BEWISE MOTORS CO LTD v. HOI KONG CONTAINER SERVICES CO LTD

IN THE COURT OF APPEAL

1996, No. 178
(Civil)

_______________

_______________

_______________

J U D G M E N T

_______________

Mortimer, J.A.:

1. This is an appeal by Hoi Kong Containers Services Co Ltd ("the defendant") from a judgment of Seagroatt J given on 5th July 1996 in which he held the defendant liable to pay damages to Bewise Motors Co Ltd ("the plaintiff") for the theft of the plaintiff's motor vehicles from the defendant's container yard on the night of the 4th/5th November 1993.

The facts

2. The plaintiff is an exporter and importer of motor vehicles. In November 1993 it wanted to export four new motorcars from Hong Kong to its associated company in Shanghai. The plaintiff contacted freight forwarders - Fast Trans International Co Ltd ("Fast Trans") who required the plaintiff to deliver the vehicles to the defendant's premises. The defendant and Fast Trans were part of the same trading group. On Fast Trans's instructions the four cars were delivered by the plaintiff's drivers to the defendant's container yard and left there in the late afternoon of 5th November 1993. The cars were worth US$139,000. Later the same evening, each was placed in a sealed container. In the early hours of the following morning, the cars were stolen by intruders who were able to quickly and accurately identify the containers holding the cars. None has been recovered.

The background

3. The plaintiff was in business (inter alia) as an exporter of cars to China. It had dealt with Fast Trans before but it cannot be suggested that there was a course of dealing between them which had contractual effect. Fast Trans had standard terms and conditions on which it conducted its freight-forwarding business.

4. The defendant also had standard terms and conditions upon which it conducted its business. Fast Trans's standard terms entitled it to sub-contract to the defendant on the plaintiff's behalf on the defendant's terms. Both Fast Trans and the defendant had "Himalaya" clauses and limitation clauses in their standard terms.

5. The defendant claimed that the plaintiff was bound by the standard terms and conditions in Fast Trans's contract and that consequently Fast Trans was authorised by the Himalaya clause to accept the defendant's terms on behalf of the plaintiff. As the defendant's standard terms also contained a Himalaya clause, the defendant submits that it can rely upon the limitation provisions in either the Fast Trans's contract or the defendant's contract, either of which is sufficient to defeat the claim. I will turn to these provisions in due course.

The judge's findings

6. The judge made two findings of fact:

(1) That the defendant was negligent as bailee of the cars; and

(2) That the employees of the defendant were the source of information to the thieves and therefore to that extent were involved in the theft.

7. The judge also held:

(i) That there was a contract between the plaintiff and Fast Trans for freighting the cars but,

(ii) Fast Trans's standard terms (the limitation and Himalaya clauses) were not incorporated as the plaintiff had no notice of those provisions and they were not adequately brought to the plaintiff's attention in any of the documents.

8. In consequence, the judge held that the defendant was a sub-bailee through Fast Trans of the cars. The plaintiff had not consented to the defendant's terms because Fast Trans had no authority to contract on the plaintiff's behalf with the consequence that the defendant was liable to the plaintiff for breach of duty as bailee.

9. In summary Mr Thomas QC for the defendant submits that the judge was wrong in finding that the plaintiff did not contract on Fast Trans's standard terms and consequently it was bound not only by the Fast Trans's terms but also - as a consequence of the Himalaya clauses - by the defendant's standard terms as well. Therefore, he argues that the defendant can rely upon the limitation clause in either contract.

10. Further, he contends that the limitation clauses were enforceable as reasonable and fair within the meaning of the Control of Exemption Clauses Ordinance Cap. 71 and that on the facts the defendant's liability was excluded.

11. Finally, he argues that on the evidence the judge was wrong to find that someone among the defendant's employees was the source of information to the thieves and involved in the theft.

12. I turn to these submissions.

Was the plaintiff bound by the defendant's standard terms and conditions?

13. Initially, there are two questions. Was the plaintiff aware that it was contracting on standard terms and conditions with Fast Trans and/or the defendant as its sub-contractor? Secondly, if so, were the limitation clauses fair and reasonable?

14. Had the answer depended solely upon whether the plaintiff received adequate written notice of these terms, I may have hesitated before reaching a conclusion. But it does not so depend.

15. The judge was derisive of the notice relied upon. The original quotation from Fast Trans was dated 13th August 1993. Its standard terms were not referred to. The second quotation on 13th October 1993 - found by the judge to be an invitation to treat - had the words "Standard Terms of business available on request" in small type at the bottom of the page.

