 1, wherein a similar conclusion was reached, the court holding that on a true construction of the AWC the liability of the carrier’s agent was not founded on articles 17, 18 and 19, and that there was no special regime in the AWC or in the corresponding Singapore Carriage by Air Act imposing ‘no fault’ liability on the carrier’s agent for loss arising out of an international air carriage.  Thus, the court therein concluded that if no choice of law issue arose as to the proper law governing the claim, it was the common law that provided the basis of the liability of the carrier’s agent.  Accordingly, in Seagate Technology the respondent’s liability for loss of the pallet of hard disk drives derived from common law and not from the terms of the Convention, and it followed that the appellant’s Statement of Claim was not defective because its pleas of negligence, bailment and conversion were valid causes of action at law.

75. I accept the reasoning within these authorities.  It follows, therefore, that the contention of the 5^th and 6^th defendants herein, which derives from a narrow construction of Article 24(1) of the AWC – namely, that in the cases covered by Articles 18 and 19 “any action for damages, however founded, can only be brought subject to the conditions and limits” as set out in the Convention – is contrary to authority and represents a construction with which I am not minded to agree.

76. Accordingly, I reject this argument, and hold that any liability of the 4^th, 5^th and 6^th defendants falls to be determined by the common law, albeit, if and in so far as these entities are agents of the actual carrier, KLM, they are prima facie entitled, by reason of Article V of the Guadalahara Convention, to avail themselves of the limits of liability applicable under the AWC.

(ii)     Time bar

77. This argument represented an additional offshoot of the somewhat unusual course adopted by these pleadings, given that the amendment to plead the Conventional claims in each case did not see the light of day until March 2003.

78. It was Mr Ho SC, appearing for KLM, who made the running on this issue, although his argument was readily adopted by counsel on behalf of the other defendants.

79. Mr Ho submitted that the plaintiff’s claims are time-barred under Article 29(1) of the AWC, which reads :

“The right to damages shall be extinguished if the action is not brought within 2 years, reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the carriage stopped.”

80. Mr Ho noted, correctly, that Article 29 is applicable to the claim against his client on the basis (as indeed he accepted) that KLM was an ‘actual carrier’ under the Guadalajara Convention. 

81. He argued that the plaintiff’s cause of action was time-barred in each action under Article 29(1) because no claim for damages under the AWC had been brought within the 2 year time-limit, and thus that KLM had acquired a complete and substantive defence.

82. The history, he noted, was that the leave to amend to plead the Convention causes of action had been granted by this court only on 25 March 2003 (in HCCL 202 of 1999) and on 29 April 2003 (in HCCL 2 of 2000), and that as a matter of law such amendments did not relate back to the date of the writs in each action, which were dated 6 November 1999 and 12 January 2000 respectively.

83. Accordingly, Mr Ho submitted, Ericsson’s case as formulated prior to these amendments plainly had been insufficient to constitute “an action” brought within 2 years within the meaning of Article 29(1), given that the relevant factual averments against KLM qua ‘actual carrier’ were first raised in March and April 2003 respectively.

84. Mr Ho further argued that in these two cases the date of arrival of the cargoes at Kai Tak had been on 8 November 1997 and 14 January 1998, and thus that the 2 year time-limit for an action for damages under the Article 18 of the AWC had expired on 7 November 1999 and 13 January 2000 respectively.  Yet by these dates, he submitted, there never was any pleaded cause of action under the AWC or the Guadalajara Convention, the only causes of action raised within the pleadings as originally constituted being in bailment, contract and negligence.

85. In fact, he said, KLM had objected to the amendment at the time that application therefor has been made, and since at that hearing before this court there plainly had been no final determination of the merits of the argument as to the time-bar, KLM now was entitled to take this point at trial.

86. Further, Mr Ho asserted, there could be no doubt but that Article 29(1) was a substantive limitation provision, breach of which destroyed the underlying cause of action under the AWC; failure to comply with this statutory limit was not merely a procedural bar precluding the remedy and rendering the claim unenforceable, but clearly extinguished the underlying cause of action which thereafter could not be revived: see here Aries Tanker Corp v. Total Transport [1977] 1 WLR 185 at 188 (HL), per Lord Wilberforce, and Western Digital v. British Airways, op cit., at 147, per Mance LJ.

87. It was further the situation that the doctrine of ‘relation back’ enshrined within section 35(1) of the Limitation Ordinance applied “only for the purposes” of that Ordinance, and neither the Carriage by Air Ordinance or the AWC contained a like doctrine. 

88. Nor, he submitted, was there any power under the Rules of the High Court entitling the court to deprive a party of a substantive defence such as that arising under Article 29(1) : see, for example, The Jay Bola, [1992] 2 Lloyd’s Rep 62, where in the context of a time limitation argument under the Hague Rules Hobhouse J (as he then was) held that the words “any limitation period” within Order 20, rule 5 “must be read as referring to limitation periods properly so-called which impose a procedural restriction only”, the decision in that case being followed by this court in Win’s Marine Trading Co v. Wan Hai Lines (HK) Ltd [1999] 3 HKC 701, wherein it was held that the court was not permitted to recreate a substantive cause of action which no longer existed, and that the doctrine of ‘relation back’ applied to procedural time bars only.

89. Accordingly, Mr Ho concluded, given that there simply was no Convention claim in the original pleadings – all that there had been at the outset was “a misconceived common law action” – it would be illogical and incorrect for such common law action to suffice as an ‘action’ brought within the 2 year time-limit for the purposes of Article 29(1); it was only after the amendments had been made that the right of damages against his client, KLM, as ‘actual carrier’ had been positively asserted by Ericsson, by which time it was far too late to resurrect such extinguished claim.

90. Notwithstanding the fluency of the argument, I remain unconvinced that this focus upon the content of the subsequent amendments is analytically satisfactory or correct.

91. When it comes to time-bar arguments it seems to me – and indeed this was precisely the thrust of Mr Sussex’s submission on the point – that the sole question to be addressed is whether the generally indorsed writs in these two actions, which were issued on 6 November 1999 and 12 January 2000 respectively, sufficed to stop time from running, and thus to prevent the operation of the time bar contained in Article 29?

92. If the answer to this is ‘yes’, the time bar argument fails; if ‘no’, it succeeds, and the relevant claim is extinguished.  What then is the situation?

93. The indorsements in these two cases are widely drawn, it is true, and indeed fail to make any reference to a claim under the AWC or the Guadalajara Conventions.  That which they do include, however, is an assertion of a claim for damages, the entitlement to which is said to arise from KLM’s “breach of duty … in or about the handling, custody and care” of the two consignments of mobile phones.

94. Mr Sussex submitted that the requirement of our domestic law, pursuant to RHC Order 6 rule 2, is for “a concise statement of the nature of the claim made or the relief or remedy required in the action”, and that this is precisely what these writs contain.  He pointed out that the AWC, as modified by the Guadalajara Convention, clearly does impose duties on an actual carrier, one of which is the duty to pay compensation for “damage sustained in the event of … loss of … any cargo, if the occurrence which caused the damage so sustained took place during the carriage by air.”  Thus, he asserted, time clearly had been protected.

95. He further characterized the argument put forward by Mr Ho to the effect that the claims as indorsed on the writs subsequently were ‘crystallized’ by the amendment to the pleadings specifically to incorporate the Convention claims as “nothing more than a rehash” of the abandonment argument which so conspicuously had failed in The “Almerinda” [2002] 1 HKC 75, Ribeiro PJ (at 79) noting that in that case the pleadings had been given “the robust treatment normally adopted by the Commercial Court”. 

96. I accept this contention.  In my judgment the writs herein are indorsed in sufficiently broad terms to include a claim under the AWC, and thus that time had ceased to run.  In this connection I am fortified by the fact that the relevant pleading precedent from Atkin’s Court Forms, Vol 8(1) 1998 issue, at page 382 (to which my attention initially was drawn by Mr Thompson, during his submission on the point on behalf of the 6^th defendant, JASL) makes no reference, within the suggested form of indorsement, to the AWC nor to the Guadalajara Convention.

97. I further agree with the correlative submission that even had the claim not been the subject of subsequent amendment specifically to plead the AWC, and thus by our procedural rules may be said to have been deemed abandoned, such would not have meant that the AWC claim had become retrospectively time-barred.  It is my view, therefore, that in these cases time had ceased to run, and it is clear that as a matter of history the plaintiffs had been permitted to amend with leave of this court, and further that there was no appeal against that decision.

98. Mr Sussex also noted, again in my view with ample justification, that in terms of the claims against ASG Sweden, HACTL and JASL, the indorsement on the writs obviously was sufficient to stop time running against those defendants.

99. Accordingly, I reject the contention that these claims are time-barred.

100. I turn finally to two additional legal issues which were raised in argument.

(iii)    Limits of the liability of the ‘actual carrier’ under the Conventions

101. It is the contention of KLM that, as ‘actual carrier’, it had ceased to be under any liability for the cargoes of mobile phones from the time from which such cargoes were unloaded from the carrying aircraft.

102. During argument, Mr Ho SC stressed the import of the words within Article II of the Guadalajara Convention which provide that both contracting and actual carrier are subject to the AWC “the former for the whole of the carriage contemplated in the agreement, the latter solely for the carriage which he performs.”

103. In each instance in the present cases, of course, the carriage was performed in two flights, one between Arlanda in Sweden and Schipol in Holland, and thereafter from Schipol to Hong Kong.

104. There is no doubt, therefore, but that KLM performed the whole of the carriage contemplated with the contracting carrier, ASG Sweden, and in the terms as set out in the House AWB issued by the 3^rd defendant.

105. It is correct that Article II of the Guadalajara Convention contemplates a situation in which carriage is performed both by the contracting carrier and by the actual carrier or a series of actual carriers, and it is correct also that in such a case the actual carrier is responsible only for that part of the carriage which it has performed.

106. However, as Mr Sussex has pointed out, the temporal limits of such liability still fall to be determined by the terms of Article 18 of the AWC, which provides, in Article 18(2), that the carriage by air within the meaning of Article 18(1), “comprises the period during which the baggage or cargo are in charge of the carrier, whether in an aerodrome or on board an aircraft, or, in the case of a landing outside an aerodrome, in any place whatsoever.”

107. Accordingly, he submitted, if the cargo is in the possession or custody of a servant or agent of the actual carrier, clearly it remains “in charge of the carrier”, and such possession or custody comprises part of the “carriage which he performs”.

108. In this connection my attention has been drawn to a dictum of Bingham J (as he then was) in Swiss Bank v. Brinks Mat [1986] 2 Lloyd’s Rep 79 at 86, who in that case was considering the phrase “in charge of the carrier”, and said :

“The prevailing French text uses the words ‘sous la garde du transporteur’.  These words capture very precisely the meaning  which I would give to the words “in charge”, with their overtones of safe-keeping, custody and care.  But I do not think that assistance is to be gained from multiplying synonyms.  The concept of goods being in charge of a party is a simple and readily comprehensible one.”

