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

1994 C.L. No. 90

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiffs are importers and exporters of motor vehicles. In November 1993 they wanted to export four new motor cars to their associated business in Shanghai. The vehicles were to go by sea. The Plaintiffs contracted with shippers known as Fast Trans for their transportation. (There were in fact six other vehicles exported during the same period.)

2. Fast Trans required the Plaintiffs to deliver the vehicles for shipment to the premises of Hoi Kong Container Services Co. Ltd., the Defendants, which company is part of the same group as Fast Trans, namely the Jardine Pacific Business Group.

3. The four cars were worth about $139,100 U.S. in total. On the afternoon of 5th November 1993, they were driven from the Plaintiffs' premises by the Plaintiffs' drivers to the Defendants' No. 1 depot at Sai Tso Wan. The approximate time of their arrival there can only be guessed at but the documentation stamped by the Defendants' employee at the depot and taken away by the drivers bore the time as 16.14 hours. There is no suggestion that the cars arrived late at the depot such as to cause Hoi Kong any difficulties. There is certainly no evidence to that effect.

4. One of the Plaintiff's drivers, who had driven cars to the Defendants' premises on previous occasions, described the procedure. The cars were parked in between stacks of containers, were checked for damage by the Defendants' staff, locked up, the keys handed over, and the documentation, to which I have referred, stamped in the office at the depot. He was under the impression that the timing of these events was earlier than that indicated by the time stamp on the delivery notes. Nothing however turns on that. None of the cars was driven into the container by their original driver.

5. There is no first hand evidence of what occurred thereafter at Depot No. 1 and the Defendant relies upon the contents of the statements of the watchman, hired from a security company, and their depot manager, Miss Chan Fung Ming. Both these servants or agents of the Defendant made statements to the Police. In order to appreciate the sequence of events I need to consider Miss Chan's statement first.

6. Her Police Statement, made on 6th November, refers to the arrival at the premises of the four cars. Two, she says, at 15.14 hours and two at 16.14 hours. It is likely that the earlier time referred to is simply a misreading of the time stamp on the documents. She refers to working hours as up to 6.30 p.m. but says on this day she left at 5.30 p.m. Although she does not explain the basis for her knowledge of the times at which other staff left, she says by about 8 p.m. all staff had gone home leaving one caretaker, who, I assume, was the watchman, Mr. Chan Tai Hee.

7. The four vehicles of the Plaintiff, together with some other vehicles delivered, were put in containers. The intention then was to take the containers with the motor vehicles to Depot No. 6 in the morning of 6th November, i.e. the next day, for loading on to the vessel for Shanghai.

8. This is in complete contrast to the version contained in the Rejoinder of the Defendants and the evidence I heard from Mr. Lam Mi Cheong who was in charge of No. 6 depot. From these sources, it appears that Miss Chan telephoned Mr. Lam some time on the afternoon of 5th November - obviously before she went off duty at 5.30 p.m. - requesting two tractors to remove the containers from No. 1 depot to No. 6 for storage. Mr. Lam said he had none available at that time but would send some later. In short, he forgot to do so. The containers with the cars remained at No. 1 depot. They were stolen in the early hours of 6th November. I will return to the circumstances of their theft later. The contrast between the versions however gives rise to other considerations with which I will now deal.

9. Photographs and a plan of depot No. 1 reveal a container site not much different from many others. Security is very limited. There are two access points. Both are secured, if that is the right word, by double metal gates and a padlock and chain. Barbed wired is attached to the top of the perimeter fence but not to the top of the gates. The chain can easily be cut by bolt cutters. There is no closed circuit video system. The watchman was elderly and did not have a guard dog with him. There were no alarm systems. The degree of surveillance and protection was appropriate to a site which had nothing of value worth stealing and might be regarded as a deterrent only to vandals though I have strong reservations even in that respect. A solitary 74 years old watchman with no support services was likely to deter only the most timid of sole intruders.

10. Depot No. 1 was known to store laden containers on occasions. Usually these containers had been delivered already laden but not always. Such storage would last for 1 to 2 nights. On the night of 5th November out of a total of 388 containers (some were 40 feet long and accordingly regarded as two units hence the apparent discrepancy in the numbers of containers variously stated to be in the yard), 46 were laden with goods, and 4 of those with cars. The normal practice with laden containers was for them to be stacked above ground level to protect them from interference and theft. The four containers laden with cars were positioned at ground level.

