FACV No. 4 of 1997
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 4 OF 1997 (CIVIL)
(ON APPEAL FROM CACV No. 178 OF 1996)
||Bewise Motors Co. Ltd.
||Hoi Kong Container Services Ltd.
Court: Chief Justice Li, Mr Justice Litton PJ, Mr Justice Ching PJ, Mr Justice Nazareth NPJ and Sir Edward Somers NPJ
Date of Hearing: 1 June 1998 and 8, 9, 10, 11 September 1998
Date of Judgment: 5 November 1998
J U D G M E N T
Chief Justice Li :
1. I have read the judgment of Mr Justice Ching PJ and agree with it. For the reasons which he gives, I would dismiss the appeal with costs. I also agree with the judgment of Mr Justice Nazareth NPJ as regards the construction of the exemption clause.
Mr Justice Litton PJ :
2. I agree with Mr Justice Ching PJ's judgment, a draft of which I have read, except on one point: The proper construction of clause 4(a) of the Defendant's Trading Terms and Conditions. The facts of the case are succinctly set out in that judgment and need no repetition here. The Defendant stood in the position of a bailee vis-a-viz the Plaintiff in respect of the four cars entrusted to its care, for the purpose of containerization and storage prior to shipment. The bailment was upon the Defendant's own terms of business: terms which, as Mr Justice Ching PJ has explained in his judgment, the Plaintiff must be deemed to have accepted, even though it had no contractual relationship with the Defendant. The issues which I shall endeavour to address in this judgment are: (i) whether the Defendant's terms were effective to exempt the Defendant altogether from liability for the loss of the four cars and (ii) if not, whether the Defendant could limit its liability to a small fraction of the total loss (US$139,000) suffered by the Plaintiff by invoking clause 11 of its own terms of business.
Approach to construction
3. In construing clause 4(a), I bear in mind Steyn J's observations in Associated Japanese Bank v. Credit du Nord  1 WLR 255 at 257D:
"Throughout the law of contract two themes regularly recur - respect for the sanctity of contract, and the need to give effect to the reasonable expectations of honest men."
4. The Defendant's business was that of a container-depot operator and, by its very nature, involved taking care of other people's goods as a bailee. In that capacity - exemption terms apart - the obligation imposed by law on the Defendant was to take such care of those goods as if they were its own goods. If the goods were lost or damaged, the owner would recover damages without the necessity to prove neglect or default on the Defendant's part: To escape liability, the Defendant must show that the loss or damage was not due to its own neglect or default.
5. As an honest container-depot operator, one would not expect the Defendant to say: "We have no responsibility whatever for loss or damage however caused." Were it to say so in plain terms, it is difficult to see how any cargo owner would voluntarily deal with the Defendant, or any insurer would insure goods bailed to the Defendant without charging an extortionate premium. Thus, when it comes to the proper construction of clause 4(a), one starts with the presumption that the Defendant did not mean to exempt itself from all liability for loss or damage.
6. Loss or damage to goods can be caused by a wide variety of circumstances. Confining attention to loss alone, and leaving aside the question of damage, the evidence indicates that theft of goods from the Defendant's depots was a predominant - perhaps the only - cause of loss within its common experience. It is therefore not difficult to imagine the Defendant as an honest container-depot operator saying: "If goods entrusted to our care be stolen, we are not liable unless such loss was due to our neglect or default". This, in effect, reverses the burden of proof, and requires the cargo owner - a stranger to the Defendant's internal operations - to prove neglect or default on its part: no easy task for the cargo owner, as the facts to establish neglect or default would be peculiarly within the knowledge of the Defendant. But can one imagine an honest operator going one step further to say: "If your goods are stolen, that's just too bad; unless the theft was by our own people (call them employees, agents, servants, subcontractors, what you will) we are not liable". This is in effect to avoid all liability for theft. Thieves operate by stealth. They do not advertise their identities. A cargo owner can, perhaps, with the court's assistance (by the process of discovery, interrogatories and the like) examine the Defendant's systems and operations to see if it has taken reasonable care of the goods: But to expect the cargo owner to establish the identity of the thief is to demand the impossible. The supposed exception from the sweeping exemption in clause 4(a) in the event of theft - where the taking has been by the Defendant's own employees etc. - means nothing in practice. That exception has so little practical value it might just as well not be there. As was put in the course of the hearing by counsel: Assuming that the Defendant had left the cars parked near the entrance, the keys in the ignition, the gates unlocked and no-one on the premises, would the Defendant nevertheless escape liability unless the Plaintiff proved that the theft was by the Defendant's own people? Is this how clause 4(a) is to be construed?
