Mr Justice Gross :
INTRODUCTION
- In the early evening of Sunday 10th February, 2002, some 25,738 Samsung A300 mobile telephones, belonging to the Defendant ("SEUK"), were stolen from the warehouse facility of the Claimant in Hayes ("the theft", "FM" and "the warehouse", respectively).
- The action commenced as a claim by FM against SEUK in respect of unpaid invoices for services rendered during the period 1999-2002. In the event, SEUK submitted to summary judgment under CPR Part 24 in respect of the FM claim, in the amount of £404,434.17, exclusive of interest and costs. Accordingly, the trial before me was solely concerned with SEUK's counterclaim to recover upwards of £2 million arising from the theft.
- The principal issues at the trial were as follows:
i) What, if any, standard terms governed the relationship between SEUK and FM? ("Issue (I): Terms")
ii) Was any oral agreement entered into between SEUK and FM and, if so, what, if any, impact did it have on the terms governing their relationship? (" Issue (II): Collateral contract")
iii) In what circumstances did the theft take place? ("Issue (III): The theft")
iv) Was FM liable to SEUK in respect of the theft? ("Issue (IV): Liability")
v) Was any liability of FM to SEUK limited by the terms governing their relationship? ("Issue (V): Limitation of liability")
vi) If the liability of FM to SEUK would otherwise be limited by the terms governing their relationship, did such terms satisfy the reasonableness requirement of UCTA? ("Issue VI: UCTA")
vii) Limitation apart, what is the true quantum of SEUK's loss? ("Issue (VII): Quantum").
- In very broad outline, the rival cases were as follows. For SEUK, Mr. Jacobs submitted that the relationship between SEUK and FM was one of bailment; by reason of confusion on the part of FM, no standard terms governed the bailment. In any event, an oral agreement had been entered into between SEUK and FM, of which FM was in breach, providing for on site security guards. That oral agreement operated as a true collateral contract, so that even if any standard terms would otherwise have been applicable, these were displaced by the oral agreement. The theft had been an inside job caused by the wilful default of an employee(s) of FM for which FM was vicariously liable and by the negligence of FM its servants or agents. Even if any standard terms were applicable, they did not serve to exclude the liability of FM for the theft. Given the wilful nature of the breach of duty, FM was not entitled to limit its liability; the relevant provisions (if applicable at all) did not apply to the dishonesty of employees or ex-employees of FM. If FM would otherwise have been entitled to limit its liability, any such terms failed to satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977 ("UCTA"), the burden resting on FM to establish reasonableness. SEUK was entitled to some £2.6 million by way of damages.
- For FM, Ms. Hilliard accepted that there was indeed a bailment relationship but it was a bailment on standard terms, namely, those of the British International Freight Association ("BIFA"), alternatively those of the United Kingdom Warehousing Association ("UKWA"). No oral agreement for the provision of on site security guards had been concluded between the parties but, if there was such an agreement, it did not serve to displace the standard terms otherwise applicable. FM disputed that the theft was an "inside job"; but, even if it was, FM was not vicariously liable for those who had connived at it. While FM accepted some negligence on its part with regard to the security of the warehouse, such negligence was not causative of the theft or the loss. In the circumstances, liability was denied or excluded. In any event, FM was entitled to limit its liability in accordance with the provisions of BIFA or UKWA as the case may be; whichever terms were applicable, they satisfied the reasonableness requirement contained in UCTA. If, however, FM was not entitled to limit its liability, nonetheless the quantum of SEUK's (counter)claim was to be significantly reduced.
- As to witnesses of fact, SEUK called Messrs. Graham, Elliot, Bartlett and Murphy; FM called Messrs. Harrowing and Roberts. Expert evidence was given by Mr. Gill (together with some factual evidence), called by SEUK and by Mr. Hack, called by FM.