11. Mr. Lam stated he would expect Miss Chan to request those four containers be transferred to No. 6 depot. It was, he said, very important to effect the transfer and that he would expect Miss Chan to telephone him to remind him. He knew of the increased incidence of theft of cars from container depots, and that the problem was becoming serious.

12. The state of security of Depot No. 1 was clearly by implication, if not by express agreement on Mr. Lam's part, inadequate for laden containers. Hence the need to stack laden containers or, preferably, transfer them to a secure depot.

13. In the light of this state of affairs it is pertinent to note the Defendants' concern with security as documented by the minutes of the Defendants' Management Meetings from December 1992.

14. There had been a burglary at Depot No. 4 on 30th November 1992. As a consequential precaution, another container was to be positioned at the entrance to prevent a recurrence but more effective precautionary measures were regarded as necessary.

15. On 21st January 1993, a report on the security of the depots with recommendations from the Crime Prevention Department was distributed for comment.

16. Depot No. 6 was nonetheless burgled on 9th October 1993. 11 containers were interfered with. Security guards at the depot were to be warned and guards at other depots "should also be put on the alert", as a result of the meeting on 14th October 1993.

17. A Weekly Operation meeting took place on 15th October. Staff of all depots were instructed to forward certain instructions to prevent any similar occurrence. At Depot No. 1, all car containers were, as a first priority, to dray back to Depot No. 6 by internal tractor; if the tractor is not available, the car container must be stacked onto the second tier instead of ground level; and each main gate must be blocked up by an empty container.

18. At the management meeting on 11th November 1993 there was a report on the burglary at Depot No. 1 which had taken place 5 days earlier. All those in charge of depots were reminded of daily security and preventative measures to be carried out viz.: all gates to be blocked by empty containers and containers with valuable cargo were not to be left on ground level. This was simply a re-iteration of the instructions given nearly a month earlier and had been the obvious precautions to be followed for some time, certainly since Police information and recommendations had led to the memorandum of 21st December 1992. Further recommendations were sought from the professional security firm used by the Defendant company. When received, they denoted the obvious - 2 security guards in each shift, wireless audio handsets, and external patrols. But the real solution had lain in the measures already decided upon which had not been implemented by the night of 5th/6th November at Depot No. 1.

19. It is not necessary for me to decide between the oral evidence of Mr. Lam and the written Police Statement of Miss Chan as to the situation which existed following the containerisation of the cars at Depot No. 1. If her version was correct, there was a clear failure to apply any of the protective measures and the instructions of 15th October 1993 had been ignored. That was clear negligence. No sensible precautions existed to protect valuable cargo when it was well-known that thefts of cars from containers was rife and this depot had negligible security as a unit. The provision of an ageing watchman was more or less useless.

20. If Mr. Lam's version is correct, Miss Chan had gone off duty without ensuring that the tractors were going to come and at what time, without taking any interim protective measures such as the positioning of an empty container or two at the entrances, or even warning the watchman, that he was to expect the arrival of tractors to remove four containers. There is no evidence from any other employee, sub-contractor or agent at Depot No. 1 to indicate that they had been told to expect tractors to arrive or what they were to do if they failed to arrive; or even what they were to do if, by the time they left the premises, the loaded containers had not been removed to Depot No. 6. He had failed to meet her request and seems to have forgotten about the matter altogether. Whatever system had been devised by the Defendants, it had completely broken down at both depots in respect of valuable cargo which was well-known to be vulnerable to thieves. There was equally clear negligence if Mr. Lam's version is correct.

21. Was this burglary and theft, in effect, an "inside job"? The watchman said it was accomplished within half an hour. The relevant containers were identified from amongst the 388 at the depot and six cars (four belonging to the Plaintiffs) were driven away. This necessarily involved at least six persons, and on the basis that some of them at least arrived at the premises in a vehicle, there must have been at least seven. It is obvious that this was not a chance burglary. It is possible that by chance these particular premises were under observation, and that the cars were seen to arrive and be put into particular containers. Depots No. 4 and No. 6 had been earlier targets. Perhaps it just happened that No. 1 was targeted. The observers waited until 3 or 3.30 a.m. before they struck, almost 12 hours from the time the vehicles arrived at the premises. I asked the Police Asst. Divisional Commander as to his feelings about this possibility in the light of his investigations and his experience. He thought the possibility of a chance observation and "lucky strike" less likely that the careful preparation of a plan by persons with inside information. It is interesting in passing to note that he was unaware from his investigation of the proposal to transfer the laden containers to another depot that night, as Mr. Lam attested and as was pleaded.

