Irving Jewellery Co Ltd v. China Insurance Co Ltd

HCA006541/1980

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Coram: Rhind J. in Court.

Date of Judgment: 8th June, 1981.

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JUDGMENT

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1. For the period between the 20th November, 1979 and the 20th November, 1980, the Plaintiff, which runs a jewellery shop at 79 Peking Road, Tsim Sha Tsui, Kowloon, had all its stock insured under a policy with the Defendant insurance company for the sum of HK$2 million against loss or damage arising from any cause whatsoever. Theft would, of course, be one of the risks covered.

2. However, the policy did contain some limitations on the Defendant's liability. By Condition No. 3 of the Policy:-

"If a claim made by or on behalf of the insured shall be in any respect unfounded or fradulent or in any way exaggerated or if any false declaration or statement be made in support thereof or if the loss is occasioned through or by the wilful or negligent act or with the connivance of the insured this policy shall be void."

Further, the policy contained various exclusions, No. 1 of which was to the effect that the policy did not cover loss or damage by theft or dishonesty or dishonest deception committed by (a) any servant or traveller or messenger in the exclusive employment of the insured or (b) any customer or broker or broker's customer or agent in respect of property insured entrusted to them by the insured his or their servants or agents.

3. By the present action, the Plaintiff seeks to recover the sum of HK$275,550 from the Defendant under the policy, being the value of a diamond allegedly stolen from the Plaintiff on the 18th January, 1980.

4. For a start, the Defendant disputes that the diamond was ever stolen. However, even if the Plaintiff does satisfy the Court that the diamond was in fact stolen, the Defendant, nonetheless, seeks to avoid liability under the policy either on the ground that the loss was occasioned by the negligent act of the insured, or else that the theft was committed by a customer in respect of property entrusted to him by the Plaintiff.

5. The findings of fact which I am about to make in the rest of this paragraph stem from my acceptance of the truthfulness of the evidence of Mr. Hui (PW1), a shareholder in the Plaintiff company, who was working in the Plaintiff's shop at 79 Peking Road on the 18th January, 1980. What he told me in evidence and the manner of his telling it persuaded me that his testimony was the truth. That day at about 11 a.m. he and three of his fokis were working in the shop. Two Filipino men, pretending to be customers, came into the shop. To get into the shop, they must have been admitted through the electronically controlled door. A day or two previously, one of those two men had been to the shop as if interested in buying diamonds. Once inside the shop, the electronically controlled door would have been closed behind them. They took seats at a showcase four or five feet from the door. It is only a small shop of some 400 sq. ft. On display in the window of the shop was a diamond of 5.01 carats which the Plaintiff had purchased from a dealer on the 20th November, 1979 for a price of HK$275,550. That was the diamond giving rise to the present claim. In compliance with the request of one of the Filipino men, Mr. Hui got the diamond out of the window and handed it over to him for inspection. While that man handled the diamond, he engaged in discussion with Mr. Hui about the price. While the one man inspected the diamond, the other man accompanying him stood up and said that he wanted to leave the premises. To enable him to leave, Mr. Hui operated the electronically controlled door by opening it. The man went to the door and held it open. While he did so, the man who had been inspecting the diamond suddenly stood up and said he wanted to leave too, but would be back in about half an hour. As he stood up, he dropped something on the counter which looked as if it might have been the diamond which he had been inspecting. He then quickly moved to the exit and walked out with the other man. Mr. Hui immediately suspected something was wrong, and went over to look at the object which had been dropped on the counter. He immediately realized it was not the diamond that he had shown the man, but was, instead, just a cheap piece of glass. He immediately raised the alarm and he together with his fokis chased after the two men. However, once they got outside the shop they were unable to see the two men who had succeeded in losing themselves among the crowds in Tsim Sha Tsui. Mr. Hui immediately summoned the police, but the two men have never been caught. Those are all the relevant facts I found.

6. From the above, it will be seen that I have found as a fact that the diamond was stolen from the Plaintiff, as alleged.