16. In his judgment at 10D-G the judge dismissed the defendant's submission in these words:

"The second quotation on 13th October 1993 does in fact have a reference to 'Standard Terms of Business being obtainable on request'. This is in minuscule print at the bottom of the document. Nothing directs one's attention to it. The size of print, inexplicable in the circumstances contended for by the Defendants, is calculated to do anything but attract the eye. I would go so far as to say that it is calculated to deceive."

I would not go so far as to say this is calculated to deceive. The print is very small - but it is legible and available to anyone who is alert to the likelihood that a freight forwarder will only contract on terms.

17. As I see it, the circumstances were as follows. The plaintiff had shipped cars to Shanghai using Fast Trans on two previous occasions in October 1993. There was no evidence on what terms and this could not be a course of dealing with contractual consequences. But the business environment in which the disputed shipping was undertaken is important and relevant. The arrangement was between two commercial companies experienced in exporting goods. I cannot think that anyone in the plaintiff's position could have been in doubt that freight forwarders normally deal on standard terms. Nor it seems to me could any such person think that those terms would not deal with risk and would not provide for limitation of liability.

18. Further, as sub-contracting for handling and shipping is an inevitable part of a freight forwarders business when exporting abroad, terms for sub-contracting are to be expected and usual.

19. I take the point made by Mr Nigel Aiken QC for the plaintiff that the plaintiff and Fast Trans were not in the same business as the parties in British Crane Hire v Ipswich Plant Hire [1975]1 QB 303 and that standard terms will not so readily be incorporated in the present circumstances. However, the question whether the standard terms have been incorporated into a contract is a question of fact. The whole circumstances must be taken into account including the nature of the dealing, the parties and the notice, if any, which has been given.

20. Here, there was no evidence from the plaintiff whether the notice of the terms had been seen or what it would anticipate in such terms if incorporated. Considering the whole circumstances, it must have known that forward agents were likely to impose terms dealing with risk and sub-contracting, and this is relevant to the adequacy of the notice given. In these circumstances I would hold without hesitation that the reference to the "standard terms" although in small print on the invitation to treat of 13th October was sufficient to incorporate Fast Trans's standard terms and conditions provided they were usual, common and reasonable - that is not unduly onerous.

Were the terms usual and reasonable?

21. The clauses relied upon are limitation clauses not exemption clauses. The Court looks more favourably upon limitation clauses. See Singer Co (UK) Ltd v Tees & Hartlepool Port Authority [1988]2 Lloyd's Rep 164.

22. It is demonstrated that such clauses are usual in Hong Kong. No doubt they are usual elsewhere as well. The two clauses are as follows:

23. In the Fast Trans's contract:

"13. The Company shall only be responsible for the Goods whilst they are in its actual custody and under its actual control, and the Company shall not be liable for loss or damage to Goods or failure to deliver the Goods unless it is conclusively proved that such loss or damage or failure to deliver the Goods occurred whilst the Goods were in the actual custody of the Company and under its actual control and that such loss or damage or failure to deliver the Goods was due to the wilful neglect or default of the Company or its own servants. Save as aforesaid, the Customer shall indemnify and hold harmless the Company, its servants and agents from all and every claim for loss or damage to Goods or failure to deliver the Goods brought by the Merchants or other person and in the event of any proceedings being commenced against the Company, its servants or agents in connection therewith to provide the Company with sufficient funds from time to time to defend such proceedings."

24. In the defendant's contract:

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

The test suggested by Taylor LJ in Circle Freight International v Medeast Gulf Exports [1988]2 Lloyd's Rep 427 at 432 is:

"Would the parties have agreed that a particular term formed part of the contract if they were reasonable men looking at the matter objectively in the knowledge that no adverse consequences would float from the answer. I add this latter qualification because even the most reasonable commercial man will become a little less than objective when told that the answer would cost him US$3 million. The term would only be contractual if the party's answer would have been a definite 'Yes'. 'Possibly' will not do."

As these limitation clauses deal with risk and the advisability of insuring, I entertain no doubt that the plaintiff would have entered into the contract even if it had been aware of these terms. Accordingly, I would hold that the limitation clauses in both contracts were both usual, reasonable and incorporated.

25. It follows that I would also hold that the exemption clauses pass the reasonableness test in the Control of Exemption Clauses Ordinance, Cap. 71.