22. 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.

23. Whoever took them were aware of a number of facts; the particular containers, that they were 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.

24. I now have to consider the contractual position, bailment and what terms and conditions were applicable.

25. I have already stated the Plaintiffs contracted with Fast Trans who owed them a duty of care. As a matter of convenience and/or commercial practice Fast Trans used the services of Hoi Kong and required the Plaintiffs to deliver the cars to their premises. This the Plaintiffs had done on other occasions as Mr. Choi Kam Fai, the driver stated.

26. The Plaintiffs had contracted with Fast Trans on two previous occasions; 13th/14th October 1993 when one car was shipped to Shanghai (on or about 18th October) and on or about 27th October 1993. The shipping orders issued by Fast Trans required the vehicles to be delivered to the premises of the Defendants on Tsing Yi Island.

27. It is common ground that the Defendants as sub-bailee owed to the Plaintiffs a duty of care in respect of the vehicles entrusted to them. It is equally common ground that the contract of shipment/bailment was with Fast Trans and that at no time were the Defendants' terms and conditions sent to the Plaintiffs.

28. The Defendants' argument is that the Plaintiffs accepted Fast Trans' terms and conditions which entitled the latter to sub-contract to the Defendants on the latter's terms and conditions. Alternatively, it is contended that the Plaintiff is bound by Fast Trans' terms and conditions.

29. It is appropriate to commence with the consideration of whether the Plaintiff is bound by Fast Trans' terms and conditions and then, if I so hold, to consider whether as a consequence the Plaintiff is bound by the terms and conditions of the Defendants as substituted for those of Fast Trans.

30. Fast Trans quoted on 12th August 1993 originally. No terms and conditions were sent. None was referred to. 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.

31. Of course as Mr. Lam Po Chiu said in evidence he had seen bills of lading and had seen the terms and conditions attached and that he knew in the course of business companies sought to limit their liability in certain circumstances. He would not however in general be concerned with shipping documents which were the concern of the shipping department.

32. I am satisfied nothing was done by Fast Trans to direct the Plaintiffs' attention to the specific terms of their business dealings. There was not a sufficient course of dealing between the Plaintiffs and Fast Trans to incorporated the latter's conditions. I accept the argument that Fast Trans' quotation of 13th October 1993 was an invitation to treat. Apart from that there are two invoices with the "offending" statement to which I have already referred in dismissive terms at the bottom. I do not consider that those with or without the fact of the Plaintiffs' two transactions are a sufficient course of conduct.

33. I have considered Hollier v. Rambler Motors [1972] 2 Q.B. p.71 on which reliance was placed by the Defendant in seeking to avoid liability for damage caused by fire (contained in an exclusion clause), on three or four transactions over a five-year period. The Court of Appeal rejected the argument and considered the decision in McCutcheon v. David MacBrayne Ltd. [1964] 1 W.L.R. p.125. In that case, both car owner and agent knew that certain conditions of carriage were normally imposed but neither knew specifically what they were. In the absence of a contractual document, a consignor cannot, by a course of previous dealing, be bound by conditions of which he is generally aware but the specific terms of which he has no knowledge.

34. Lord Pearce at p.137 said:

"Duty of care and liability for negligence 'rests' with carriers unless they have excluded duty or liability by some special contract. Usually such a special contract is achieved by the carrier producing a written contract which the customer signs, or by the carrier printing and displaying regulations to which reference is made on the tickets [bought]. In such a case the customer is bound by the conditions ... . even if he does not read them and does not know their import, always provided that the carrier shows that he has taken reasonable steps to bring the conditions to the customers' notice."

" ... Nor had they any knowledge that clause 11 would contain wrapped in 30 lines of small print and in language intelligible only to a lawyer or a person of education and perspicacity a total exclusion of liability for almost every conceivable act of the defender that might damage the pursuer's goods."