- By way of further introduction to the principal witnesses of fact, the key SEUK witness was Mr. Graham. He was a supply chain manager with SEUK; his responsibility, commencing at and from the port of arrival in the United Kingdom, was to ensure that the import process relating to SEUK's products ran smoothly. Mr. Eliot was an operations manager at SEUK and reported directly to Mr. Graham; his principal responsibility concerned the delivery of goods to customers. Mr. Murphy became financial controller of SEUK in March 2000; at all material times Mr. Graham reported to him.
- As to the FM "camp", Mr. Harrowing was the company secretary of FM. Mr. Roberts was, from May 2001 until November 2002, the General Manager at the warehouse. For completeness, a Mr. Ferguson, who features from time to time in the events in question was and remains an FM employee at the warehouse but was not called to give evidence.
- As will become apparent, it was a feature of this case that the factual evidence of both parties needed to be approached with considerable caution. As to the SEUK witnesses, Mr. Bartlett's evidence was, in the event, not of any particular consequence. There was no suggestion that Messrs. Graham, Elliot or Murphy were other than honest witnesses; but in my judgment, in important respects, each was mistaken – no doubt the product of persuading themselves of certain matters after the shock of the theft. With regard to the FM witnesses, Mr. Harrowing was undoubtedly honest, if from time to time prone to unnecessary if understandable defensiveness. Mr. Roberts, I regret to say, was an unreliable witness whose evidence was at least in part untruthful. Save where supported by other evidence or objective probability, I could not place reliance on Mr. Roberts' evidence.
- Both experts sought fairly to assist the Court. Each was to some extent at least sub-consciously influenced by the perspective of the party calling him, Mr. Gill perhaps more so, possibly due to his commercial involvement with SEUK. It is therefore appropriate to proceed cautiously here too. However, in this regard, the common ground between the experts proved more significant than any unintended partisanship.
- I observe in passing, as I was told, that SEUK is advancing a largely subrogated (counter)claim. As I understood the position, FM's insurers have reserved their position. Without more ado, I turn to the principal Issues.
ISSUE (I): TERMS
- (1) Introduction: As foreshadowed, Mr. Jacobs contended that no standard terms were applicable to the relationship between SEUK and FM. This was because such notice as had been given of BIFA and UKWA terms was so confusing, inconsistent and uncertain that neither set of terms should be held to apply. In any event, Mr. Jacobs went on to submit, the contractual relationship between SEUK and FM was, at least at the material time, governed by an Agency Agreement dated December 2000, entered into between FM on the one hand and Tolos Co. Ltd. ("Tolos"), acting as agent for SEUK on the other ("the Tolos agreement"). The Tolos agreement did not incorporate either the BIFA or UKWA terms. It was not in dispute that there had been a bailment of the telephones (stolen in the course of the theft) by SEUK to FM. By whichever route, it was Mr. Jacobs' submission that FM's duties were to be determined by common law and statute and not by reference to the standard terms and conditions of either BIFA or UKWA.
- Miss Hilliard's response was that there was no uncertainty or confusion; the BIFA terms were applicable but, if wrong about that, then the UKWA terms applied. The SEUK case on the Tolos agreement was misconceived; that agreement was no more than a principal to principal agreement between agents.
- Before proceeding further, the reaction of commercial men on both sides is instructive. The cross-examination of Mr. Graham (of SEUK) included the following exchange:
" Q. You would be well aware, would you not, that freight forwarders and people in a similar type of distribution business routinely transact on standard terms ?
A. Yes, I would.
…..
Q. If you disagreed with the terms applying or if your superiors disagreed with the terms applying they would have simply taken their goods elsewhere and found someone who was not relying on BIFA terms?
A. It is not as straightforward as that. It is not like being able to decide 'we do not want to trade under these terms and conditions with you because you want to apply them'. All logistics companies apply them or try to apply them…."
- In his evidence, Mr. Harrowing (of FM) said this:
" Going back to basics, the whole point is that no freight forwarder or haulier in their right mind would operate without standard trading conditions in place, because you simply do not know the value of the goods. On all of our standard trading conditions whether they are BIFA, UKWA, RHA or what ever, it is all based [on] weight not on value …."