109. In the context of this argument Mr Ho prayed in aid the New Zealand case of Emery Air Freight Corporation v. Nerine Nurseries Ltd [1997] 3 NZLR 723, a case involving a claim for damage to a cargo of flower bulbs, the owner of which had contracted with Emery Air Freight to transport the bulbs from Sydney to Amsterdam, and Emery in turn had contracted with Al Italia to perform this carriage.  It was held by the New Zealand Court of Appeal that Emery was not liable as an ‘actual carrier’ within Article II of the Guadalajara Convention as the damage had not occurred during carriage performed by Emery, and that the term “carriage which he performs” contained in Article II related solely to physical performance.

110. However, it is difficult to see how this decision assists Mr Ho, given that the physical carriage in Emery was performed by Al Italia, and that the flower bulbs were in charge of Al Italia when they were damaged.

111. The factual situation in Emery thus is clearly distinguishable from that presently before the court, wherein KLM physically performed the entire carriage, and, as Mr Sussex submitted, such carriage did not cease until delivery to the consignee in Hong Kong – which, regrettably, failed to occur in either of the incidents presently under consideration.

112. I have concluded, therefore, that the goods the subject of these two consignments indeed were lost whilst “in charge of the carrier”, and that Mr Ho’s argument is bad in law.  If he were to be correct, then, as Mr Sussex observed, this would lead to the curious result that an ‘actual carrier’ could only be liable for damage while goods were being physically carried in the sense of being actually on board the plane, but not, to take one example, for damage while they were awaiting transshipment from one flight to another of the ‘actual carrier’.

113. Accordingly, I reject this argument as mounted on behalf of the 1^st defendant.

(iv)    Limitation of liability : identification of quantum if limit remains unbroken

114. This is an ancillary point, and one that emerged very much at the end of this trial.  It concerns the monetary quantification of the Convention limit if and in so far as such limit is not broken.

115. Article 22(2)(a) of the AWC imposes a limit of liability of 250 francs per kilogramme of cargo, unless the consignor has made special declarations which, as I have earlier noted, has not occurred in the present cases.  Article 22(5) further provides that the sums mentioned in francs in this Article shall be deemed to refer to a currency unit consisting of 65.5 milligrammes of gold of millesimal fineness 900, and further that conversion of such sum into national currencies other than gold shall, in case of judicial proceedings, be made according to the gold value of such currencies “at the date of judgment”.

116. Section 6(4) of the Carriage by Air Ordinance provides :

“The Monetary Authority may specify in Hong Kong dollars the respective amounts which for the purposes of Article 22 of the amended Convention, and in particular paragraph (5) of that Article, are to be taken as equivalent for a particular day to the sums expressed in francs in that Article.”  

117. Section 6(5) further provides :

“A certificate given by or on behalf of the Monetary Authority in pursuance of subsection (4) is conclusive evidence of the materials stated in it for the purposes of Article 22 of the amended Convention, and in particular of paragraph (5) of that Article, and a document purporting to be such a certificate is, in any proceedings, to be received in evidence and, unless the contrary is proved, deemed to be such a certificate.”

118. However, section 20(4) of the Carriage by Air Ordinance makes specific reference to the Carriage by Air (Overseas Territories) (Hong Kong Dollar Equivalents) Order, which provides that 250 francs are equivalent to HK$135 for the purposes of Article 22 of the AWC.

119. Thus, the argument which now is canvassed on behalf of the defendants, and in particular KLM, is that as far as the AWC limit is concerned the effect of this Order is to render the carrier liable only to a sum calculated on the basis of HK$135 per kilo in terms of the total weight of the lost cargo, which latter weight is not in dispute in these proceedings, and bearing in mind, of course, that there have been no special declarations of interest.

120. Mr Ho thus maintained that the clear effect of section 20(4) of the Ordinance is that the Hong Kong Dollar Equivalents Order remains in force as if it had been made under section 6(4), that there is no provision under the Carriage by Air Ordinance that provides in which circumstance the Hong Kong Dollar Order shall cease to have effect, and that there is, to-date, no Certificate issued by the Monetary Authority in evidence in these proceedings.  Nor, for that matter, he said, had Ericsson pleaded a specific limit amount, and nor had it specifically traversed the quantum of the limit applicable under Article 22.

121. Thus, submitted Mr Ho – a submission with which other defendants readily aligned themselves – the limitation sum was a matter of precise calculation, which in terms of the 1^st theft was HK$375,300 [HK$135 times 2,780 kgs], and in terms of the 2^nd theft was HK670,410 [HK$135 times 4,966 kgs], and that it was not now open to the plaintiff to put forward another, as yet unknown, figure.

122. To this argument Mr Sussex demurred.  There was no tension, he said, between sections 6(4) and 20(4) of the Carriage by Air Ordinance.  He submitted that the deeming provision under section 20(4) applied only if the Monetary Authority failed to exercise its power (but not duty) to issue a Certificate specifying the equivalent amount for a particular day, and that it would be “wrong in principle” for this court to declare that limit under the AWC fell to be quantified with reference to the Hong Kong Dollar Equivalents Order in circumstances wherein the Monetary Authority may well grant a Certificate under section 6(4) for the particular date (as yet unknown) upon which judgment in this case was to be handed down, and that that was something which obviously could not be done in advance of the date of such judgment.

123. Accordingly, he said, the principle ‘generalibus specialia derogant’, that is, special provisions override general ones, should be applied in the present circumstances.  It was known that the Monetary Authority had given such Certificates in the past, and given that there was also known to be a significant difference between the value of the franc as recently certified by the Monetary Authority when compared with the value ascribed thereto in the Carriage by Air (Overseas Territories) (Hong Kong Dollar Equivalents) Order, the only fair way of proceeding – should such transpire to be relevant – was that the court should express its view in principle in these cases, and that thereafter the Monetary Authority should be asked so to certify. 

124. I agree. 

125. I consider that it would be unfortunate and illogical if machinery specifically put in place by statute to provide for a contemporary valuation of the franc should be sidestepped on the basis of the argument as now advanced by the defendants.  That would seem to me to be wrong in principle and potentially unfair.  I appreciate the basis of the defendants’ argument, but in the present circumstances there is no reason in my view why any pre-emptive procedure as to costs could not have been updated in terms of contemporaneous valuations by means of a ‘Calderbank’ letter, alternatively by means of regular adjustments of monies paid into court, depending upon the currency fluctuations of the franc against the US/HK dollar.

126. In so far as this issue is of relevance in these cases, therefore, I am against the defendants on this point also.

The two thefts

127. Having considered the applicable points of principle, I turn now to consider the two thefts and the issues of liability arising therefrom, within both the head actions and within the resultant third party and contribution proceedings.

(i)      The 1^st theft : HCCL 202 of 1999

128. Early in the trial Mr Coleman, counsel for the 5^th defendant, HACTL, made a significant concession.

129. It was this.  On behalf of his client he formally accepted, on the facts, that this court could find that the 1^st theft on 8 November 1997, which had involved the cancellation of an existing SRF and the issuance of another in its stead – which replacement had come into the possession of thieves, who then had used it to obtain the first consignment of mobile telephones – could be characterized as a theft which had occurred with the ‘inside involvement’ of a HACTL employee.

130. Given the structure of the AWC and the Guadalajara Convention, such concession clearly had an impact upon the issue of liability generally, and thus this part of the judgment, in so far as it relates to the 1^st theft, must be read against this backdrop.

(a)     Plaintiffs’ case against the 1^st defendant, KLM

131. Having earlier dismissed KLM’s argument that the actions against it were time-barred, together with its further contention that, as ‘actual carrier’ within the meaning of Article I of the Guadalajara Convention, that the airline was liable only for cargo damage or loss when such cargo physically was on board its aeroplane, it seems to me that Mr Coleman’s concession that the 1^st theft was the result of an ‘inside job’ on the part of HACTL leaves little room for argument but that the plaintiffs indeed are entitled to break limit as against KLM in terms of the 1^st theft.

132. It is evident that HACTL was KLM’s agent for Article 25 purposes, and, subject to the issue of indemnity between these parties, which is an aspect with which I later deal within the context of the third party proceedings, I fail to discern any other defence which is available to KLM in the head action.

133. Accordingly, I hold that in terms of the 1^st theft Ericsson is entitled to break limit against KLM, or, to put the proposition the other way, that KLM is not entitled to invoke the AWC monetary limit against Ericsson in terms of the loss occasioned by the 1^st theft.

134. I deal with the issue of quantum later in this judgment.  It follows in principle, however, that in HCCL 202 of 1999 that judgment is to be entered against KLM in the appropriate sum.

(b)     Plaintiffs’ case against the 3^rd defendant, ASG Sweden

135. The plaintiffs mounted the case against ASG Sweden in its capacity as ‘contracting carrier’.  For his part Mr Harris, who appeared for the 3^rd defendant, does not dispute that his client indeed was the contracting carrier in this instance.

136. As was the position with the 1^st defendant, on behalf of the 3^rd defendant Mr Harris adopted a “neutral stance” in respect of the cause of, and factual responsibility for, these two thefts, the 3^rd defendant having no first hand knowledge thereof and no specific factual case that it wished to advance.

137. As was the case between the plaintiffs and the 1^st defendant, it similarly is common ground between the plaintiffs and the 3^rd defendant that the AWC and the Guadalajara Convention provide the plaintiffs’ exclusive right to seek compensation against the carriers consequent upon these two thefts.

138. Accordingly, the 3^rd defendant’s liability to compensate the plaintiffs for their loss over and above the limit provided by Article 22 of the AWC is dependent upon the establishment of Article 25 liability in terms of establishing that the 3^rd defendant is liable for the acts or omissions of its servants or agents.

139. When opening this case Mr Sussex for the plaintiffs asserted in terms that for these purposes the 4^th defendant, ASG Hong Kong was the 3^rd defendant’s agent.  In my view this factual case has not been established.

140. Although it no longer matters given the belated concession made by the plaintiffs regarding the liability of the 4^th defendant, ASG Hong Kong, I do not find that in this case ASG Hong Kong was acting as the agent of the 3^rd defendant.  I accept the evidence of Mr Bengt Sjoeberg on the issue; it is clear that by the end of 1992 the 3^rd defendant and the 4^th defendant were independent companies carrying on business between themselves as principals, and the ‘representation agreement’ which is in evidence neatly makes the point.  The 4^th defendant was instructed by the 1^st plaintiff to collect, store and deliver cargo, the 1^st plaintiff paying the 4^th defendant’s quotations therefor.   It seems tolerably clear on the evidence that the 4^th defendant did not transact business with third parties for and on behalf of the 3^rd defendant.

141. In short, I accept that the position was, and so find, that the 3^rd defendant, ASG Sweden, had contracted to arrange the carriage of the cargo to Kai Tak, that it had been prepaid for this by the 2^nd plaintiff, and that the 4^th defendant had contracted with the 1^st plaintiff to collect the cargo from Kai Tak and to store and deliver it as directed by the 1^st plaintiff, who was to pay the 4^th defendant for the provision of such service – a service which never transpired by reason of the thefts.

142. It follows that there can be no liability of the 3^rd defendant for the acts of the 4^th defendant, even if the plaintiffs had continued to claim that the 4^th defendant was liable to them, which in the event, for reasons to which I will shortly allude, no longer is the case.