35. Scrutton L.J. in Rutter v. Palmer [1922] 2 K.B. p.87 (at p.92) was cited on the basic principles:

"In construing an exemption clause certain general rules may be applied: First the Defendant is not exempted from liability for the negligence of his servants unless adequate words are used; secondly, the liability of the Defendant apart from the exempting words must be ascertained: then the particular clause in question must be considered; and if the only liability of the party pleading the exemption is a liability for negligence the clause will more readily operate to exempt him."

36. Latey, J., in the Hollier case went on to put it succinctly in his usual practical way:

"The main stream of the law, the basic principle, as I understand it, is that if A enters into a contract with B and wants to include in it a term exempting himself from liability for his own negligence, to be effective that term must sufficiently clearly convey that it is liability for negligence which is being excluded."

37. The specific clauses upon which the Defendants rely are 13(a) and 14. Clause 13(a) purports to limit liability for loss and damage, whilst goods are in its actual custody or under its actual control and where the loss and damage was due to the wilful neglect or default of the company or its own servants.

38. Leaving aside for the moment the term "wilful neglect", default clearly includes negligence. Any person reading this provision would regard it as indicating liability for loss and damage occasioned by the negligence of the carriers, their servants or agent. Wilful neglect is a vague term of art and variable in its meaning. It can import intentional or purposeful omission to do an act. But coupled with default, as it is in this case, can mean no more than recklessness. In conditions of sale, it can simply mean not doing what is reasonable under the circumstance. "Wilful default" of a person in charge of a ship means fault, whether intentional or negligent. Whatever arguments may persist about wilful neglect, wilful default or simply default is sufficient to cover negligence by the company or its own servants. In this case, Fast Trans sub-bailed to Hoi Kong. That does not entitle them to escape liability to the Plaintiffs. Fast Trans remains liable for the negligence of its servants or agents. Hoi Kong were its servants or agents. If its term sought to exclude liability for negligence of the sub-bailee (selected by itself) it should specifically have drawn the Plaintiffs' attention to that. It did not do so. The barely visible reference to "Standard Terms of Business of the company obtainable on request" is not sufficient notice. I have little difficulty in concluding that a) the clause does not exclude liability for the negligence of the sub-bailee; b) the Plaintiffs had no notice of such purported limitation (if there were such) and c) the terminology is such that, whatever words are considered, it denoted liability for the negligence of its servants or agents. By virtue of the circumstances, and the foregoing Fast Trans had actual custody and control.

39. Turning to clause 14 wherein is set out a limitation on the amount of compensation to effectively (as the least) $500 per package, I leave aside, for the purposes of this case, whether a motor vehicle, or two, containerised, could properly be described as a package. I leave that whole clause in its construction to be attacked on another day.

40. The whole purpose of any clause in "terms of business" limiting liability for loss is self-evident. But its existence, and the effect of it, if uncertain, (and this clause is unhappily drafted) is to alert the customer to the need to insure, providing he has sufficient time. I am satisfied that no notice of this drastic clause was given to the Plaintiffs. Indeed such is the nature of the purported limitation on compensation payable that to have any effect it should appear on any quotation on preliminary contractual documents in unequivocal terms. The Plaintiffs are not bound by either of those clauses.

41. I am conscious of the fact that in holding that the Plaintiffs' contract is with Fast Trans and in dealing with its terms I have left aside the contention that the terms of Hoi Kong applied to the contract. That was deliberate because I intend to deal with it shortly. I am satisfied that Fast Trans contracted with Hoi Kong as principal and not as agent for the Plaintiffs. Clause 4(b) contains a sweeping provision whereby the customer is entirely in the hands of Fast Trans in respect of any sub-contracting (or sub-bailment) on such conditions as the sub-contractor (or sub-bailee) may stipulate. Apparently the customer agrees that it need not be consulted before any such sub-contract is made; and that the company is not obliged to advise the customer of the terms and conditions of such sub-contracts unless specifically required to do so. Unless the customer's attention is clearly directed to such clauses, well in advance of the making of the contract, it will not be bound by them. Such clauses are a trap, in my view, and not simply for the unwary. It is as well that any company seeking to rely on such should be aware that no court will construe them in their favour, or hold that they apply unless there has been clear, timely notice of the existence of such terms, before any contract, and an unequivocal acceptance of such by those upon whom the company seeks to impose such a burden.