- It is plain to me from the tenor of the evidence of the commercial men on both sides (whatever Mr. Graham's hopes as to a full recovery in the event of a claim), that a conclusion that no standard terms applied would come as a distinct surprise. Nonetheless, mistakes do happen and the burden rests on FM to make good its case that any standard terms governed the bailment. If it fails to do so, then indeed its duties in respect of the bailed goods fall to be determined at common law and, so far as relevant, statute. Moreover, the question of whether any standard terms are applicable must be determined objectively. I turn to the history of the relationship between SEUK and FM.
- (2) The history of the relationship: The relationship between the parties went back some 14 years; there was a rupture in the course of 1998 but that proved temporary.
- On the 30th November, 1998, FM sent to SEUK a document setting out its "Import Documentation and Handling Charges"; at the foot of the page, the document stated:
" All transactions handled in accordance with standard trading conditions of British International Freight Association (1989 Edition)"
By letter dated 2nd December, 1998, SEUK wrote to FM confirming that FM had been appointed as SEUK's sole agent to handle all air shipments with effect from that date. Thereafter, by letters dated 3rd and 16th June 1999, new arrangements and charges were agreed; the document containing the list of (amended) charges contained the same statement as to the applicability of the BIFA terms. Subsequently, as Mr. Graham said in his evidence, FM would probably have sent SEUK "thousands" of invoices, all of which again contained the same statement as to BIFA terms.
- On the 3rd August, 2001, in a letter to Mr. Graham ("the 3rd August letter") following a meeting held on the 17th July, 2001 ("the 17th July meeting"), to both of which I shall return, Mr. Roberts, of FM, said this:
"We take this opportunity to confirm that all cargoes are carried by us under the BIFA 2000 Standard Trading conditions, a copy of which can be provided if required…."
There followed a reference to the position of FM's nominated "delivery agent" which is not as clear as would have been desirable but is ultimately, I am satisfied, immaterial for present purposes. In his evidence, Mr. Graham accepted that even if prior to the 3rd August letter he had been unsure as to the terms on which FM would be relying, from that date he did know. While it is true that there is no document from SEUK formally "accepting" the applicability of the BIFA terms, it is also the case that there is no document, at least prior to the theft, challenging their application. Nor, as already foreshadowed, did SEUK seek to take its business elsewhere.
- So far, all the references have been to BIFA terms; next, however, the UKWA terms come to be mentioned. On the 17th August, 2001, Mr. Harrowing wrote to Mr. Flanagan, of AON Marine ("AON"), the brokers, who had been charged with preparing the minutes of the 17th July meeting; as it happens, the minutes were never finalised. At all events, Mr. Harrowing said this:
"…The only point that I think has been omitted and which I would like included, is the comment I made at the very end of the meeting when I mentioned the fact that we have standard trading conditions of BIFA, RHA or UKWA as appropriate. I would like this to be incorporated into the minutes."
Curiously, there was some dispute in this regard. Mr. Graham's evidence was that there had been no discussion of terms at the 17th July meeting. It is, in the event, unnecessary to resolve that clash of evidence. It is, however, common ground that Mr. Graham knew nothing of Mr. Harrowing's letter to Mr. Flanagan until after the theft. Cross-examined as to what he meant by the use of these trading terms "as appropriate", Mr. Harrowing said that the BIFA terms were used for "transit movements" and the UKWA terms for "storage accounts"; he added, for reasons to which I shall come, that he was not sure that there was a storage account here.
- Further as to UKWA, by letter dated 28th September, 2001 (a Friday), Mr. Ferguson, of FM, wrote to Mr. Graham, as follows:
" May we please confirm that the operation of warehousing/ deliveries of your mobile phones/ lap top computers will be undertaken on the conditions of the United Kingdom Warehousing Association which has a maximum liability for losses or damages of GBP100.00 per tonne and the road haulage will be in accordance with RHA conditions of 1998 with a liability of GBP 1300.00 per tonne.