143. It follows, also, that the only basis upon which the plaintiffs can break the Article 22 limit as against the 3^rd defendant is on the basis of Article III(1) of the Guadalajara Convention, namely that the acts and omissions of the servants or agents of the actual carrier shall be deemed to be also those of the contracting carrier.

144. Mr Harris accepted the existence of this principle, but in the present instance disputed its application, and, like Mr Ho for KLM, reiterated the argument that the liability of the 1^st defendant as ‘actual carrier’ is limited to physical performance of the carriage; he says that this had ended upon discharge from the aircraft and once the 5^th defendant, HACTL, had received the cargo.

145. Having earlier rejected this argument, however, there is no reason why liability similarly should not apply to the 3^rd defendant by virtue of the application of Article III(1) of the Guadalajara Convention.  I so hold.

146. Accordingly, the like result enures in terms of the 3^rd defendant’s liability for the 1^st theft as was the position in terms of the liability of KLM, and I find that the plaintiffs have been successful in breaking the Article 22 limit, and that judgment in the appropriate sum is to be entered against the 3^rd defendant to reflect that fact.

147. Once again, I consider later in this judgment the issue of contribution as sought by the 3^rd defendant against the 5^th defendant.

(c)     Plaintiffs’ case against the 4^th defendant, ASG Hong Kong

148. The plaintiffs’ case against the 4^th defendant collapsed on the 13^th day of this 15 day trial when Mr Sussex interrupted the final submissions by Miss Sara Tong, counsel for the 4^th defendant, to state that, having taken instructions overnight that on behalf of his clients, he was not pursuing their claim against the 4^th defendant in respect of both the 1^st and the 2^nd thefts.

149. The court accepted this concession, which if I may say so struck me as sensible in the circumstances.

150. However, this fact did not mean that Miss Tong took no further part in this trial.  Since contribution variously was sought from the 4^th defendant by the other defendants, it was common ground that she was entitled to continue her submissions on behalf of the 4^th defendant : see the commentary in the White Book, M/N 16/8/1, which reads that “a defendant is entitled to issue and serve contribution notices against two co-defendants, even though the plaintiff has settled his claim against them and such notices are valid and create a lis between the parties, even after the plaintiff has discontinued his action against those co-defendants (Harper v. Gray & Walker [1985] 1 WLR 1196)”.

151. In terms of the head action, however, there was nothing further to consider in light of the foregoing statement made by leading counsel for the plaintiffs.

152. It follows, therefore, that the plaintiffs’ claim in this action against the 4^th defendant must be dismissed.  I so order.

(d)     Plaintiffs’ case against the 5^th defendant, HACTL

153. As earlier noted, there is no issue with regard to the 1^st theft, subject to issues of contribution, but that the AWC claim against KLM and ASG Sweden ultimately comes home to roost against HACTL, as servant or agent of KLM, given that HACTL specifically accepts that the Court can find that this theft occurred with the ‘inside’ involvement of a HACTL employee.

154. However, the plaintiffs pursue a direct cause of action against HACTL at common law in negligence and bailment, which has led to the argument upon which earlier I have ruled, namely that it remains possible concurrently to maintain such a claim in addition to maintaining Conventional claims against the carriers.

155. In the context of this debate, I have some sympathy with Mr Coleman’s refrain that, in terms of the main action, HACTL was an unnecessary party, and that it need only have been brought in at all in terms of third party proceedings.  However, this strikes me as a costs issue, and not as a matter of substantive law given that I have held against him in terms of the ‘complete code’ argument.

156. If this be correct, and a concurrent common law action indeed remains maintainable, it is clear that HACTL can have no defence to the plaintiffs’ direct claim in light of Mr Coleman’s concession in terms of the facts of the 1^st theft.

157. Accordingly, whilst in practice it may not matter, it follows that judgment in the appropriate sum must also be entered in the plaintiffs’ favour in the head action against HACTL; in the circumstances there can be no question of the 5^th defendant being in a position to invoke the provisions of Article 25A, and thus to avail itself of the Article 22 limit.  I so hold.

(e)     Plaintiffs’ case against the 6^th defendant, JASL

158. It is solely in connection with the 1^st theft that the plaintiffs directly pursue the 6^th defendant, JASL, in common law negligence.  Any allegation that JASL was an ‘actual carrier’ sensibly has been abandoned.  As with the position of HACTL, it is accepted that JASL is the servant or agent of the actual carrier, KLM.

159. Nor is there any question but that the claim has been brought in time, given that under section 7(1) of the Carriage by Air Ordinance that a claim against a carrier’s servant or agent arising out of damage to which the AWC relates shall be brought within two years reckoned from the date of arrival of the aircraft at the destination.

160. Against this background, Mr Sussex pursues JASL in terms of liability to his client for the 1^st theft.

161. I earlier adverted to the circumstances surrounding the 1^st theft, but perhaps at this juncture it may be useful to provide more detail.

162. It is established that the system which was in place for the production of the relevant SRF was, in essence, a collaboration between JASL and HACTL.

163. In broad terms, the way in which the system was set up was that in late 1997 and early 1998 the arrival at Kai Tak airport of cargo consignments was input into a computerized system known by the acronym COSAC (‘Community System for Air Cargo’), to which JASL and HACTL both had access.

164. COSAC was designed to collate and to disseminate cargo information and to coordinate cargo handling transactions throughout the community, and in addition permitted participating parties to gain information in respect of consignments via a local network of some 500 display terminals and 230 printers throughout the cargo complex.

165. The precise manner in which the cargo release systems operated is helpfully described in the witness statement of one of the JASL witnesses, Eric Poon Chun Chung.  In particular, Mr Poon described the cargo release procedures as operated by HACTL through a system known as ‘PACCO’, which stands for ‘Pre-Customer Arrival Customs Clearance Office’, which was sited in the HACTL terminal cargo offices and which was operated in conjunction with the computerized COSAC.

166. Essentially cargo officers on duty at JASL would collect the relevant cargo documents, consisting of air waybills and manifests, from the aircraft, and upon return to the JASL office would process these documents and input the relevant shippers’ and consignees’ names, as shown on each air waybill, into the COSAC system; a full flight manifest setting out all the data thus inputted would be printed out and submitted to Customs, which would then allocate to each air waybill a customs code in accordance with the categories of goods to which they related.

167. PACCO would know about the arrival of consignments of goods through the information on the COSAC system, and would send staff over to the JASL office to collect the relevant cargo documents.  After due cross-checking in terms of identification and authorisation a cargo officer at the JASL office would then key a command into COSAC, which would enable staff in the PACCO office to issue relevant SRF’s, which themselves would be printed out by PACCO’s printer.

168. Thereafter the PACCO staff would be responsible for contacting the consignees for collection of SRF’s and verifying the identity of their cargo agents when they arrived at PACCO to collect the SRF, and thereafter to obtain release of the goods from the HACTL warehouse.

169. If for any reason there was a need to cancel an original SRF, which already had been printed out at PACCO, staff at that office would call staff at JASL through an internal telephone and request that such cancellation be effected by JASL.  No written record would be made in terms of the identity of such caller or the reason for the requested cancellation, although on occasion this information in fact was sought by JASL staff.  In any event, where cancellation of an SRF was requested, JASL staff then would input into COSAC the cancellation command and/or the reissuance of the SRF, which would enable a new SRF to be printed again at the PACCO office.

170. This is what happened, albeit in dishonest fashion, on 8 November 1997, with the COSAC ‘scroll’, the relevant computer record, bearing mute testimony to this event, which shows that at 1455 hours the original SRF, which we now know to be SRF 58, was printed at PACCO, that at 1828 hours a cancellation request was received, and that at 1844 hours a replacement SRF, SRF 59, was authorised by JASL and was printed out at what has been described as the ‘old warehouse’ Terminal I PACCO office by someone using the sign-in code of one Chung Sui Keung, who apparently had left his office without logging out of COSAC.

171. It was this SRF 59, of course, which was the document which was given by a person unknown to an innocent driver of one Yau Shing Transport Company, which had been employed to collect this consignment of mobile telephones from HACTL and thereafter to deliver them as directed; at 20.38 hours, SRF 59 was presented at the cargo collection point, and at or shortly before 20.59 hours the goods were retrieved from storage and delivered against presentation of this document. 

172. Although the COSAC scroll for the crucial entries reveals the personal codes of the JASL staff, in this instance Mr Eric Poon and Mr Lam Kar Hon, as responsible for inputting the relevant commands into the computer system, it seems clear that neither of these gentlemen were involved in the theft, and that it was someone with knowledge of these codes who had accessed the system and had input the relevant commands, which had resulted in the cancellation and re-issuance of the SRF relating to the cargo the subject of the 1^st theft.

173. In this connection I accept the evidence of Mr Poon, a careful if not pedantic witness, who considered every question at length prior to responding, to the effect that his computer code was commonly used by some of the staff in the JASL office since there were insufficient COSAC codes available to each staff member.

174. Against this background, Mr Sussex aims his sights at JASL.  He says that but for JASL’s “sloppy practices” in relation to the initiation of printing replacement SRF’s, the first theft could not have occurred.

175. He further asserted that JASL “quite obviously” owed to the plaintiffs a duty of care in relation to the consignments entering Hong Kong, because they had ultimate control over the production of the SRF’s which, as they plainly knew, were bearer documents entitling the bearer to production of cargo.

176. Mr Sussex argued that, together with HACTL, JASL was an integral part of the system designed to divide responsibility for issuing the SRF, and within his skeleton argument he listed no less than 21 alleged deficiencies within JASL and its systems, with emphasis on the fact of insufficient passwords, a lack of delineation between those who could, and could not, be involved in the authorization of SRF’s, the lax procedure in terms of cancellation and re-issue of SRF’s, not least in terms of ascertaining the reason and identity of the person requesting the cancellation, and the foreseeability of the high risk of cargo loss if SRF’s were (as here) appropriated.

177. In a nutshell, he said, by “completely abrogating” to HACTL all responsibility for the SRF’s, JASL plainly had facilitated the 1^st theft.  Accordingly, the submission went, JASL should be held liable in negligence, and their recklessness and knowledge of the consequences which readily could be inferred from the circumstances meant that they ought not to be permitted to avail themselves of the limits of liability contained within Article 22 of the AWC.

178. For his part Mr Thomson, for JASL, firmly maintained that any liability upon JASL arising from the 1^st theft depended upon whether JASL’s canceling of SRF 58, and thereafter enabling HACTL to print the replacement SRF 59, was done with intent to cause damage or was done recklessly and with knowledge that damage would probably result, which was the Article 25 rubric the satisfaction of which precluded limitation.

179. He submitted that the answer to this question was a resounding “No”.

180. Mr Thomson maintained that the acts done in terms of the 1^st theft in relation to the cancellation and re-issuance of the SRF plainly were done in accordance with JASL’s responsibilities under the PACCO system, and had not caused or contributed to the damage.  Cancelling and inputting commands into COSAC in order to enable HACTL to print out SRF’s were the daily functions of JASL, he said, and in any event the system JASL had in place provided appropriate measures to prevent such damage, measures which had foundered solely due to the obvious (and now tacitly admitted) existence of criminal elements within HACTL.

181. In his helpful skeleton argument Mr Thomson reviewed the relevant circumstances in some detail, with reference to JASL’s responsibilities within the established scheme, and emphasized that JASL had had no control over the printed SRF once it had come into the hands of HACTL.