7. The Plaintiff will be entitled to succeed in this action against the Defendant for the value of the diamond stolen from it unless the Defendant can satisfy the Court that the loss falls within one of the exemptions under the policy.

Was the Defendant entitled to avoid liability on the basis that the loss was occasioned by the Plaintiff's negligent act?

8. Here the Defendant was seeking to rely on Condition No. 3, the contents of which I have already set out. It will be noted that Condition No. 3 is limited to the negligent act of the Plaintiff, no mention being made of the Plaintiff's servants or agents. This is in contrast with, say, Exclusion No. 1 of the Policy which expressly refers to the servants or agents of the Plaintiff, as well as the Plaintiff itself. Exclusion clauses and limitation clauses are normally strictly construed against insurance companies in accordance with the contra proferentem rule. The view I take is that Condition No. 3 is limited to any negligent act on the part of the Plaintiff, but does not extend to any negligence by its servants or agents. I fail to see how the Defendant has established any negligence against the Plaintiff. The Plaintiff had done everything that could reasonably be expected of it to set up a safe system by installing the electronically controlled door and having four staff members on duty. There is not the slightest suggestion of negligence in so far as the Plaintiff itself is concerned.

9. Even if I were wrong about Condition No. 3 not extending to the Plaintiff's servants or agents, the result would still be the same on the view which I take of the way in which the Plaintiff's servants acted on this occasion, since Mr. Hui acted in a completely reasonable way towards the two men who came into the shop. There is nothing to suggest that he was unreasonable in treating them as potential customers, and he treated them in a way no different from that in which any reasonable foki in a jeweller's shop in Hong Kong would treat a customer. If a jeweller's shop hopes to make sales, it has to permit the handling and inspection of its stock. To suggest otherwise is, in my opinion, totally unrealistic. I reject the suggestion made on behalf of the Defendant that these two apparent customers should have been asked to provide references before they were allowed to handle the jewellery. I cannot imagine a single jeweller's shop in Hong Kong behaving in that fashion. When one of the presumed customers said he wanted to leave, I regard it as completely reasonable for Mr. Hui to have operated the electronic door to let him out. There was, of itself, nothing suspicious in that man wanting to leave the shop. I do not regard it as reasonable to expect Mr. Hui to have posted one of his fokis near the door when that man said he wished to leave. Mr. Hui and the other fokis in the shop were obviously the victims of a carefully planned and cleverly executed piece of trickery on the part of those two men, and I cannot detect anything negligent in the way in which any of them acted in the highly unusual situation in which they became involved. I do not think that the staff of any jeweller's shop in Hong Kong would have acted any differently from how they did on this occasion. There fore, I reject the Defence suggestion that either the Plaintiff itself or the Plaintiff's servants or agents were in any way negligent.

Was the theft of the diamond committed by a customer to whom it was entrusted?

10. The Defendant hopes to avoid liability under the Exclusion Clause which I set out earlier. To succeed on that, the Defendant will need to show firstly, that the men who made off with the diamond come within the category of "customer" and secondly, that the diamond was "entrusted" to them.

11. I do not think that either of the two men can be considered to have been a "customer". Neither of that pair ever contemplated buying anything. That is a clear inference from the circumstances of this case as a whole. Instead of being customers, those men were simply straightforward thieves. They were no more "customers" than, say, intruders in a jeweller's shop who relieve the staff of the stock at gun-point.

12. On the meaning of "customer", assistance can be derived from Lake v. Simmons⁽¹⁾, where an identical exclusion clause fell to be considered. There at page 512, Lord Atkinson had this to say:-

"The entrusting of goods to a customer mentioned in the exception cannot mean the delivery in all good faith by a dealer of goods to a customer which that customer has planned to steal, and by that very delivery enabling the customer to effect her felonious purpose."

Further down the page, he went on:-

"Again, the inclination of my opinion is that Miss Esme Ellison (the thief) was not a customer of the appellant (the jeweller), quoad the goods, the possession of which was handed over to her, within the meaning of the exception, though she may have stood to the appellant in relation of customer in other transactions. No doubt the appellant regarded the handing over of the jewels to her as ancillary to a possible sale of them to her pretended husband, but the idea of having any dealing of that kind with the appellant in reference to his jewellery never entered her head. From, the first she apparently designed and intended a theft. That was the nature of the only dealing she had in mind."