Please confirm your acceptance of these terms."
On the same day, Mr. Elliot (of SEUK) faxed back, saying: "Accepted. (Subject to review on 1st October 2001)". No review ever took place. In the event, Mr. Graham was not in the office on the 28th September and his evidence, which I accept, is that he did not see this exchange (for whatever reason) until after the theft.
- Matters do not end there. On the 17th October, 2001, Mr. Roberts e-mailed Mr. Graham as follows:
" Subject: Conditions of trading
Paul, just to confirm your conversation earlier with Ian [Ferguson], the conditions that we are trading under will be BIFA a copy of which you already have. Should you need a further copy please do let me know.
Can you, please confirm your agreement and understanding of this."
On the next day, Mr. Graham e-mailed in reply that he had mislaid his copy of BIFA terms and asked for another copy to be sent to him. From this exchange, it is apparent that Mr. Graham must previously have had a copy of the BIFA terms. Further, Mr. Graham accepted in cross-examination, that in his e-mail of the 17th October, Mr. Roberts had been telling him "in no uncertain terms" that FM traded on BIFA terms. Once again, Mr. Graham did not voice any objection.
- I have earlier referred to the distinction drawn by Mr. Harrowing between "transit movements" and "storage accounts"; in his understanding, BIFA terms applied to the former and UKWA terms to the latter. This distinction necessitates a somewhat more intense consideration of the true nature of the bailment of the telephones at the time of the theft. It will be recollected that the goods were at the time in what for convenience I have termed "the warehouse". The warehouse was in fact an Enhanced Remote Transit Shed ("ERTS"), approved by HM Customs & Excise ("C&E") by Deed dated 27th March, 2000. The effect of such approval is that goods can be transferred directly from the aircraft to the ERTS and that customs formalities can be dealt with there; by this means, those interested in goods can avoid leaving them within the air carriers' expensive storage facilities. Furthermore, the goods can be re-packaged at the ERTS while awaiting customs clearance so that they would be ready for immediate dispatch following such clearance. Here, C&E were satisfied that FM's procedures would ensure that appropriate duty would be paid. Accordingly the warehouse operated as an ERTS. Putting the matter neutrally (there was some dispute about this in a different context), the goods would usually be transferred out of the warehouse (or ERTS) within a matter of days. As Mr. Graham agreed in cross-examination, an ERTS is not a true storage warehouse; it is instead intended to provide a short transit lounge for goods. It was both common ground and noteworthy that FM made no charge for storage in the warehouse (or ERTS) – the reason being that, so far as FM was concerned, this was not a storage account.
- (3) Provisional conclusion: In the light of the history and factual context set out above and subject only to the question of the Tolos agreement, my conclusion as to the applicability of any standard terms can be summarised as follows:
i) As with many commercial relationships, that between SEUK and FM is not embodied or recorded in a manner recommended by legal textbooks. The task of the Court, however, is to work with the available material so as to give effect to commercial agreements, insofar as it is possible to do so, in accordance with the true intentions of the commercial parties, objectively ascertained.
ii) The relationship between SEUK and FM can be analysed as involving either (1) an over-arching general agreement for FM to act as SEUK's agent entered into in December 1998, as amended in June 1999, for FM to carry out services until further notice, pursuant to which FM became bailee of SEUK's goods from time to time; or (2) separate individual contracts on each occasion FM handled a consignment of goods and became the bailee thereof. My inclination is to prefer (1) to (2) but, for present purposes, it matters not. On either view there was a contractual bailment and there can be no doubt that FM did what was reasonably sufficient to give SEUK notice of the BIFA terms; as is clear on the evidence, thousands of invoices made reference to the BIFA terms; on no occasion did FM protest. In all the circumstances, prior to the assertion of the UKWA terms in July – September 2001, I would have no hesitation in concluding that the BIFA terms governed the bailment by FM of SEUK's goods whether – again it matters not –those terms were accepted by conduct or incorporated by way of a course of dealing.