182. He submitted that it was no part of JASL duties to ensure that a SRF which had been printed out at PACCO was in fact handed over to the correct agent, and that it was difficult to see why JASL should be held liable if, as now was accepted to be the case, a dishonest HACTL employee had caused a replacement SRF to be printed and had stolen the document as re-issued.

183. Mr Thomson noted that JASL had fulfilled its duty in ensuring that the cargo documents had been collected, that these documents, including the air waybills, had gone to the appropriate PACCO staff, that Customs had inputted the relevant command thereby enabling release of the goods, that only one SRF had been issued at any given time, that the content of the SRF as reissued was accurate and correct, and that it was issued in the name of the authorized consignee.  Thereafter the printing and handing over of the SRF and the physical release of the cargo were acts solely done by PACCO/HACTL.

184. I agree with and accept Mr Thomson’s submission.  In light of the specific concession made by Mr Coleman to the effect that the 1^st theft had been an ‘inside job’ within HACTL, it is difficult to see why the plaintiffs should continue to insist, such concession notwithstanding, that JASL also should bear responsibility for this 1^st theft.

185. Whatever criticisms may be mounted against JASL – and in this regard Mr Sussex has attempted to make a certain amount of hay – at bottom the issue strikes me essentially as one of causation : the cancellation and command to enable the printing of the replacement SRF was done in the reasonable expectation that the security procedures at PACCO would be carried out, and in itself formed a background fact which was not in itself causative of the theft.

186. That which undoubtedly was causative was the action of a dishonest HACTL employee in seeking cancellation of this original SRF and in passing the replacement SRF to the thief or thieves, thereby facilitating the release of the goods.  It is not easy to understand how or why HACTL’s admitted failure in this regard, which neither was foreseeable nor preventable by JASL, now should be laid at JASL’s door.

187. Accordingly, I dismiss the plaintiffs’ claim against JASL.

188. Should I be incorrect in this conclusion, in so far as the plaintiffs had been successful in asserting liability against JASL for the 1^st theft (which I have held not to be the case), I should not have held that the plaintiff had been successful in breaking limit against JASL under Article 25A(3) – or, putting the matter the other way, that in the event wherein liability in fact had been established, in my view JASL would have been entitled to invoke the provisions of Article 25A(1) and to avail itself of the limits of liability available to the carrier under Article 22 of the AWC.

189. In this regard there is no doubt but that the employees of JASL were acting within the course of their employment in connection with the initiation of the command into COSAC which permitted HACTL to print out the relevant SRFs, and in my view there is no evidence which would enable the conclusion to be drawn to the requisite standard of proof that there was any element of intent to cause damage on the part of the JASL staff.

190. Nor do I consider that there is evidence which would have justified the conclusion that limit could have been broken under the second limb of Article 25A(3), namely that there was an act or omission done “recklessly and with knowledge that damage would probably result”, which on the well-known authorities (Goldman, Nugent, DFS Trading) involves a subjective test.

Third party proceedings and contribution notices

191. The foregoing findings in the head action in terms of liability for the 1^st theft to a large extent govern the ambit of relevant examination of the third party and contribution proceedings which have issued as a result of that theft. 

192. I therefore now consider these third party issues in light of those findings.

(aa)   Claim by the 1^st defendant, KLM, against the 4^th, 5^th and 6^th defendants

193. Action is joined between KLM and HACTL, the 5^th defendant, in the form of Third Party proceedings issued by HACTL, which in turn has attracted a counterclaim by KLM in those proceedings.

194. KLM submits that it is entitled to an indemnity from HACTL arising in contract in respect of KLM’s liability to Ericsson, and that in the circumstances HACTL is obliged to indemnify KLM irrespective of the court’s finding as to whether HACTL’s conduct fell foul of Article 25.

195. The contractual relationship between KLM and HACTL originated in a 1976 Agreement Governing the Use of Cargo Terminal Facilities at Kai Tak.  Clause 24 of that Agreement provided for an indemnity in favour of HACTL, albeit such indemnity is limited given that the wording is similar to the wording under the AWC.

196. In this connection Mr Coleman sensibly accepted that if limit was broken (as in this instance now has been held to be the case) by reference to any acts or omissions on the part of HACTL, then HACTL is not entitled to an indemnity from KLM.

197. Subsequent to the 1976 Agreement, in 1994 HACTL introduced the PACCO system with a view to streamlining customs clearance at Kai Tak; under this system, of course, HACTL had physical control of the goods and was responsible for the release thereof to consignees.

198. On 22 July 1996 KLM agreed to appoint HACTL as its agent to handle customs clearance procedures for import cargo; the scope of this service was in relation to specific consignee companies, including ASG (Hong Kong) Ltd, the consignee in the present case.

199. A written agreement of the same date, 22 July 1996, was accordingly executed, the unchallenged evidence of KLM being that this 1996 Agreement constituted a variation of Clause 24 of the Agreement of twenty years earlier, and that such was necessary given that HACTL now had physical control of the cargo under the PACCO system.  That agreement provided, inter alia, that HACTL should be responsible for “any loss of or damage to goods or for any nondelivery or misdelivery if it is proved that the loss, damage, nondelivery or misdelivery occurred whilst the goods were in the care, custody or control of HACTL.”

200. Mr Ho submitted that the effect of this 1996 Agreement was plain and obvious, and that in light of the introduction of the PACCO system strict liability effectively was placed on HACTL, which was responsible for the loss of goods if it could be established that such occurred whilst in its custody, care or control.

201. He asserted that there was no requirement for KLM to establish negligence or recklessness or intent to cause damage on the part of HACTL, and that self-evidently this was the basis upon which KLM had been prepared to appoint HACTL for the purpose of using PACCO services.

202. Accordingly, in the present case (and indeed in the circumstances of the 2^nd theft also) the mobile phone consignments had been physically located within the HACTL warehouses, and had been released at the HACTL collection point by HACTL employees.  Thus, said Mr Ho, given that HACTL had exercised control over both shipments prior to their erroneous release, there could be no doubt but that KLM had proved its case for an indemnity, and that HACTL therefore was liable to KLM for all losses flowing from these thefts, and that KLM contractually was entitled to recoup from HACTL such sums as had been awarded against it by the court.

203. I agree with this submission, and as I understood the position Mr Coleman did not seek to argue to the contrary if and in so far as limit was broken with regard to either of these two thefts.

204. It follows, therefore, that KLM’s counterclaim in the third party proceedings must succeed, and that KLM is entitled to be indemnified by HACTL in terms of the judgment sum awarded against KLM with regard to the 1^st theft.  I so order.

205. In light of the conclusions in the head action, I can take shortly KLM’s alternative claims against the 4^th and 6^th defendants.

206. In addition to the lis between KLM and HACTL, KLM issued a contribution notice against the 4^th defendant, ASG Hong Kong, and in the third party proceedings issued against it by JASL, the 6^th defendant, KLM also has counterclaimed for an indemnity or contribution.

207. I see no necessity further to consider either of these issues.  I have been minded to accept the concession made by the plaintiff as to the absence of liability of the 4^th defendant in this case, and after some reflection I have concluded that JASL also should bear no liability to the plaintiff for this theft. 

208. In the circumstances, therefore, it is difficult to see how or why KLM should recover anything against either party.

209. Accordingly, I dismiss these claims as brought by KLM against the 4^th and 6^th defendants.

(bb)   Claim by the 3^rd defendant, ASG Sweden against the 4^th, 5^th and 6^th defendants

210. I take first the claim of the 3^rd defendant against the 5^th defendant.  ASG Sweden has issued a contribution notice against HACTL in both actions.

211. On behalf of the 3^rd defendant, Mr Harris submitted that his client should recover contribution against the 5^th defendant on the basis of the Civil Liability (Contribution) Ordinance, Cap.377, in which connection he drew the court’s attention to the provisions of sections 2(3), 3(1), 4(1) and 4(2) thereof.

212. In particular, section 3(1) of that Ordinance provides that “any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)”, whilst section 4(1) provides that “the amount of contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question.”  Moreover, under section 4(2) the court can in an appropriate case direct that “the contribution to be recovered from any person shall amount to a complete indemnity.”

213. It is established that in the exercise of its discretion the court considers the relative blameworthiness of each party and the degree to which each party contributed to the relevant damage.  Within the context of the equivalent English legislation, Hobhouse J in Downes v. Chappell [1997] 1 WLR 426 observed (at 445) :

“The extent of a person’s responsibility involves both the degree of his fault and the degree to which it contributed to the damage in question.  It is just and equitable to take into account both the seriousness of the respective parties’ faults and their causative relevance.”

214. Against this background, Mr Harris invited the court to grant the 3^rd defendant’s claim for contribution against whichever of the 4^th, 5^th and 6^th defendants is found to be liable for the losses incurred in these two thefts.  He accepted that this might involve an apportionment of such contribution, but submitted that the total contribution to be made to ASG Sweden should be equivalent to the full amount adjudged to be due against the 3^rd defendant.

215. I accept this approach as correct in principle, although in light of the conclusion as to liability for the first theft no issue arises in terms of apportionment of contribution.

216. Accordingly, I grant the claim by ASG Sweden, the contracting carrier – which in the head action has been held liable for the loss upon the basis of the application of Article 25 of the AWC by reason of the acts or omissions of an agent, HACTL, of the 1^st defendant, KLM – for an indemnity against the 5^th defendant, HACTL, of that sum which the 3^rd defendant has been ordered to pay to the plaintiffs in the head action.  I so order.

217. As to the claim by the 3^rd defendant against the 4^th and 6^th defendants, once again, in light of the findings of the court in the head action I can see no basis for ordering any contribution in favour of the 3^rd defendant against either of these defendants.

218. It follows that these contribution proceedings are dismissed.

(cc)    Claim by ASG Hong Kong against the 1^st, 3^rd, 5^th and 6^th defendants

219. No liability is asserted against the 4^th defendant by the plaintiff, and in the circumstances there is nothing for the 4^th defendant to pass on, or to attempt to pass on, in terms of the contribution notices issued to its co-defendants.

220. These contribution proceedings are therefore also dismissed.

(dd)   Claim by HACTL against the 1^st, 4^th and 6^th defendants

221. In terms of its third party proceedings against the 1^st defendant, KLM, HACTL must fail, given the conclusion earlier reached that in the circumstances of this first theft that KLM was entitled to an indemnity against HACTL.

222. It follows, therefore, that the 5^th defendant’s claim against KLM is dismissed.

223. The contribution notices issued by HACTL against the 4^th defendant, ASG Hong Kong, and the 6^th defendant, JASL, are more problematic, and cannot be dealt with as shortly. 

224. Although the plaintiff in the head action belatedly disavowed its claim against the 4^th defendant, and in addition has failed in its claim of primary liability against JASL, on behalf of HACTL Mr Coleman maintained that as regards this first theft that there must be contribution from ASG Hong Kong and JASL to reflect the fact that this theft could not have happened in the absence of intent or recklessness with knowledge on their respective parts, so that, in his words, “both have a high degree of causative responsibility”.

