Burwill Trading Ltd v. The Hongkong and Kowloon Wharf and Godown Co Ltd

HCA001275/1974

Coram: Zimmern, J.

Date of Judgment: 13 January 1978

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JUDGMENT

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1. The defendants are a well-known Hong Kong company carrying on business, inter alia, as wharfingers and warehousemen. The plaintiffs are, inter alia, importers of goods for sale as stockists or sold on indent to their customers and for many years have used the services of the defendants and stored their goods in the defendants' godown.

2. In or about 17th May, 1973 the plaintiffs received in Hong Kong from their sellers in Finland 52 cases 10.737 metric tons gross/9.885 metric tons net nickel cathodes ex m/v "ASUMA". Having obtained a delivery order for these 52 cases from the vessel's agents the plaintiffs by a letter dated the 14th May, 1973 requested the defendants to store the goods in their godown and to send a godown warrant. The defendants accepted the mandate, stored the goods in their godown No. 9 and sent the plaintiffs a godown warrant.

3. On the 17th May, 1973 the plaintiffs took delivery of 10 cases and on 14th August, 1973 another 10 cases, leaving as it were 32 cases in storage. By a letter dated 15th August, 1973 the defendants informed the plaintiffs with regret "that a careful check of your delivery documents acquitted by us had revealed that 30 cases from the above remaining 32 cases on storage in your name, were delivered from our premises on the 24th July, 1973 against a forged storage delivery order. This matter has been duly reported and placed in the hands of the Royal Hong Kong Police C.I.D. Tsimshatsui, Kowloon." The plaintiffs held the defendants liable for the loss, the defendants denied liability and the police never solved the crime.

4. On the 23rd May, 1974, the plaintiffs issued a writ against the defendants and by their Statement of Claim indorsed thereon claimed in effect detinue and damages. The defendants by their defence admitted that the loss of the 30 cases was through forgery of a delivery order presented by person or persons unknown but by reason of their conditions of business known to the plaintiffs, they were exempt from liability, alternatively their liability was limited. The plaintiffs by their reply boldly admitted that the By-laws and Conditions formed part of the contract of storage between the parties but on the facts of the case they contended that the defendants could not rely on them to escape full liability and that they the defendants were in fundamental breach. I shall go fully into these By-laws and Conditions after I have set out the facts as I find them from the evidence.

5. At all material times, the practice and procedure used by the defendants upon receipt of goods for storage at the request of customers may be outlined as follows:-

6. The defendants say they released the 30 cases of nickel cathodes stored at Godown No.9 against a forged delivery order on the 24th July, 1973. This loss was not discovered until on or about 15th August, 1973 when another loss not involving the plaintiffs came to light about that time. The forged order was in the possession of the defendants and after inspection by some of their officers and copies taken was handed over to the police who for some reason or another destroyed it before the trial of this action. A copy was exhibited at the hearing. The serial number on the order reads E No.44490 and the defendants proved that that delivery order form number had been issued to another company, namely, W.R. Loxley and Co. Ltd. and used by them for the release of 1 carton of whisky stored in Godown No. 16A on 23rd July, 1973. The defendants were unable to say and there is no evidence whether the lost form itself was stolen from the defendants and the serial number machine stamped later or whether the form itself was "privately printed". The purported signature of the plaintiffs on the order bore not the slightest resemblance to any one of the three specimen signatures of the three officers authorised to sign on behalf of the plaintiffs as shown on the specimen signature card in the possession of the defendants. Clearly, no attempt had been made to imitate any one of the three signatures. On the back of the copy of the order exhibited part of a storage counter chop came through well including the figure '9' on the column for the godown number, the date 23.7.73 and the authorising signature purporting to be that of Shiu Yiu Lam, one of the storage counter clerks authorised to sign. The Godown man's signature on the bottom part of the order which is appended after release of the goods was admitted to be genuine. There was a conflict of evidence between the officers of the defendants who saw the original order over the authorising signature of Shiu Yiu Lam. It was common ground between them that Shiu Yiu Lam signed delivery orders with a green felt pen. This is, of course, not discernable on the copy. Mr. John Terence Hung, Assistant Commercial Manager of the defendants in 1973 who was involved in the investigations when the matter came to light, said that the signature of Shiu on the original was not signed but an impression made by a chop. Instead of clean strokes there were smeared interruptions as if stamped. Mr. Shiu Yiu Lam, the counter storage clerk, who retired from the defendants in 1973 after 44 years service, said the signature was not his. Mr. Leung Ming, the 1st Grade Godown man of No. 9 Godown, another old time employee of the defendants, identified his own signature on the order and said he remembered well this lot of goods for he was sent for by the office two weeks after its release and recognised the signature of Shiu Yiu Lam and was satisfied with the order when presented. I am satisfied on the evidence that the signature of Shiu Yiu Lam was a forgery.