iii) The difficulty here is introduced by SEUK's assertion that the UKWA terms applied. On analysis, however, I remain of the view that the BIFA terms governed the generality of the relationship between SEUK and FM and, in any event, the bailment of the telephones at the time of the theft. First, so far as temporal considerations go, assuming that the UKWA terms supplanted the BIFA terms for the period 28th September – 1st or even 17th October, 2001, that interlude was itself overtaken by the Roberts – Graham exchange of 17th – 18th October, 2001, restoring the status quo ante. Secondly, as to functionality, by reason of the nature of the ERTS, I am in any event persuaded that the BIFA terms are applicable (rather than UKWA) because the bailment of the telephones at the time of the theft was more in the nature of a transit movement or operation than a true storage.
iv) It follows further from this analysis that if I was wrong as to the applicability of the BIFA terms, then the UKWA terms would have governed the parties' relationship from the 28th September, 2001 onwards and the bailment at the time of the theft. The manifestly uncommercial conclusion that no standard terms applied is not one to which I would come unless driven to it. I do not think I am; the present case is far removed from the uncertainty or meaninglessness found in Lovelock v Exportles [1968] 1 Lloyd's Rep. 163. I am further satisfied that there was no true confusion here. The most that can be said is that FM was subjectively reluctant to over-emphasise the standard terms on which it intended to rely for fear of jeopardising an important customer relationship and SEUK was, again subjectively, reluctant to acknowledge the standard terms which it knew were intended to apply in order to preserve some plausible room for manoeuvre in the event of a claim. But, objectively, both parties in my judgment must be taken as intending that standard terms would apply to their relationship and that those terms were the BIFA terms.
All this is a provisional conclusion only and subject to the argument as to the Tolos agreement.
- (4) The Tolos agreement: A number of matters are here common ground or not seriously disputable. First, that Tolos acted as SEUK's agent to represent its interest in relation to the transport of goods from South Korea to the United Kingdom. Secondly, that FM and Tolos entered into the Tolos agreement. Thirdly, that the terms of the Tolos agreement, which it is unnecessary to set out, are inconsistent with BIFA or, for that matter, UKWA terms. Fourthly, that the Tolos agreement was still extant at the time of the theft.
- Thus far I can go with Mr. Jacobs' argument. But the key question remains: did the Tolos agreement govern the bailment relationship between SEUK and FM, or was it no more than a principal to principal agreement between Tolos and FM, governing their relationship inter se? I confess to having no real doubt that the latter is correct and I am therefore unable to accept Mr. Jacobs' argument on this topic.
- To my mind, the matter is apparent from the preamble of the Tolos agreement onwards. Both parties were involved in handling SEUK goods and, as the preamble records, they agreed:
"… to act as agents for each other in their respective country in undertaking the operations of multi-modal transportation by air…."
- Try as Mr. Jacobs did, I can find nothing in the terms of the Tolos agreement inconsistent with this analysis. The Tolos agreement provided that the parties were each to act as agents for the other, inter alia, in connection with the collection, custody and charge of the cargo (Art. 3.2), that FM would handle claims against air carriers (Art. 3.8), for settlement of accounts between them (Art. 5) and for each to be liable for claims made against itself by third parties (Art. 6). Notably, Art. 6.2 provided that in respect of third party claims against either agent, those liabilities "shall be limited as stipulated in the forwarding conditions" – thus, to my mind at least, suggesting that some conditions other than the Tolos agreement governed the "forwarding" of goods. Instructively too but readily explicable on this analysis, the tariff accompanying the Tolos agreement carried the statement that "All transactions handled in accordance with standard trading conditions of …[BIFA 2000]…".