225. Persuasively though Mr Coleman argued the point, I do not consider that he succeeds in either contention.

226. So far as the contribution notice against the 6^th defendant is concerned, although there is a good deal of mutual finger-pointing between JASL and HACTL, the hard and inescapable fact is that a dishonest employee or employees within HACTL issued the cancellation request for SRF 58 and caused the replacement and reprinting of SRF 59, the wrongful possession and presentation of which gave rise to the theft; indeed, it is precisely this fact that no doubt led to the specific acceptance on the part of the 5^th defendant that the court safely could infer the element of ‘inside involvement’ on the part of a HACTL employee or employees.

227. On the probabilities I decline to find, to the required standard of proof, that this theft took place with a like ‘inside involvement’ on the part of a JASL employee, which Mr Coleman suggested represented the situation, nor do I consider that that which is characterized as the “lax use” of COSAC codes and the procedure for dealing with SRF cancellation and replacement by JASL constituted the cause of this theft, the causa causans for which must be laid at HACTL’s door.

228. I accept the submission of Mr Thomson that the role of JASL under PACCO was essentially limited, and that the cancellation of the SRF 58 in COSAC and the input of a command in COSAC, which thus allowed HACTL to print the replacement SRF, was done in accordance with the usual procedures in place between HACTL and JASL.

229. On the evidence before the court, the request made on the internal telephone by PACCO staff for the cancellation of SRF 58 was the type of call as was regularly made, and was one which the JASL staff had no reason to question, nor indeed the means to validate any reason for such cancellation as may have been proffered by the requesting party.  On the basis of the system as then was in place it seems to me, absent the dishonesty on the part of HACTL staff as in fact occurred, that in terms of this incident that the JASL staff involved were entitled to assume that the request made by PACCO for cancellation was made bona fide; I do not think that the admitted shortage of log-in ID’s to access the COSAC system materially affects the situation given that use of the relevant computers was restricted to JASL staff members, and nor do I find established the allegation that one of this latter group was privy to this theft.

230. It is also significant that JASL not only had no control over the location within PACCO at which an SRF was to be printed – something which was entirely within the control of the PACCO staff – but also that, unknown to JASL staff in this instance, the original SRF 58 already had been legitimately collected by a member of staff of ASG Hong Kong, an unusual aspect of this case to which I return below.  Had JASL been aware of this fact, it strikes me that JASL further would have been entitled to assume that a replacement SRF in the name of ASG Hong Kong would not have been handed over to an authorized agent of that firm unless, in accordance with established practice, the original was back in hand.

231. Accordingly, the short point, as Mr Thomson has stressed, is that the JASL staff were entitled to proceed on the basis that the cancellation of SRF 58, in whatever circumstance, and the consequent request for a replacement and the input of a command into COSAC allowing HACTL to print a new SRF 59, would not cause loss to the plaintiffs; under the PACCO system HACTL was the party entitled to print the SRF, and thereafter was entitled to distribute such to whomever was authorized to receive it, a process which involved verification of the identity of the collecting agent and verification of the HAFFA (Hong Kong Association of Freight Forwarders) chop on the airway bill and upon the DCFA (Document Collected From Airline) form.

232. That this did not occur is a matter of history, but in the circumstances of this case I am unsympathetic to the allegation that JASL should bear liability for that which, in my view, indisputably is a defalcation occurring within HACTL.

233. It follows from the foregoing that I dismiss the contribution notice issued by HACTL against JASL.

234. I turn, finally, to the contribution notice issued by the 5^th defendant against the 4^th defendant, ASG Hong Kong.

235. The thrust of Mr Coleman’s attack in this regard is focused upon the evidence of Mr Wong Chi Wai, who was called on behalf of the 4^th defendant, and was the employee of that company who had collected the original SRF 58 on the Saturday afternoon for the purpose of presenting it at the designated Monday morning ASG Hong Kong collection ‘slot’ for the purpose of legitimately picking up the first consignment of mobile phones.

236. Mr Coleman suggested that as witness he was evasive, that he had changed his version of events, even during the course of his evidence, and argued that plainly “he had something to hide”, which, it was asserted, must have been his dishonest involvement in the two thefts. 

237. In addition, Mr Coleman criticized the evidence of another witness called by the 4^th defendant, Mr Wong Wan Sang, whose evidence, although not characterized as dishonest, was said to be “confused and confusing”, and at the least revealed a lax approach to the use and custody of the HAFFA chops employed in the collection process by the agents of the 4^th defendant.  Mr Coleman also stated that this witness was wrong when he asserted that ASG Hong Kong had had no advance notice of the first consignment.

238. Miss Sara Tong, counsel for the 4^th defendant, took pains to refute these accusations of complicity in the theft on the part of staff of her client. 

239. In her extensive skeleton argument she analysed in detail the practice and procedure within the 4^th defendant regarding the collection of cargo and the use of the HAFFA ‘chops’, and pointed out that the names of the five agents authorized to collect the SRF’s on behalf of the 4^th defendant was stored in the AIDE (Agent Identification System) which was accessible by PACCO staff, and indeed by others who had access to COSAC.

240. She also asserted that the staff of her client kept the distinctive two-toned HAFFA chops secure in locked drawers unless the same were in use, and pointed to the evidence of Wong Chi Wai, who stated that he had kept his chop with him at all times, even outside office hours.  In this regard I also accept her submission, which perhaps is the more relevant to the circumstances of the second theft, that there was no evidence of employees of the 4^th defendant permitting unauthorized persons to gain access to their chops.

241. As to the evidence of Wong Chi Wai, who had been the employee specifically accused by Mr Coleman, Miss Tong noted his evidence that it was “quite usual” for him to collect relevant SRF’s from the PACCO office in the afternoons, and in this instance that the advantage of pre-collection of the SRF on the Saturday afternoon would be such that it would be quicker and more convenient to effect the collection of the consignment from the HACTL warehouse early on the following Monday morning at the pre-scheduled collection time; nor was there any doubt, she said, but that the SRF’s thus collected in advance would remain valid until 1.30 pm on the following Monday, that is, six hours after the 4^th defendant’s pre-scheduled collection time.

242. I have reflected upon the evidence of Wong Chi Wai in the context of the circumstances of this first theft.  I note that the computer record shows that SRF 58 was printed at 1655 hours on 8 November 1997, which means that Mr Wong must have collected it on that Saturday afternoon after the conclusion of his official working hours, which was 4 pm. 

243. I bear in mind, also, that Mr Wong stated – and there is no obvious reason to disbelieve this – that on that occasion he also had collected other SRF’s which were to be used for collection of cargo the following Monday morning.  I further factor in Miss Tong’s submission that in terms of prior notification of the content of this cargo, the probability is that the persons who would have had pre-notification of the nature and value of the first shipment exclusively would have been persons within the 5^th defendant, who would have seen the cargo manifest, and who would have had access to the invoices and packing lists in relation to the first shipment.

244. I note that Mr Wong insisted that he had taken SRF 58 back to his Kai Tak office, and had locked it in his drawer.  Once again, I have no reason not to accept this evidence, as I also accept his contention that this was what he usually did with such ‘pre-collected’ SRF’s.  He stated that he had not told anyone about SRF 58, and that the first he had known that something was amiss was when, on 10 November 1997 at around 7.30 am, he had attended at the HACTL office and had presented SRF 58 at the collection point, only to discover that the cargo already had been taken; he said that subsequently he discovered that SRF 58 had been cancelled and a new SRF 59 issued, and he could not say why this document, which was blank when he had handed it to the police, now had handwriting upon it.  Mr Wong further said that it was his understanding that unless and until the original SRF had been handed back to PACCO, a new SRF would not be issued for the same cargo, so that there could never be a situation in which two valid SRF’s existed for the same cargo at the same time.

245. After considering the evidence overall, I decline to accede to Mr Coleman’s invitation to find that Mr Wong Chi Wai, and thus the 4^th defendant, was complicit in this first theft.

246. It is true to say that Mr Wong Chi Wai was not an impressive witness, and on occasion his demeanour may even have left himself open to the characterization ‘shifty’, which was the term bandied about in final submission.  However, I recognize that this may just be the unfortunate manner in which this gentleman presented as a witness, and in itself this is a far cry from the court being persuaded, on the evidence and to the requisite standard, that Mr Wong was part of the conspiracy which obviously existed to steal this consignment of telephones – this was, after all, no mere ‘opportunistic’ theft, and clearly had been carefully planned with knowledge of the loophole in the system then prevailing by which SRF’s could be cancelled and reprinted. 

247. I bear firmly in mind, also, that Mr Wong, together with many others having factual involvement in the circumstances surrounding this theft, has been investigated by the police, and has not been charged.  It strikes me that it is unsatisfactory and ambitious, to say the least, to suggest that it is open to a judge hearing a civil case some eight years later, on the basis of such evidence as the parties have seen fit to place before him, to pronounce upon the guilt of a witness who has come to court to give evidence absent, so far as I am aware, a stain upon his character.  Accordingly, the suggestion of guilt or complicity as now advanced is purely speculative, and in my judgment must be rejected.

248. It follows that I am not prepared to, and do not find, any cogent evidence of ‘inside involvement’ on the part of the 4^th defendant, its servants or agents, which could properly be said to have caused the loss of this first consignment of mobile telephones.

249. It follows also, therefore, that the contribution notice issued by the 5^th defendant against the 4^th defendant must be dismissed.

(ii)     The 2^nd theft : HCCL 2 of 2000

250. I have referred in general terms earlier in this judgment (at paragraphs 51-55) to the circumstances of the second theft of 4,500 mobile phones.  Before considering the issues of liability as arise in this case, I should condescend to a little more detail.

251. Many of the primary facts are undisputed; in fact, in this instance, also, the court has had the benefit of the CCTV footage of the thief (or one of them) obtaining the SRF in question.

252. This consignment of telephones arrived at Kai Tak at or around 9.47 am on 17 January 1998 on board flight KLM 887. 

253. These goods were handled by HACTL and placed in the possession and custody of HACTL at the Container Storage Area; thereafter they were subject to the supervision and control both of HACTL and of JASL.

254. As was the position with the first theft, these telephones were subject to Pre-Customer Arrival Customs Clearance Office, that is, PACCO services.

255. At 5.20 pm on 17 January 1998 a staff member of JASL under employee code Z00529 authorised the printing of SRF 17 in respect of these goods, and at 00.27 hours on 18 January 1998 a HACTL staff member under employee code E04753 printed SRF 17.

256. At about noon on 18 January 1998 two Chinese males approached the T2 PACCO office and obtained documents relevant to cargo designated for collection by ASG Hong Kong.

257. One of these two men identified himself, via his identity card, HKID G573875(9) as Man Kin Ying, an AIDE authorized agent of ASG Hong Kong.  In fact, as we now know, this was not the real Man Kin Ying.

258. The evidence is that these men went away and spent some time looking through the papers which they had collected, and it also seems that they made a telephone call, or calls.

259. However, apparently they had not located that which they were looking for within the papers initially thus obtained, because at 5.15 pm on the same day, two Chinese males, one of which again was the imposter ‘Man Kin Ying’, approached PACCO and requested, by reference to the AWB serial numbers, the MAWB and the SRF in respect of this second consignment of telephones.