7. Inspector Ng Sheung Lok of the Royal Hong Kong Police Force said he investigated this loss in 1973 and the crime was not solved. Mr. Hung admitted under cross-examination that a colleague, Mr. A.M. Marques, Assistant Commercial Manager in Charge of the Warehouse had made a statement to the police that he, Mr. Marques, was "very certain that some of the Godown staff were involved in this fraud play". Mr. Hung himself thought Mr. Marques' opinion was fair but he himself was not certain. I make no finding on the issue whether the staff of the defendants charged with the safe custody of the 30 cases were involved in the loss or not. I do not need to for reasons apparent later. What then is the effect of the law on the facts?

8. At common law there can be no doubt on the facts of this case that the defendants, warehousemen for reward, are liable to the plaintiffs for the loss but Mr. Swaine, leading counsel for the defendants, argues that as the By-laws and Conditions of Business of the defendants (hereafter called the Conditions) formed part of the contract of storage between the parties, a fact admitted by the plaintiffs, that Condition 29 relieved his clients from any liability and if he were wrong in this then Condition 5 limited liability to the extent pleaded in paragraph 11 of the defence. On the question of fundamental breach he, relying on the the Suisse Atlantique Case ⁽¹⁾, says that whether exemption and limitation clauses were applicable where there was a fundamental breach or breach of a fundamental term was one of the true construction of the contract, but this doctrine applies only and only if the party alleging fundamental breach or breach or a fundamental term had accepted repudiation of the contract.

9. For the last proposition he relies in particular on part of the speech of Lord Upjohn at page 425 where he said:-

"If I am right in drawing this conclusion then the necessary result, in my opinion, is that the principle upon which one party to a contract cannot rely on the clauses of exception or limitation of liability inserted for his sole protection, is not because they are regarded as subject to any special rule of law applicable to such clauses as being in general opposed to the policy of the law or for some other reason but, just as in the deviation cases, it is the consequence of the application of the ordinary rules applicable to all contracts, that if there is a fundamental breach accepted by the innocent party the contract is at an end: the guilty party cannot rely on any special terms in the contract. If not so accepted the clauses of exception or limitation remain in force like all the other clauses of the contract."

10. Mr. Swaine says when the plaintiffs knew of the loss of the 30 cases on or about the 15th August, 1973, there were still 2 cases left in storage. The plaintiffs did not immediately or within a reasonable time thereafter accept the repudiation of the contract by withdrawing the 2 cases and refusing to pay the storage charges or paying under protest but instead had affirmed the contract by continuing to store these 2 cases until March 1974 and paying the storage charges therefor. In the premises Clauses 29 and 5 remained in full force and were not affected by any fundamental breach.

11. Clause 29 is an extraordinary clause containing some 440 words without a full stop till the very end. Counsel for the plaintiffs calls its verbiage applying to damage of goods caused by sea or other water only. This is perhaps a bit unkind but the clause is undoubtedly ambiguous. It comes under the heading "RESPONSIBILITY, MISCELLANEOUS" "29. Responsibility. (a)." The extract from it and relied on and pleaded by the defendants reads as follows: the defendants shall not be responsible for any loss caused by

"misfeasance, error in judgment, theft, forgery of any documents by means of which any unauthorised person obtained possession of the goods, negligence or default of the Company's servants including but not limited to stevedores, labourers, surveyors and tally clerks, the Company's agents and any other persons whether in any way acting for or under contract with or in the employ of the Company, or not."