- Mr. Jacobs sought to make some play with his cross-examination of Mr. Harrowing in this regard. But, properly considered, I do not think that these passages in the evidence carried the matter any further. As it seemed to me, no commercial man, from either SEUK or FM, thought that the Tolos agreement governed the relationship between SEUK and FM. For his part, Mr. Graham, strikingly in the light of Mr. Jacobs' submissions, had not focussed on Tolos at all prior to his cross-examination. In his evidence, Mr. Graham went on to say that:
"Frans Maas were our agent in the UK and Tolos were Samsung's agent in Korea."
I agree with that summary; but even if Samsung (the Korean company) can be equated with SEUK, I do not think that the Tolos agreement ever went beyond an agreement between agents as to their relationship.
- (5) Final conclusion: Having considered and rejected Mr. Jacobs' submissions as to the Tolos agreement, my provisional conclusion becomes final; the relationship between SEUK and FM was governed by BIFA terms, as amended from time to time. If that be wrong, then the UKWA terms applied to the SEUK – FM relationship at the time of the theft.
ISSUE (II): COLLATERAL CONTRACT
- (1) Introduction: The first question which arises under this issue goes to the nature and scope of any oral agreement entered into between Mr. Graham, on behalf of SEUK and Mr. Roberts, on behalf of FM. As will be seen, the oral evidence went through a degree of evolution. In these circumstances, some initial point of reference is helpful; I take mine from the witness statement of Mr. Graham, SEUK's key witness on this question:
"35. Within a few weeks [of the 10th August, 2001] we had a similar situation arising with a large volume of stock and Martin Roberts phoned me again. Martin Roberts explained that Frans Maas did not have facilities to accommodate security guards outside the building over the weekend. We also discussed that given the increases in volume this situation was likely to arise more frequently. Martin Roberts and I agreed that in future if high value goods had to be stored over the weekend then he would arrange for his employees to remain on site as a means of providing additional security when the facility was otherwise closed. Martin Roberts and I considered that the weekend would be the period of highest risk and that the deployment of staff at night and weekends would act as a deterrent to anyone considering targeting SEUK goods.
36. It was as a direct result of Martin Roberts' commitment to provide staff to cover out of normal work periods that SEUK were content to continue to use Frans Maas. There was no arrangement whereby SEUK would have to make a specific request on each occasion before the extra security was put in place. Frans Maas knew when large values of stock would be at their facility over a weekend. The arrangement was very straightforward; that whenever the situation arose, Martin Roberts would be responsible for ensuring members of his staff would remain on site, without the requirement of seeking prior agreement from me or anyone else at SEUK.
37. We did not discuss what particular value would justify extra security, this was a matter of Martin Roberts' judgment, which I trusted...We never discussed Frans Maas making an extra charge. In my view it was their responsibility to arrange and pay for the extra security."
(Emphasis added.)
- Though FM admitted that oral agreements had been entered into for the provision of on site security guards on two specific occasions, FM denied the existence of any agreement such as that alleged by SEUK. In particular, FM's challenge to the agreement as alleged by SEUK focussed on (1) its open ended nature; (2) its placing the initiative on FM to take action of its own accord; (3) the commitment entered into by FM to provide such security at its own expense; and (4) not least, especially as the evidence unfolded, the uncertainty of its terms.
- If SEUK succeeded in establishing the oral agreement for which it contended, then the question which next arose was whether the agreement took effect as a collateral contract, strictly so-called. It was common ground that on the night of the theft no guards of any description were present at the warehouse. SEUK's case is that this absence of guards constituted a breach of the collateral oral agreement, entitling it to claim damages for the theft unconstrained by the BIFA or any standard terms held applicable to the bailment. FM's case is that even if (which it denied) an oral agreement for the provision of on site security guards had been entered into as alleged by SEUK, this agreement simply went to the mode of its performance of its obligations as bailee and remained subject to the BIFA terms.
- I turn to the evidence as to the nature and scope of any oral agreement(s) entered into.