26. In each contract the Himalaya clauses are identical. They each provide:

"(15) Extension of Terms

Each and every servant, agent or sub-contractor of the Company shall have the benefit of these terms. In addition, the Customer shall ensure that the Company, its servants, agents or sub-contractors shall also have the benefit of all terms, conditions. Liberties and exceptions contained in the Customer's bill of lading. In entering into any contract pursuant to these terms, the Company does so not only on its own behalf but as agent and trustee for such servants, agents or sub-contractors."

These clauses do not raise any further point of principle once it is recognised that any standard terms are likely to deal with sub-contracting and that they are usual, reasonable and well recognised by the law in transactions involving international movement of goods. See the Eurymedon [1975] AC 154 and the New York Star [1981]1 WLR 138.

27. I would hold that Fast Trans were authorised by the Himalaya clause to contract with the defendant on the plaintiff's behalf. Where the judge finds otherwise, I cannot agree with him.

28. Of course, such a clause would not enable the agent to undertake unreasonable terms or burdens on behalf of his principle, but that is not the situation here. The plaintiff contracted with Fast Trans authorising Fast Trans to contract with the defendant on its behalf. The cars were delivered to the defendant under terms which enable the defendant to rely upon the limitation clause in either contract. I accept Mr Thomas's submissions to this effect.

The judge's finding that information to the thieves came from the defendant's employees or agent

29. Mr Thomas challenged this finding by inviting the Court to consider the evidence, part of which was put before the judge in the form of written statements. Mr Thomas suggests that the necessary information as to the whereabouts of the cars and containers could have come from observation from outside the container depot. It is possible, he suggests, for an observer to see the cars put into the containers and that it was not inherently more probable that the information came from inside rather than from observation outside.

30. After a careful review of all the circumstances surrounding the theft of the cars from the container depot, the judge's finding was as follows:

"The Plaintiffs' drivers, and no doubt some other employees, would have known that the cars would be delivered to the depot but they would not have known that the containers would be left overnight or indeed what containers they were in. Whoever took the cars were readily able to identify the four containers.

Whoever took them were aware of a number facts; the particular containers, that they wee not going to be removed, and that there was negligible security. It is most likely that that information came from the Defendants, their servants or agents. I found Mr Lam's evidence unconvincing in certain respects. But there is no reason why he should protect Miss Chan by asserting that she did indeed telephone him with the request that the containers be transported. Although I think it is probable that someone 'in the know' amongst the Defendants' employees or agents (excluding the watchman) either at Depot No. 1 or Depot No. 6 was the source of information to the thieves I do not consider it safe to go beyond that."

31. Mr Thomas submits that on all the evidence, this Court is in as good a position as the judge to reach a conclusion. I am unable to accept this. An appellant who challenges a finding of fact must demonstrate that the finding is wrong. Much has been said about the advantage of the hearing and seeing judge - but it does not end there. Where written statements are put before the judge as evidence-in-chief - sometimes the only evidence - it may be said that the Court of Appeal is in as good a position to decide and therefore ought to decide the facts. But even in these circumstances the judge at first instance has a considerable advantage. At first instance the focus is upon the evidence and the dispute as to the facts. The judge is in a position to assess all the oral and written evidence together with the exhibits such as photographs and then to weigh and decide.

32. There is no suggestion that the judge made any major error of fact or misunderstood the evidence. He considered all the circumstances which led to his finding. These were in brief:

(i) That Depot 1 was used for loading and was recognised as not being secure.

(ii) Containers with valuable cargo were usually moved to Depot 3 so that only those with less valuable cargo would be stored at Depot 1.

(iii) Depot 1 had 388 containers stored on a small site. The photographs showed roads around the depot but high stacks which interfere with sightlines.

(iv) Depot 1 was not a depot which would be targeted by criminals seeking cars.

(v) The cars were driven to the depot and left. They were later containered and the plan shows that they were stored in various places in the compound.

(vi) The intention was to remove the cars to Depot 6 but the arrangement was not carried out.

(vii) The presence of the cars in the containers at Depot 1 was the result of an error.

In my judgment, there are no grounds for disturbing this finding of fact by the judge.

Is the defendant protected by either limitation clause?

33. I turn to the defendant's limitation clause. The relevant parts of this clause read:

"The Company shall not be reliable for any loss due to ... theft unless by employees of the Company, its agents, servants or sub-contractors ... or for any other loss ... unless it is conclusively proved that such loss ... was due to the proven neglect or default of the Company or its employees, ..."