260. After an ID check and use of the HAFFA chop, and the payment of the necessary administration fee, the employee of HACTL then on duty – in this instance Cheung Ping Kwong – issued the SRF for these goods, that is, SRF 17, to the person purporting to be Man Kin Ying.

261. Thereafter, at about 6.30 pm, SRF 17 was submitted to one Ku Wai Ming at the HACTL collection point, and the goods in question physically were retrieved from storage, and after Ku Wai Ming twice had checked with his superiors that it was appropriate to release the goods – it is said because he had not recognized the collecting agent as the usual person from ASG Hong Kong – the goods were handed over, loaded onto a lorry, and at 9.21 pm left the airport, never to be seen again.

The crucial issue: an‘inside job’?

262. The circumstances of this second, and larger, theft have not attracted from HACTL the concession offered to this court by Mr Coleman in respect of the first incident.  In this instance HACTL firmly refutes the suggestion that any employee of that organization was connected with this theft. 

263. Accordingly, given that the issue in this case is whether the plaintiff can break limit under the Conventional framework, and given that HACTL is the undisputed agent of KLM, it is clear that the liability analysis, both within the head action and in the third party proceedings, must at the outset focus upon whether the plaintiff is correct in characterizing this theft as an ‘inside job’.

(a)     Plaintiffs’ case against HACTL

264. As to this, whilst Mr Sussex accepted that this incident is not the clear-cut example of internal involvement on the part of HACTL employees as was the case in terms of the first theft – and as indeed had been conceded – nevertheless he maintained that on the probabilities there could be little doubt but that indeed this represented the situation.

265. For his part Mr Coleman strongly demurred.  Having reviewed the factual sequence he submitted on the totality of the material available that it simply was not possible for the court to accept to the necessary standard of proof that any of the HACTL employees were involved as criminals providing ‘inside’ information/assistance to the perpetrators of the second theft.  He said that any accusation levelled by the plaintiff against particular individuals must fail, and that it was not open to Ericsson to move to a fallback position and to suggest that, if it was not specific HACTL employees who factually had been involved with handing over the documents and thereafter the goods, nonetheless that “there must have been others”.

266. In reality, said Mr Coleman, the information and the knowledge required for the perpetrators to carry off the second theft might well have lain with a large number of other, non-HACTL personnel, and the evidential burden could be discharged only by looking at the organization which had the best information and knowledge required.  In reality, he argued, this was ASG Hong Kong – it was solely the employees of this company who would have been able to provide a real ASG Hong Kong HAFFA chop from which a copy might be made, and whom, moreover, were likely to have known that the ‘real’ Man King Ying – the assumed identity of one of the thieves – would not appear at HACTL on 18 January 1998 for the reason that he was at home in Shenzhen at the time.

267. Looked at in the round, Mr Coleman submitted, Ericsson had not shown that there was involvement on the part of HACTL personnel in the second theft, nor had this theft occurred because there was recklessness with knowledge that damage would probably result.

268. For his part, Mr Sussex did not shrink from the proposition that this second theft was “yet another” ‘inside job’.

269. He submitted that the starting point obviously was that it is common ground that serious misconduct did occur, and that there was a significant theft of a large consignment of mobile phones from the premises of HACTL on Sunday 18 January 1998. 

270. He also noted, correctly in my view, that it was not incumbent upon the plaintiffs to “solve” the crime in the sense of proving specifically which individuals within HACTL were involved, in this context citing an earlier dictum of this court in DFS Trading Ltd v. Swiss Air Transport Co. Ltd [2001] 2 HKLRD 200 to the effect that in the context of a civil liability issue there is no overwhelming reason preventing a court from taking a view in all the circumstances whilst nevertheless refraining from specific attribution of responsibility.

271. The inescapable fact, said Mr Sussex, is that in so far as the HACTL security department was concerned, the opinion regarding the circumstances of the first theft was that “it was suspected a syndicate case involving HACTL staff” : see the report from the Security Manager dated 1 December 1997, and that between the first and the second thefts nobody from HACTL had been identified as having been involved, and nobody yet had been sacked; in fact, it had not been until 9 March 1998, significantly after these two events, that any disciplinary action had been taken, and even then against only employees who were “tangentially involved”.

272. Accordingly, he submitted, in light of the conclusion reached as to the first theft, it readily could be inferred that HACTL indeed had been infiltrated by a crime syndicate, and that it would be “naïve” to have assumed that individuals identified in these proceedings as having been on duty at the time of the first theft necessarily exhausted the list of those potentially involved.  Mr Sussex noted, in my view justifiably, that the HACTL investigation consequent upon the first theft had been “cursory in the extreme”, and had not even touched upon the vital issue of how the thieves had got hold of the second, replacement SRF.

273. Mr Sussex further drew the court’s attention to the fact that in his Annual Security Report for 1997, dated 12 January 1998, Mr Au, the HACTL security manager, prophetically stated that “mobile phones remain a hit item for criminals” and that “police believed it [the first theft] was a syndicate case between outsiders and HACTL staff”, which at that stage was still being investigated by the police.

274. It was six days later, of course, that the second theft in fact occurred, and Mr Sussex argued that it was a very strong inference indeed that the syndicate that had been recognized to be in place for the first theft had remained active, and was responsible for the second theft, albeit that the modus operandi had changed, given that the loophole which had facilitated the first theft by that time had been plugged by HACTL.

275. In deciding the merits of the competing arguments, I bear in mind that the plaintiffs bear the burden of proof upon a balance of probabilities, albeit given that the allegations in this case are of serious misconduct, namely those theft and/or complicity therein, the degree of probability must be commensurate with the allegation : see DFS Trading, op cit, at 216G-217C, so that the more serious the allegation the less probable it is, and thus the more careful that the court must be before concluding that it has been established.

276. After reviewing the evidence, in my judgment it is abundantly clear that this second theft cannot be viewed in isolation from the first, and it is equally clear that neither theft can be regarded as merely an ‘opportunistic’ crime : each evidently involved a significant degree of planning and preparation.

277. Moreover, both thefts necessitated considerable familiarity with PACCO procedures, and both thefts took place over a weekend, when ASG Hong Kong staff did not usually attend, and during that which Mr Sussex aptly characterized as the “window of opportunity” between Saturday night and Monday morning, when normally designated cargo collections resumed.  And both thefts, of course, relied upon obtaining the all-important SRF, the bearer document which mandates production of the relevant cargo.

278. I bear in mind, further, that there had been no employment terminations by or within HACTL by the time of the second theft, which strikes me as a powerful argument in favour of the plaintiffs’ proposition that syndicate insiders within HACTL also would have been used in some capacity for the second theft.  Nor does it necessarily mean that there would be a commonality of personnel on duty at the time of the two thefts; to the contrary, Mr Sussex’s observation that any ‘mole’ within HACTL might well have ensured that he was not on duty at the time that both thefts occurred has some resonance, albeit he noted that in any event HACTL never had provided full information concerning those on duty at the time of the two thefts.

279. I further agree with the contention that the only parties with potential access to the elements of knowledge necessary to orchestrate the second theft were HACTL, which operated the PACCO office, and ASG Hong Kong – indeed, until Mr Au King Kong, the HACTL security manager, gave evidence at this trial, on the basis of internal HACTL security reports it appeared, somewhat bizarrely, that HACTL remained of the view that it had been the ‘real’ Man Kin Ying who had collected this second consignment of mobile phones.  In any event, Mr Au, a pleasant man but someone who did not strike me as a forceful investigator, and whom, if I may say so, seems unlikely to have instilled apprehension within the hearts and minds of criminal elements then within HACTL, was constrained to accept in evidence that all of the vital pieces of information necessary to bring off this second theft would have existed within HACTL.

280. Moreover, Mr Sussex has pointed out – and in this I think that he must be correct – that one vital piece of information which clearly was available to the thief/thieves, but which in the circumstances of this theft had not been available to ASG Hong Kong, was the specific AWB number for this second consignment, and that it is clear on the evidence that when the thief presented himself (for the second occasion) at the PACCO office, on the afternoon of Sunday 18 January 1998, he had with him a piece of paper bearing the particular AWB number of the mobile telephone consignment.

281. It appears on the evidence of the ASG Hong Kong witnesses, which in this regard I accept, that ASG Hong Kong had had no prior notice of this second shipment (which, no doubt, is why the plaintiff ultimately chose not to pursue the 4^th defendant in terms of liability for this theft), and no reason has been put forward as to why ASG Hong Kong otherwise would have had any other means of knowing the particular AWB number of this consignment.

282. It follows, therefore, that if one accepts (as I do) the irresistible inference that this second theft was carefully pre-planned by a thief or thieves in possession of the knowledge necessary for and relevant to such theft, and if HACTL and ASG Hong Kong are the two potential parties in the frame, and if, on the probabilities, the latter is able to be eliminated by reason of the fact that ASG Hong Kong did not receive any ‘pre-alert’ in terms of this second consignment, the finger must point squarely and irreducibly to internal HACTL involvement.

283. HACTL staff plainly had access to the ID card number of Mr Man Kin Ying, the ASG Hong Kong employee whose identity was assumed by the thief on that Sunday afternoon at the PACCO office, and it was accepted by Mr Au (and also by Mr Vickers, the expert who was called on behalf of the 5^th defendant) that HACTL staff could have had access to the information that Mr Man was an authorized agent of ASG Hong Kong.

284. Whilst the position perhaps may be different today, with the advent of ‘smart’ ID cards, in those days at least the manufacture of a false ID card, and a fake HAFFA chop, would not unduly have stretched the resources of organized crime, and I see no reason why such a chop could not have been made from the numerous imprints available within the PACCO office of the real official chop in fact used by ASG Hong Kong – indeed, the probability is that this is precisely what had happened given the errors of detail apparent on the face of the imprint of the fake chop.

285. I accept also the factual interpretation proffered by Mr Sussex to the effect that when the thief and an accomplice originally had attended at the PACCO offices at about 12.15 pm on Sunday 18 January 1998, that he was given not only 3 SRF’s relating to Terminal 2 cargo but that he was also given access to Terminal 1 cargo documents, and in light of the fact that these men were seen riffling through these documents, and at one stage making a telephone call or calls, it seems highly probable that they had not located what they were looking for, which was the documentation relating to the consignment which was stolen.

286. This leads to the further inference, which seems to me is eminently justifiable on the probabilities, that their return to the PACCO office was to obtain precisely that which they had not achieved on the first occasion, and further that somebody within HACTL had arranged to put the relevant documents aside to be subsequently handed over.

287. Thus, when the thief presented himself for the second time at the PACCO office on that Sunday, on this occasion at around 5.15 pm, the thief undoubtedly has in his possession the details of the AWB number for which he had been looking, and the available CCTV film then documents the sequence of events thereafter.

288. There is no substitute for looking at this film, grainy, monochrome and staccato though it is, and the court has had the opportunity to review it on several occasions during the course of this trial.

289. A HACTL employee named Cheung Ping Kwong was on duty at the time, and dealt with the thief; the court has heard oral evidence from him, and also from a colleague, Wong Yee Him, who was on duty at another counter on the opposite side of the PACCO office, but for some reason (he maintained that he wished to smoke in an adjacent area that he could use for the purpose) he had come across to the area in which Cheung Ping Kwong had been sitting.