- (2) The history: By way of background, SEUK was a very dynamic and fast-moving company. In 2001, SEUK's volume of sales was rising. It was a busy period. There were also increased concerns as to theft and security at the warehouse. Such concerns were in the event heightened by the major theft (or robbery) on the 26th June, 2001, of some £3 million worth of Nokia mobile telephones, from a warehouse in the Heathrow area, accompanied by terrifying threats of violence to warehouse personnel, who had been doused in petrol.
- At all events, on the 4th June, 2001, Mr. Graham wrote to Mr. Ferguson (of FM) as follows ("the 4th June letter"):
" Regrettably Samsung Electronics have suffered a number of in transit losses over the past few weeks. Consequently, I am reiterating our insurers additional requirements regarding the movement of mobile phones (and TFT Monitors) specifically.
These are as follows:
[1-6 dealt with requirements as to vehicles and drivers]
7. When warehoused these goods must be kept in a secure or caged area.
Please confirm your compliance or otherwise with the above conditions. I require this confirmation in writing please."
- No reply had been received by the time a meeting took place on the 26th June, attended by Mr. Graham, Mr. Roberts and Mr. Ferguson. Mr. Graham in fact knew that FM did not have a secure or caged area at the warehouse but also knew from AON, that SEUK's insurers ("AIG") required the same. There was some uncertainty as to AIG's precise requirements, so the matter was left for SEUK to establish what those were. In the event the detailed specification of those requirements was made clear by an e-mail dated 16th July, 2001, from AIG to AON, only produced to SEUK and FM at a meeting held on the 17th July, to which I turn next.
- The meeting on the 17th July, 2001 ("the 17th July meeting") took place at the warehouse. Amongst others present were Mr. Graham representing SEUK, Mr. Harrowing and Mr. Ferguson representing FM and Mr. Flanagan representing AON. The draft minutes of the meeting identify its purpose as follows:
" Meeting called as part of the ongoing service to Samsung Electronics – with specific reference to security requirements relative to goods in transit/ warehousing for target goods including but not limited to mobile telephones, plasma screens, personal CD players laptops etc etc"
- As appears from the draft minutes, the meeting discussed AIG's definition of a secure area and the matter was left on the basis that Mr. Flanagan would arrange for an AIG surveyor to visit the warehouse in order to check security levels.
- FM, it may be noted, was not entirely passive in this regard; on the 25th July and before the draft minutes had been circulated, Mr. Harrowing sent an internal memorandum to Mr. Roberts (who had not attended the meeting) suggesting that as "they" had been very strong on the need for a secure area, Mr. Roberts should perhaps obtain some quotations for a cage.
- The draft minutes further record that Mr. Harrowing requested guidance as to what was to happen in an emergency situation, i.e., when AIG's requirements could not be met. Mr. Flanagan's response was as follows:
"…underwriters would expect in such circumstances that all hauliers/ warehouse keepers etc display a high level of initiative in order to provide a best possible solution taking into account the nature of the goods concerned – for example and on reflection it would not be unreasonable to expect Frans Maas or other suppliers to incur some additional cost on their part in order to safe guard these highly attractive goods."
- Although the draft minutes were never finalised, save for the question as to whether Mr. Harrowing mentioned the topic of standard terms, there has been no dispute as to the accuracy of their contents.
- Mr. Harrowing's own notes of the meeting, which he regarded as an aide memoire, contain certain additional comments, meriting mention.
i) First, he had pointed out that FM could not sign the letter of compliance (i.e., the 4th June letter) without considerable further clarification. That is consistent with the manner in which the draft minutes record that the issue of the cage was left.
ii) Secondly, Mr. Harrowing noted that the AIG definition of a secure area did not require static guards; Mr. Flanagan had confirmed that that was the case. This is not a matter which featured in the draft minutes. Mr. Harrowing was understandably cross-examined at a little length as to whether he had indeed said this. Although Mr. Harrowing was admittedly concerned after the theft as to the status and contents of the minutes and did not, even then, mention this point, I cannot accept that he did not say this at the time. The reason is that these notes accompanied Mr. Harrowing's internal memorandum to Mr. Roberts of the 25th July, 2001 (see above); at that time, the question of security guards was not controversial. It is therefore unlikely that he would have made mention of security guards unless something had been said on the topic. There was, moreover, no suggestion (as I understood it) that his internal memorandum of 25th July had been backdated.