12. Clause 5(a) under the heading "Limitation of Liability and Declaration of Value" reads as follows:-

"(a) The Company's liability, (if any), for the loss of, or injury or damage to any package or packed or unpacked unit of cargo or freight whether customary or otherwise and passengers' luggage and effects (hereinafter referred to as 'cargo') whether occurring during its receipt or custody or as a result of misdelivery by the Company shall not exceed HK$500.00 (or the market value whichever is the lower) per freight ton unless a higher value shall have been declared in accordance with sub-paragraph (d) of this Condition."

13. It is agreed between the parties that no higher value had been declared in accordance with the subsequent paragraph.

14. Mr. Mills-Owens, counsel for the plaintiffs, says neither of these two applies by reason of fundamental breach and he relies on Clause 49(b)(c)(d) under the heading

"DELIVERY OF CARGO AND RESPONSIBILITY". "49. Delivery" reading as follows:-

	(b) Any consignee who does not wish the Bill of Lading or vessel's agents' Delivery Order to be treated as a bearer document after endorsement by the vessel's agent or master as the case may be in accordance with the provisions of sub-paragraph (a) above may endorse thereon the words 'to storage only' above the vessel's agents' signature in which event no delivery will be made against the document. Cargo removed to storage will be held to the order of the consigned as storer and the consignee's signature will, provided the same is registered with the Company, be verified before delivery of the cargo so stored is made.
	(c) In the case of storage cargo the Company will deliver the cargo only on surrender to the Company of the appropriate Godown Warrant or a Storage Delivery Order. The Godown Warrant or Storage Delivery Order must purport to be signed by the duly authorised person(s) on behalf of the storer and where applicable the bank to whose order the cargo is stored. The failure of any storer to register with the Company the signature(s) of the person(s) authorised to sign on its behalf will release the Company from any obligation to verify the chops or signatures purporting to have been made by or on behalf of the storer.
	(d) The delivery of any cargo under sub-section (a),(b) or (c) above is subject to the following conditions and exceptions, namely, that the Company undertakes to verify the authenticity of endorsements or signatures on documents on condition that such endorsements or signatures must purport to be written in English by the party concerned or impressed with the Chinese chop of the party which must purport to be accompanied by the signature of a person or persons authorized to sign on behalf of the said party either in English style or in Chinese characters. The Company will compare the said endorsement signature or chop with the specimen of the same which the said party shall have supplied to the Company and shall be entitled to deliver the cargo against the delivery document if upon such comparison the said endorsement or the signature thereon appears on it to be genuine. The Company shall not be liable to the said party or to its bankers for any loss of, or damage to, the said package arising from the misdelivery thereof in consequence of any error of judgment or negligence of any of its employees in the making of the said comparison or the drawing of any conclusion therefrom, as to the authenticity of the said endorsement or signatures, and the production of such delivery document checked as aforesaid shall be conclusive proof that the cargo has been properly delivered by the Company and the Company shall have no responsibility for any misdelivery that may in fact have occurred. The Company shall be entitled to assume that the person presenting a delivery document as aforesaid is the person lawfully entitled to take delivery of the cargo. In the case of storage cargo the Company reserves the right to deliver any cargo only against the surrender of the Warrant."

15. The 30 cases having been released in the manner they were, the onus was on the defendants to prove that they were not guilty of fundamental breach of contract or breach of a fundamental term of the contract. (Levison and Another v. Patent Steam Carpet Cleaning Co. Ltd.⁽²⁾). This I find the defendants have completely failed to discharge. Clause 49 expressly covers the duties of both the defendants as warehousemen and the plaintiffs as customers in respect of delivery through acquittal of documents. "Cargo removed to storage will be held to the order of the consignee as storer and the consignee's signature will, provided the same is registered with the Company, be verified before delivery of the cargo so stored is made." The 52 cases were removed to storage and became storage cargo. The specimen signatures of those authorised to sign on behalf of the plaintiffs were at all material times registered with the defendants. "In the case of storage cargo the Company will deliver the cargo only on surrender to the Company of the appropriate Godown Warrant or a Storage Delivery Order. The Godown Warrant or Storage. Delivery Order must purport to be signed by the duly authorised person on behalf of the storer. The delivery of any cargo is subject to the following conditions and exceptions namely the Company undertakes to verify the authenticity of endorsements or signatures on documents on condition that such endorsements or signatures must purport to be written in English by the party concerned. The Company will compare the said endorsement, signature or chop with the specimen of the same which the said party shall have supplied to the Company and shall be entitled to deliver the cargo against the delivery document if upon such comparison the said endorsement or the signature thereon appears on it to be genuine." The defendants were in breach of their undertaking to verify the authenticity of what purported to have been the plaintiffs' authorised signature on the forged delivery order, which signature bore not the slightest resemblance to any one of the three specimen signatures registered with the defendants and therefore could not have been genuine. This breach of undertaking was a fundamental breach going to the very root of the contract and the defendants would not be allowed to rely on the exempting Clause 29 or the limiting Clause 5.