290. A contemporaneous statement by the aforesaid Wong Yee Him to his HACTL supervisor reports that at about 1715 hours “my work on hand was lesser”, and that at that time “a man came to PACCO to look for supervisor Cheung Ping Kwong as he wanted to collect a designated shipment…” I was unimpressed by Mr Wong’s efforts to explain and to recharacterise this statement, and in fact the CCTV film appears to verify precisely that which Wong Yee Him had represented when first interviewed.

291. The man whom we now know was impersonating the real Man Kin Ying quite obviously did come looking for Cheung Ping Kwong.  The CCTV shows this man standing behind two men already at Cheung’s counter, and thereafter there appears to be eye contact between this man and Cheung Ping Kwong, who then stands up and moves to his left, apparently to collect a document, the unknown man follows him as Cheung moves around the counter and they appear to engage with each other, after which Cheung returns to his seat and the man then physically pushes between the two men originally standing in front of Cheung’s position, and there is a further exchange between the two, and what appears to be the checking of an ID card by Cheung, before the man goes out of CCTV shot (in order, apparently, to pay certain administration fees) and then returns and is given a document or documents.  It is at this time, of course, that the thief is obtaining the SRF in question, and once he has it in his possession he departs and thereafter collects this second consignment of telephones.

292. In my view it is difficult to view the CCTV footage without becoming aware that something of significance is occurring which cannot simply be dismissed as Cheung processing counter-arrivals purely in normal course.

293. Certainly, on the evidence of the CCTV film at least, Cheung’s actions seem to suggest that he was expecting a visit from this ‘Man Kin Ying’, who is, of course, an accredited ASG Hong Kong agent, because he appears to have documents to hand and undoubtedly accords priority to the thief – who is at T2 counter apparently seeking an SRF relating to a T1 cargo – when he appears at the rear of the two men already standing in front of Cheung at his counter.

294. I wish to make it clear, however, that I do not hereby conclude that Cheung Ping Kwong necessarily is, or was, part of a conspiracy to steal.  Nor, as Mr Sussex points out, is it a vital part of the plaintiff’s case that Cheung was so involved – although he has pressed upon the court the content of Cheung’s contemporaneous statement to the police and has pointed out a number of matters of detail which are factually incorrect in terms of Cheung’s account as then given – and it strikes me that the events which are depicted on the CCTV footage are equally as consistent with actions taken by Mr Cheung at the behest of others, and in ignorance of what in fact was happening.

295. Mr Cheung’s evidence itself I did not find particularly satisfactory or illuminating, although once again I do not wish it to be thought that I regard him as presenting as necessarily dishonest.  I do say, however, that if the decision belatedly to call Mr Cheung was taken with the intention of allaying Mr Au’s less than stellar performance in the witness box, and in order to dispel the suspicion that this theft was an ‘inside job’, manifestly it was not successful.

296. In considering Mr Cheung’s evidence I factor in the significant time lag between these events and his giving evidence about them, which must have made the exercise of reconstructing that which had occurred over 7 years ago somewhat difficult, although I am bound to say that I did not find his explanation about the T2 AWB’s which had been incorrectly chopped on the thief’s first visit, and thus required rectification, convincing, and in so far as his evidence regarding the events on the afternoon of Sunday 18 January 1998 contradicted or purported to place a different interpretation upon that which I could see for myself on the CCTV film (which I found to be particularly persuasive), I decline to accept it.  I am bound to observe that Mr Cheung was unconvincing in explaining his actions as revealed on the film, in which context I note also his evidence, in re-examination, that at the relevant time in January 1998 he did not know that the CCTV would be filming.

297. The short and fundamental point, however, is that the thief came back on this second occasion in order to obtain the relevant SRF after apparently having failed on the first attempt, and it seems obvious that something specific had occurred within HACTL to arrange for this SRF to be made available on this second visit. 

298. That this was accomplished with the factual assistance of Mr Cheung Ping Kwong does not of itself betoken Mr Cheung’s personal complicity in this criminal enterprise, but perhaps this is nothing to the immediate point, which is that having regard to all the circumstances of the second theft, the overwhelming probability is that, in light of the modus operandi, one or more employees within HACTL must have been involved in perpetrating this second theft.

299. Self-evidently was not an opportunistic theft perpetrated by an outsider or outsiders, involving as it did intimate knowledge of PACCO procedures only available to insiders, and of the possible candidates I accept the submission that the preponderance of evidence points to HACTL staff after the possibility of involvement of ASG Hong Kong has been eliminated.  That no-one within HACTL apparently has been arrested for this theft does not strike me as of particular importance; the fact that the police have been unable to prefer a criminal charge which they would have to establish beyond a reasonable doubt should not be permitted to cloud the issue with which a civil court is concerned in terms of the application of a lesser standard of proof.

300. For the purpose of the present claim, therefore, after considering all the evidence before the court and after reflecting on the appropriate burden of proof, I find that the plaintiffs have succeeded in establishing the inference that this second theft necessarily occurred with the ‘inside’ involvement of a member or members of the HACTL staff in employment at the time, and I further hold that in this exercise there is no requirement for the plaintiffs to establish whom specifically within HACTL was to blame for that which occurred.

301. It follows from the foregoing that I find that the plaintiffs thus succeed in their action against HACTL, and that in circumstances HACTL is unable to invoke the Article 22 limit pursuant to the provisions of Article 25A.  I so hold.

(b)     Plaintiffs’ case against KLM and ASG Sweden

302. The conclusion reached by this court regarding the liability of HACTL for the second theft necessarily informs the case of the plaintiffs against KLM, the actual carrier, and ASG Sweden, the contracting carrier, respectively.

303. I do not repeat the analysis set out earlier in this judgment as to the existence of an agency relationship as then existing between HACTL and KLM, which resulted in judgment being entered for the plaintiffs against the 1^st defendant, KLM, and against the 3^rd defendant, ASG Sweden.

304. It follows, in light of the conclusion that the second theft also was attributable to ‘inside’ involvement on the part of HACTL, that neither KLM nor ASG Sweden is in a position to invoke the protection of the Article 22 limit.  I so find.

(c)     Plaintiffs’ case against ASG Hong Kong and JASL

305. On behalf of the plaintiffs, Mr Sussex has made it clear in terms of the second theft that he does not pursue his claim against either the 4^th or the 6^th defendants.

306. Accordingly, the plaintiffs’ claim against these defendants must be dismissed.  I so order.

Third party proceedings and contribution notices

307. As was the situation with the first theft, the second theft has prompted issuance of third party proceedings and contribution notices.  Once again, the finding of liability against HACTL in this case governs the ambit of relevant discussion under this head.

(aa)   Claim by KLM against HACTL

308. The procedural form in this instance is that the 5^th defendant, HACTL, commenced third party proceedings against KLM, which in turn defended and counterclaimed against HACTL for an indemnity or contribution against the plaintiff’s claim.

309. In light of the factual conclusion reached that the second theft was achieved by reason of inside involvement on the part of a HACTL employee or employees, the position is substantially the same as in the case of the first theft, albeit in that instance, of course, such inside involvement was conceded.

310. In the circumstances, however, there is no need further to rehearse the contractual basis for the indemnity as now sought by KLM against HACTL; the like basis as was set out in the circumstances of the first case (see paragraph 188 et seq) must also apply in this case.

311. Accordingly, I order that KLM is entitled to be indemnified by HACTL in terms of that sum which KLM is ordered to pay the plaintiff in terms of this second theft.

(bb)   Claim by ASG Sweden against HACTL

312. A like situation prevails in the case of the contribution notice issued by the 3^rd defendant against HACTL wherein the same arguments are relevant.

313. For the reasons set out in the circumstances of the first case (see paragraph 205 et seq), I order that the 3^rd defendant be indemnified by the 5^th defendant in terms of that sum which the 3^rd defendant is ordered to pay to the plaintiffs in the head action.

(cc)    Claims by ASG Hong Kong against KLM, ASG Sweden, HACTL and JASL

314. ASG Hong Kong has issued contribution notices against the 1^st, 3^rd, 5^th and 6^th defendants.

315. Given that no liability has been adjudged against ASG Hong Kong in this case, it follows that these contribution notices are of no effect, and are dismissed. 

(dd)   Claims by JASL against KLM, ASG Sweden, ASG Hong Kong and HACTL

316. The 6^th defendant has issued third party proceedings against the 1^st defendant, and contribution notices against the 3^rd, 4^th and 5^th defendants.

317. For the like reason that no liability to the plaintiffs has been found against JASL in terms of this second theft, such claims are nugatory, and are also dismissed.

(ee)    Claims by HACTL against KLM, ASG Hong Kong, and JASL

318. In procedural terms, the 5^th defendant has issued third party proceedings against KLM, and contribution notices against the 4^th and 6^th defendants.

319. On the basis of this judgment the claim against KLM – which has succeeded in obtaining an indemnity against HACTL – must be dismissed.  I so order.

320. In the circumstances of this second theft I can discern no basis upon which HACTL legitimately can pursue JASL for contribution, and accordingly the contribution notice thus issued also is dismissed.

321. I turn, finally, to HACTL’s claim for contribution against ASG Hong Kong.

322. Unlike the plaintiffs, which did not pursue ASG Hong Kong for this second theft, on behalf of HACTL Mr Coleman demonstrated no such reticence.

323. He submitted that whilst consideration of this issue must depend upon the findings of the court, nevertheless there must be a “high degree” of fault and causation of damage flowing from ASG Hong Kong’s insider involvement or recklessness in terms of this second theft.

324. Miss Sara Tong for the 4^th defendant disputed this assertion, and reviewed in detail the evidence in relation to the second shipment of mobile telephones.

325. She made the point that it was undisputed that Man Kin Ying was not the person who had collected SRF 17; he has stated in unchallenged evidence that he was in Shenzhen, where he lived, on 18 January 1998 when this theft had occurred.  She also emphasized that the evidence of Mr Man Kin Ying, which I accept, was that, save for an occasion in 1984 when he had lost it, he never had parted with his ID card nor had he authorized anyone to use it, and thus that the ID card in fact presented for collection of SRF 17 must have been forged.

326. Miss Tong went on to argue that from the imprint of the HAFFA chop on the relevant DCFA that it was obvious that the chop utilized to collect the second shipment was a fake one (the font employed being thinner than on the genuine article, and the hyphen in the IATA code being missing in the fake imprint).

327. Perhaps more important in this context, however, Miss Tong stressed that on the evidence no advance notification had been received by the 4^th defendant from the 3^rd defendant, ASG Sweden, regarding the arrival of the second shipment, nor had any of the 4^th defendant’s employees, namely Wong Chi Wai, Hung Wing Lun (an import clerk within the 4^th defendant) and Man Kin Ying received any prior notice to collect such shipment – in fact, she said, after the loss of this second consignment, the 4^th defendant had issued a letter to the 3^rd defendant dated 30 January 1998 stating that pre-advice had not been received in respect of this shipment.