42. When I link the minuscule print at the bottom of certain of Fast Trans documents with the draconian effect of these clauses, I am reinforced in my view that there is a desire to take advantage of the trusting party to a contract, who relies upon a carrier to apply normal acceptable terms and conditions; there is an obligation to notify in good time if there are severe limitations which should cause such a customer to think twice about where he puts his business and have the opportunity to insure against all risks. It smacks, as it stands, of less than acceptable business practice.

43. The question of the extent to which Defendants, with whom the Plaintiff has no direct contract, can rely upon exempting conditions, has been considered in a number of cases. In Morris v. C.W. Martin & Sons Ltd. [1966] 1 Q.B. p.716 (at pp.729-730) Lord Denning considered the hardship on both parties and said:

"The owner (of the goods) is bound by the conditions if he has expressly or impliedly consented to the bailee making a sub-bailment containing those conditions but not otherwise."

44. Lord Wilberforce in Ailsa Craig Fishing Co. Ltd. v. Malvem Fishing Co. Ltd. [1983] 1 W.L.R. p.964 (at p.966) said, in considering the effect of limitation clauses said:

"Whether a clause limiting liability is effective or not is a question of construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence it must be most clearly and unambiguously expressed, and in a contract such as this, must be construed 'contra proferentem'. ... one must not strive to create ambiguities by strained construction. ... The relevant words must be given, if possible, their natural, plain meaning. Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure."

45. Lord Fraser of Tullybelton at p.970 followed the same line of formulation:

"There are [later] authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity. ... in my opinion these principles are not applicable in their full rigour when considering the effect of clauses merely limiting liability. Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses."

46. Sea also The Antwerpen [1994] 1 Lloyds Reports p.213.

47. In thePioneer Container [1994] 2 A.C. p.324, Lord Goff (at pp. 338-339) coupled the approach of Lord Denning in Morris v. C.W. Martin. As I have found in this case there was no direct contractual relationship between the owner and the sub-bailee (Hoi Kong), the only contract created by the sub-bailment being that between Fast Trans and Hoi Kong; Lord Goff said:

"If the effect of the sub-bailment is that the sub-bailee voluntarily receives into his custody the goods of the owner and so assumes towards the owner the responsibility of a bailee, then to the extent that the terms of the sub-bailment are consented to by the owner, it can properly be said that the owner has authorised the bailee so to regulate the duties of the sub-bailee in respect of the goods entrusted to him, not only towards the bailee but also towards the owner."

48. Although the Plaintiffs would have had no objection to the bailee (Fast Trans) sub-bailing, they cannot be taken to have consented to the terms of the sub-bailment as I have found.

49. It is equally clear in my view that the Plaintiffs are not in the same trade as the bailee (or sub-bailee) and the customs and usage in the container/shipment trade cannot be implied into the Plaintiffs' contract so as to bind them.

50. This was a case of direct transport to the premises of Hoi Kong but, the latter took no steps to draw the Plaintiffs' attention to its terms and conditions as sub-bailee. Indeed it is not so contended, reliance simply being placed upon clause 4 of the terms and conditions of Fast Trans; and alleged implied acceptance of that by the Plaintiffs.

51. The question of the Plaintiffs' title to sue was left in issue but it was never seriously challenged and has been clearly proved.

52. Finally, I come to the question of loss. The Plaintiffs paid for these vehicles in various currencies. They were selling them to their associate business in Shanghai. I do not know how the question of any profit was to be dealt with as between the two offices. It may simply have been a book-keeping exercise. If a real profit were to be realised in Hong Kong it would be subject to the freight costs and as a final deduction, tax upon the profit. With these uncertain and unclear factors the only proved loss is the cost of the vehicles or purchase which has been proved by the documentation. Accordingly, there will be judgment for the Plaintiffs for Yen 5,293,400 in respect of two vehicles purchased from Dah Hong Chong (Japan) Ltd.; HK$285,000 for the vehicles purchased from World Man Motors (China) Ltd., and US$43,300 for the vehicle purchased from Value Products California, together with interest on the said sums at the appropriate rates from the date of issue of the writ, and costs on a party and party basis, to be taxed if not agreed.