13. Likewise, in the case before me, the idea of any dealing other than theft never entered the minds of either of the two Filipinos, theft being their sole objective. My ruling, therefore, is that they were not "customers" for the purpose of the exclusion clause.

14. On the aspect of whether the property was "entrusted to them", my answer is that clearly it was not. The two men were only allowed to inspect the diamond under very close supervision. In the shop with them were Mr. Hui and three of his fokis. All the time that the diamond was being inspected, the electronic door was firmly closed. How in those circumstances one could conceivably say as a matter of ordinary common sense or common English usage that they were "entrusted" with anything, I fail to see. All that those two men were ever given was the barest custody.

15. That more than the mere parting with physical custody or bare possession is required for there to be "entrusting" can be discerned from the following passage in Viscount Haldane's speech in Lake v. Simmons at page 499:-

"Now the first of the questions is partly, at least, one of mixed fact and law, the interpretation to be placed on the application of the word 'entrusted' in the exceptions. 'Entrusted' is not necessarily a term of law. It may have different implications in different contexts. In its most general significance all it imports is a handing over the possession of some purpose which may not imply the conferring of any proprietary right at all. I hand my umbrella to a servant to enable me to be free of it while I am taking off my coat. In a very general sense I entrust him with the umbrella. But there is no easily definable bailment in such an instance. What I have really done is to divest myself of the embarrassing circumstance of holding it. Entrusting may, of course, introduce a bailment, conferring some definite but restricted proprietary right. It is a question, then, of the contract entered into. And whether there is such a contract depends on more than a bare parting with possession. To entrust to a customer or broker of 'broker's customer' as specified in the exception, means a definite contract." (my underlining)

16. There was not the glimmer of a contract of bailment or of any other sort between the Plaintiff and the two Filipinos so as to give rise to any "entrusting".

17. Viscount Sumner put the matter very succinctly at page 509 when he said in relation to the meaning of "entrusting" that if the insurers "..... intended no more than" handed over "they should have said so and the more plainly the better."

18. Further light on the meaning of "entrusted" in the exclusion clause is shed by considering the only other instance of the use of the same word elsewhere in the policy: Item No. 1 of Particulars of Risk in the Schedule is in the following terms:-

"THE PROPERTY INSURED AND PERILS INSURED AGAINST Jewellery, gold or silver oranments or plate, pearls and precious stones of any sort or kind whatsoever and/or other merchandise and materials usual to the conduct of the Insured's business and bank notes, whether the same be the property of the Insured or entrusted to him or them on sale or return or on approbation or for work to be done there on or for safe custody or for any other purpose whatsoever."

The type of activities encompassed by "entrusted" there - sale or return, on approbation, for work to be done thereon, for safe custody - all entail some type of contract of bailment involving far more than a mere handing over. The words "or for any other purpose whatsoever" beg the question about the meaning of "entrusted".

19. To my mind it is abundantly clear that the Exclusion Clause was never intended to cover the type of situation now before me.

Conclusion

20. In view of the foregoing, the Plaintiff is covered for the loss of its diamond under the Policy. There will, accordingly, be judgment for the Plaintiff in the sum of $275,550, being the value of its diamond. In addition, I award the Plaintiff interest at the rate of 15% in respect of that sum of $275,550 from the date of the issue of its writ till now. That rate of 15% is meant to represent the cost to the Plaintiff of being deprived of its money from the date of the issue of its writ which was the 15th November, 1980. Since then, interest rates have been at a high level, and 15% is a rough-and-ready figure which I have chosen to represent an average rate for that period.

Representation:

Mr. Patrick Chan (Robert Wang & Co.) for Plaintiff.

Mr. E.C. Mumford (Tsang, Chan & Sum) for Defendant.

(1) [1927] A.C. 487