Clause 4(a) of the Defendant's Terms and Conditions
7. For convenience's sake I set out below clause 4(a) as it appears in the Defendant's Trading Terms and Conditions:
(a) The company shall not be liable for any loss or damage whether direct or consequential or loss of market suffered by a Customer or Merchant due to fire, explosion, theft unless by employees of the Company, its agents, servants or subcontractors, riots or civil commotion, strikes, lock outs or labour restraint, inherent vice in any equipment or container or goods, typhoon, floods, lightning or Act of God, delay or detention of any vessel, containers or cargoes, act of omission of the Customer or merchant as a result of compliance by the company with the instructions of the Customer or Merchant, or for any other loss or damage unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the Company or its employees, nor for any loss damage or expense arising from or in any way connected with the packing, labelling, marks, brands, weights, numbers, contents, quality or description of any goods however caused."
8. Clause 4(a), as can be seen, lists a range of circumstances under which loss or damage might occur: some of which could conceivably be due to the Defendant's neglect or default, and some such as typhoons etc clearly not. One view of clause 4(a) is that, however inelegant it may be in terms of grammar and syntax, the words "unless it is conclusively proved that such loss or damage was due to the proven neglect or default of the company ...." qualify the causes of loss or damage going before. Thus, apart from loss or damage due to fire, explosion etc, it would qualify damage due to "inherent vice in any equipment". Accordingly, if the Defendant continued using lifting equipment knowing that there was inherent vice in such equipment, and goods got damaged as a result, the Defendant would be liable. And if loss by theft were due to the Defendant's neglect or default, it would likewise be liable. As regards theft the Defendant has in theory assumed an additional burden: If the theft was done by the Defendant's "employees, agents, servants, or sub-contractors" then, whether or not it be in neglect or default, it would still be liable. Accordingly, if the cargo owner were able to show (against all odds) that the goods were taken away by the Defendant's own employee, the Defendant would be liable, irrespective of whether the cargo owner could go one step further and prove that in engaging that employee the Defendant had failed to take the usual precautions such as checking on his past record, taking references from previous employers etc. This would strike a reasonably fair balance between bailor and bailee. Do the words in clause 4(a) prevent the court from reaching this result?
9. Quite apart from "rules of construction" which require courts to construe standard exemption clauses against the party putting them forward (the contra proferentem rule), there is this further consideration to bear in mind: The court in its task of interpretation should look at the exemption clause broadly as a whole, in the same way as any business person would in assessing the allocation of risk. Thus, if on one view, clause 4(a) would lead to extreme results, and on another view it would conform with the reasonable expectations of honest men, the court would incline towards the latter unless the words used compel the opposite conclusion.
Test of reasonableness
10. It must be borne in mind that the Control of Exemption Clauses Ordinance, Cap 71 has been on the statute book for some years and exemption clauses like clause 4(a), to be effective, must pass the "reasonableness" test in section 3. Is it to be presumed that the Defendant (or its solicitors) would risk fashioning clause 4(a) in such a way as to verge on absurdity, thus exposing the Defendant to the possibility of the clause being nullified under section 3, when a more moderate construction can be put on clause 4(a)?
Microscopic search for meaning
11. Mr Thomas, in argument, invited us to break up clause 4(a) into subparagraphs so...