16. The statement of Scrutton, L.J. in Gibaud v. Great Eastern Railway Co.⁽³⁾, where he said:-

"The principle is well known, and perhaps Lilley v. Doubleday (7 Q.B.D. 510) is the best illustration, that if you undertake to do a thing in a certain way, or to keep a thing in a certain place, with certain conditions protecting it, and have broken the contract by not doing the thing contracted for in the way contracted for, or not keeping the article in the place in which you have contracted to keep it, you cannot rely on the conditions which were only intended to protect you if you carried out the contract in the way in which you had contracted to do it."

is apposite. Here the defendants undertook to verify the plaintiff's authorised signature on the delivery order before permitting delivery of goods and completely failed to do so.

17. I think Mr. Swaine fully appreciated the difficulties he was in hence his reliance on affirmation of the contract, but in my view this argument fails for certainly two reasons. First, the contract of storage of 52 cases was not an entire contract in the sense that the plaintiff were bound to take delivery of 52 cases at the same time. They were entitled to under the contract and they did take delivery in lots. There were 10 cases on the 17th May, 1973, then unbeknown to them of the loss of 30 cases, another 10 cases on 14th August, 1973. When they knew of the loss about a day later there were 2 cases left in storage. In my view and I so hold on all the circumstances of this case the breach of undertaking by the defendants was not a repudiation of the whole contract but a severable breach in respect of the 30 cases only, and the plaintiffs did accept this repudiation. No storage charge was paid for these 30 cases. Second, even if Clause 29 and Clause 5 were applicable neither was drawn wide enough to cover this breach of undertaking. In respect of the general exempting Clause 29 the loss was not caused by any of the reasons set out in paragraph 4 of the defence but by the failure of the defendants to verify the signature on the delivery order which the defendants had in particular expressly bound itself to do under Clause 49. As for the limiting Clause 5 in all the circumstances of this case "loss as a result of misdelivery" is not enough to catch a loss sustained through a breach of undertaking. I mention in passing the law in England as it stands at present is that "the fact that there had been a fundamental breach of contract meant that the defendants could still rely on it to defeat the exemption clause even though they had affirmed the contract". (Wathes (Western) Ltd. v. Austin (Menswear) Ltd.⁽⁴⁾) At page 25, Sir John Pennycuick puts it thus:-

"The current of authority has now set, as I read the cases in favour of the view that where a contract is affirmed after fundamental breach an exemption clause is treated as inapplicable to liability resulting from the breach, not upon a substantive principle of law but upon construction, the clause being construed, in the absence of some plain indication of a different intention as by implication inapplicable to such liability."

18. For the reasons given the plaintiffs succeed on their claim and as the value of the 30 cases lost have been agreed at $104, 279 there will be judgment for the plaintiffs in that sum with interest at 8% per annum from the date of knowledge of loss, i.e. 15th August, 1973 to date of judgment with costs.

Representation:

Mills-Owens(J.S.M.) for the plaintiffs.

Swaine Q.C. and Edward Chan (Deacons) for the defendants.

(1) (1967) 1 A.C. 367.

(2) (1977) 3 W.L.R. 90.

(3) (1921) 2 K.B. 426 at 435.

(4) (1976) 1 Lloyd's List L.R. 14.