328. In this context I have considered the evidence of Wong Chi Wai in terms of his own involvement over the weekend of 17 and 18 January 1998.  I accept that when he attended at the PACCO office on Saturday 17 January as usual at 7.30 am that SRF 17 had not been available for collection, and I see nothing inherently suspicious in Mr Wong being unable to recall whether the three chops placed by him on the DCFA on 17 January had been affixed on the same visit or on three different visits, or indeed that some of those chops may have been added on Monday 19 January – as Miss Tong pointed out, the fact that it is not possible to deduce from the DCFA when each SRF was collected, and by whom, is hardly the fault of the 4^th defendant, since there simply was no system in place to keep track of the issue of SRF’s by PACCO.

329. I bear in mind that the evidence of Cheung Ping Kwong, on behalf of the 5^th defendant, was that upon looking at the DCFA for 17 January 1998, and the various signatures and markings thereon, it is probable that the SRF’s for the 13 shipments listed thereon were collected on four separate occasions, and thus, if this interpretation is correct, that Wong Chi Wai probably made two visits to the PACCO office on 17 January 1998, collecting items 1-3 and thereafter items 4-6, and thereafter items 8-13 on the following Monday, it being common ground that item 7 on the DCFA relates to the second shipment, and was collected on 18 January by the thief.

330. I see nothing of particular significance in this : I am prepared to accept the evidence of Wong Chi Wai, and so do, that when he attended the PACCO office at 7.30 am as usual on the following Monday that he did not recall whether he had sighted Man Kin Ying’s purported signature on the DCFA, and that in any event that he had found out for the first time on that morning that the second consignment in fact had been taken by someone else, upon which event he had called his office (and, according to Man Kin Ying, he had also called him) to report this fact.

331. In light of this sequence of events, as revealed on the evidence, once again I decline the invitation to implicate Wong Chi Wai as a participant in this theft; there was no evidence that he had attended the PACCO office on 18 January 1998, and thus the earliest date on which he could have seen the fake chop of the DCFA for 17 January was on 19 January when upon that morning he had attended the office of PACCO. 

332. In short, there is no cogent material to link Wong Chi Wai to this theft, or for that matter any other employee of the 4^th defendant, nor in the circumstances is there any evidence of negligence on the part of the 4^th defendant, its servants or agents which could be regarded as causative of that which occurred, and which would provide a basis for the 5^th defendant’s case on contribution.

333. I bear in mind, also, Mr Sjoeberg’s evidence, which I accept, to the effect that no one had been laid off at the 4^th defendant after these two thefts, and that investigations were carried out regarding any potential involvement on the part of the 4^th defendant’s staff after the second theft, but that no ‘inside involvement’ had been suspected.

334. I agree with the contention of Miss Tong that the overwhelming probability in the circumstances was that inside involvement could only have been by employees of HACTL, who would have had the requisite knowledge to perpetrate the second theft, in particular knowledge (which in this instance the 4^th defendant clearly did not have) of the nature and value of this second shipment – in fact the records show that at the time of initial delivery to HACTL three of the wooden crates containing these phones had been broken into, thus no doubt providing the necessary information as to their content.

335. In the circumstances, therefore, I dismiss HACTL’s claim for contribution against the 4^th defendant, ASG Hong Kong.  In my judgment no basis has been established therefor. 

336. I note that contemporaneous correspondence tends to underscore the real concern that the 4^th defendant then harboured about these thefts of mobile phones, Mr Sjoeberg writing to the Managing Director of HACTL on 13 February 1998 suggesting that “some very forceful actions” needed to be taken at HACTL to “stem the by now frequent occasions of pilferage and/or misdelivery within/from HACTL” of mobile phones, and suggesting that it would “jeopardize both your reputation as terminal operator and ours as forwarders if immediate actions are not taken to drastically increase the security in handling the by now steady flow of mobile phones into Hong Kong”.  I have been able to locate no response to this letter within the case papers.

Recklessness : the second limb of Article 25

337. As the foregoing judgment indicates, both cases now before the court have been decided upon the basis that limit is to be broken on the premise that the damage complained of has occurred with the ‘inside’ involvement of HACTL, and thus that the element within Article 25 of “intent to cause” damage has been satisfied.

338. In light of these conclusions, there is no necessity to consider in detail whether there was an act or omission on the part of the carrier, his servants or agents which was done “recklessly and with knowledge that damage would probably result”, which is the second element within the Article 25 rubric.

339. I confess that these cases never have struck me as those which are sometimes referred to as “systems cases”, although of course the court has received helpful expert evidence on such matters from Mr Phipps on behalf of the plaintiff, and also has heard from Mr Vickers on behalf of the 5^th defendant; indeed throughout this case Mr Sussex has made it very clear that he sought to get home and to break limit primarily under the ‘intention’ head within Article 25, and in the event he has been successful in that contention.

340. The plaintiffs’ alternative case as to recklessness is but relatively faintly propounded, the thrust of the argument being that the second theft involved “sins of omission” in that after the first theft – for which, of course, HACTL now has put up its hand – the security staff, headed by the good Mr Au, performed only a relatively cursory examination of the problem, and had done nothing to tighten the security procedures governing the release of SRF’s, which in the instance of the second theft appeared largely to have been dependent upon the ability to provide an ID card number of an authorized collection agent, in this case Man Kin Ying of ASG Hong Kong.

341. Mr Sussex argued that whether or not ID cards actually were inspected was largely a matter of trust, that there was only PACCO staff’s word for it that the procedure had been followed, that the AIDE system did not provide any form of record that it had been accessed to check an ID card, and that even if such was presented there was a lack of safeguards to ensure that it was genuine.  Moreover, the only other verification apparently required was a HAFFA chop, which clearly had been susceptible to reproduction, and there were no verification photographs on the AIDE system, nor examples of agent signatures, to safeguard against the type of theft that had occurred.

342. There is some attraction in the argument that HACTL were merely reactive rather than pro-active in face of apparent infiltration of the company by criminal elements, as exemplified by the circumstances of the first theft, and I bear in mind also that procedures apparently were introduced after the second theft to tighten the system.

343. However, whilst there is no necessity to make a specific finding in this regard, if and in so far as I were to be held incorrect in the conclusion that I have reached on the second theft, I should have been disinclined to find that the ‘recklessness’ element within Article 25 had been established sufficient to enable the plaintiffs to break limit.

344. The second theft was audacious – in fact, probably the more so by reason of the success of the first theft – and very clearly relied on inside intelligence/assistance by persons within the HACTL organization.  In my view the ‘recklessness’ arguments propounded by Mr Sussex lean too heavily upon the wisdom of hindsight, and I have concluded that if I had not been satisfied – which is not the case – that this incident indeed could be attributed to ‘inside’ involvement, I should not have found that limit had been broken upon the basis of application of the ‘recklessness’ limb within Article 25.  Notwithstanding the considerable assistance of Mr Phipps, where expert evidence I have considered and been assisted by, I am (or would have been) unable to conclude that the plaintiffs’ alternative case had been made out.

Quantum

345. Thus far the two thefts in question, and the issue of breaking limit, have been considered in principle absent attribution of judgment sum.

346. In this context, there is further disagreement between the plaintiffs and the defendants in the event (as now is the case) that limit has been broken.

347. In short, the defendants say that the sums claimed in the two actions, that is, HK$4.13 million and HK$12.432 million respectively, are based simply upon the invoice prices, and wherein the invoices were raised in circumstances in which Ericsson Hong Kong had ordered a specific number of mobile telephones of a particular type.  That which had occurred, it is said, was that the relevant invoice in each case was issued to Ericsson Hong Kong, and was paid, and thereafter, subsequent to the theft of the two consignments, these telephones had been replaced by Ericsson Sweden at no charge to Ericsson Hong Kong.

348. The argument is that the sale and purchase of these phones plainly was an intra-group arrangement, and that in these circumstances the only loss could have been that of Ericsson Sweden.  It followed, it was argued, that the loss to Ericsson Sweden – on behalf of which entity no viva voce witnesses were called – was the cost of the provision of replacement telephones, together with the cost of transport to Hong Kong, and that this sum, whatever it be, plainly would not be the invoice price, given that the cost of manufacture must significantly be less than the invoice value. 

349. Accordingly, so the submission continued, the documents relating to the reimbursement of Ericsson under the relevant insurance represented the best evidence of the true position, and that this amounted to HK$3,661,579 and HK$7,485,204 respectively, which sums represented the equivalent Hong Kong dollar sums at the dates that the Swedish kroner payments were made to Ericsson Sweden.  In fact, in this regard Mr Coleman noted that the claims as originally put forward to the defendants by the insurance adjusters were in these amounts.

350. On behalf of the plaintiffs Mr Sussex refuted this argument.  His submission was that the plaintiffs were entitled to recover the sound arrived value of the cargoes which were stolen, and that the best evidence of that value was the price which Ericsson Hong Kong actually had paid for the goods.

351. He made two additional points: first, and clearly correctly, that the insurance arrangements, and the amounts in fact paid by the underwriters, were irrelevant, and that there may be many reasons, none of which are before the court, why an underwriter would not pay the full value of the goods; moreover, he said, the underwriters were not the plaintiffs in these cases.

352. Second, he argued that that which had happened subsequently between the 1^st and 2^nd plaintiffs in terms of inter-company arrangements was nothing to the immediate point.  His submission was that in cases such as the present it was the damage to the proprietary interest which the law compensated – see The “Sanix Ace” [1987] I Lloyd’s Rep 465, a decision of Mr Justice Hobhouse, whom in that case had held that it was the claimant’s proprietory or possessory interest that was compensated and gave the right to recover substantial damages, and the fact that the plaintiff had contracts of sale or purchase which enabled him to collect the price from his buyer or to obtain compensation from a seller did not disentitle him from recovering full damages.

353. In my view this principle is correct.  I have no difficulty in holding that the sound arrived value as represented by the invoice price is good evidence of the loss, and indeed this represents the usual approach of the Commercial Court. 

354. I bear in mind that whilst property in these telephones no doubt passed to Ericsson Hong Kong by virtue of the CIF basis of the contracts of sale and purchase, the undisputed fact is that Ericsson Sweden produced replacement consignments of mobile telephones in each case, and whilst, as noted at the outset of this judgment, it does not appear to me greatly to matter into which Ericsson ‘pocket’ the sum adjudged due is in fact paid (not least since there may well be an element of intra-corporate accounting), in the circumstances I am prepared to give judgment in favour of Ericsson Sweden, the 2^nd plaintiff herein, in terms of the invoice value in each case, namely HK$4.13 million and HK$12.352 million.  I so order.

Interest and costs

355. I have been alerted to the fact that there will be additional argument upon the twin issues of interest and costs, and I accept that the matter is sufficiently complex that little is to be gained by venturing a comprehensive order nisi at this stage.  Accordingly, I await submissions from counsel thereon in light of this judgment.

Order

356. In light of the foregoing, therefore, the position overall is that the plaintiffs have succeeded in breaking the Article 22 limit in both actions, with judgment in the respective sums claimed to be entered in each action in favour of the 2^nd plaintiff against each of the 1^st, 3^rd and 5^th defendants, and with the 5^th defendant in each action being ordered to indemnify the 1^st and 3^rd defendants in the sums thus adjudged.

357. Given the number of parties, and the permutations occasioned by the third party and contribution proceedings, I should be obliged if counsel would consult and agree an appropriate form of Order consequent upon this judgment.