Submissions were directed to the judge's finding that the defendant's servants were involved in the theft. As I have indicated, I would not disturb this finding and the plaintiff submits that as the defendant's servants were involved in the theft, liability is established. I am by no means persuaded of this. I agree with Bokhary JA that this clause does not create liability, it only limits liability. The defendant would be liable only if it is shown that the theft was by its servants entrusted with care of the cars. The judge's findings are not sufficient to establish this. Those involved in the theft may not have been concerned in the care of the cars. However, as I indicate when considering the Fast Trans's limitation clause there are wider considerations. For the reasons I give there, I would not hold that the defendant is protected from liability by the words "unless it is conclusively proved that such loss ... was due to the proven neglect or default of the Company ...".

34. In these circumstances, I turn to the provision in the Fast Trans's contract. The relevant part is:

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

On "conclusively proved" Mr Aiken submitted that the word "conclusive" cannot alter the standard of proof and that the words simply mean "prove to the necessary legal standard". With this I agree. Under this clause therefore, the real question is whether the loss was shown by the plaintiff to have been due to the "wilful, neglect or default" of the company or its servants. There is no dispute that the meaning of "wilful, neglect or default" is "deliberate or reckless breach of duty". See In re City Equitable Fire Insurance Co [1925] Ch 407.

35. The passage cited by Bokhary JA from Romer J's judgment in the above case is well recognised as authoritative. His analysis of earlier cases is of assistance in the application of the principle to the facts of this case.

36. Negligence is judged by conduct and not intention. The intention of the defendant to do that which was in fact brought about is not material. Wilful neglect, however, is established only if it is shown that the "misconduct" or the "risk" has been wilfully or recklessly undertaken.

37. Turning to the evidence in the case, I would agree that Lam's failure to arrange for the containers to be collected from Depot No. 1 was negligent but was inadvertent rather than wilful. The limitation clause is, therefore, effective in protecting the defendants for vicarious liability for Lam's negligence.

38. The question remains whether there are wider considerations. Through Mr Aiken the plaintiff submits that if the whole circumstances are taken into account, wilful neglect is established against the defendant. His contention is that the defendant was well aware of the risk of theft if precautions were not taken, that in order to avoid this risk security measures were necessary, and, therefore, instructions were given that valuable goods were not to be stored overnight in Depot No. 1. Alternatively, measures to prevent vehicular access to that depot and to the vulnerable containers were to be taken. In fact, no precautions of any kind were taken and the theft was a consequence.

39. The evidence relied upon is:

(1) That thefts of motorcars from container yards were prevalent, and that the defendant was aware of previous burglaries and thefts at its premises;

(2) That the witness Lam admitted that he knew that risk of the theft of motorcars was high and had been reminded by his superiors about the security measures;

(3) That the necessary security measures were either to remove the containers from Depot No. 1 overnight or to take precautions at Depot No. 1 by placing containers across the entrance, placing the containers with the cars above ground level, and blocking access to them with other containers.

(4) That the containers should have been transferred from Depot No. 1 to Depot No. 6, but Lam forgot to provide tractors for the purpose.

(5) That the witness Chan left container Depot No. 1 without ensuring that the recognised precautions were taken;

(6) That the containers with the cars were left at Depot No. 1 overnight without any precautions of any kind being taken.

It is submitted that on the whole of this evidence the judge ought to have found (if he did not) that the defendant was guilty of wilful neglect or default.

40. I agree entirely with Bokhary JA as to the meaning of wilful neglect and default, the difficulty is the application of that principle to the facts of this case. No one person employed by the defendant was reckless but it is permissible to look at the defendant's conduct in the round not simply the conduct of individual employees. I agree without hesitation that no single employee has been identified as acting recklessly. However, can it be said, looking at the company's activities as a whole, that the company knew of the obvious risks involved if the containers with the cars were not removed from Depot 1 and recklessly undertook them? The defendant had instituted the necessary systems to protect against the risks. The reason why the system failed was because of a casual act of negligence of an employee. I am unable to hold that all the matters relied upon amount to recklessness and therefore wilful neglect or default.

Conclusion

41. Agreeing with Bokhary JA, I would hold that the defendant can successfully rely upon clause 13A of the Fast Trans's contract and that the appeal must be allowed.

42. In these circumstances it is not necessary for me to consider Clause 14 of the Fast Trans' contract save to say that I also agree with Bokhary JA's conclusions that the clause is effective to limit the defendant's liability to US$500 for each car lost.