iii) Thirdly, Mr. Harrowing's notes record a summary from Mr. Ferguson of the length of time that goods typically remained in the warehouse:
" As far as FM … are concerned they usually have the cargo cleared but rarely delivered the same day. Not always. Sometimes there are delivery problems which mean that FM.. have to provide warehouse space pending delivery instructions.."
It is convenient at this stage to note that, as appears from Further Information supplied by FM, during 2000, approximately 20% and, during 2001, approximately 10% of goods would leave the warehouse on the same day as arrival; the majority of the remainder would leave within 24 or 48 hours of arrival.
- I come next to the 3rd August letter, previously mentioned in the context of the debate as to terms and, as will be recalled, sent by Mr. Roberts to Mr. Graham. For present purposes, it is material to note the following passages in this letter:
" Re: Theft attractive products
Paul, I refer to the recent correspondence and subsequent meeting to discuss the requirements in the handling and transportation of Samsung's 'theft attractive' [high value] cargo and can confirm that the following will be .. actioned in the movement of the said cargo(s).
7) Currently there is no segregated 'caged' area in which to hold 'theft attractive' [high value] Samsung product. Currently our complete warehouse is a secure unit with 24 Hour CCTV monitoring. We are currently evaluating and budgeting for an individual protected area where these cargoes could sit, if required."
The italics in the square brackets are added; there was uncertainty at the hearing as to which, if any of the drafts in the bundles, represented the final version of the letter; it appears likely that the italicised wording, "high value" replaced the wording "theft attractive" in the final version.
- Before leaving the 3rd August letter, it is fair to observe that the documentary trail on the "caged area", thereafter goes cold. As will be seen, Mr. Jacobs placed considerable emphasis on this feature and suggested that the explanation lay in the idea of a cage being overtaken by the open-ended oral agreement for which he contended as to the provision of on site security guards. Suffice to say for the moment, that Mr. Roberts disputed this interpretation; FM had made some inquiries as to caging but no decision could be reached as to what precisely was needed in terms of the size of the cage.
- On the 10th August, 2001, it is common ground that Mr. Graham and Mr. Roberts entered into an oral agreement ("the 10th August agreement"). Though there is no contemporaneous note of the agreement, there is no real dispute as to its essence. Mr. Roberts telephoned Mr. Graham to tell him that a large consignment of stock might remain in the warehouse over the forthcoming weekend. By virtue of the history already summarised, Mr. Graham was concerned. He asked Mr. Roberts to obtain security guards. For various reasons, Mr. Roberts was not attracted to the idea of engaging outside security guards. In the event Mr. Roberts then agreed that two of his own warehousing staff would remain on site. There was no requirement that SEUK should pay for these personnel. It is plain that the agreement was specific or limited to the stock and the weekend in question. FM's failure to implement the 10th August agreement raises very separate questions to which I shall come in due course.
- (3) The central dispute: It is common ground that a second conversation took place between Mr. Graham and Mr. Roberts in which an agreement was concluded as to the provision of on site security guards. The scope of that agreement was in sharp dispute.
- As to the timing of this conversation, neither Mr. Graham nor Mr. Roberts could be precise. Mr. Graham put it at some 2-4 weeks after the 10th August agreement. Mr. Roberts could not remember when it was, though he did remember talking to Mr. Graham in late September.
- As to the goods to which any such agreement related, Mr. Graham's witness statement, it will be recalled, had referred to "high value" goods. Asked in cross-examination as to the meaning of "high value" goods, Mr. Graham answered "mobile phones". As to how many would need to be in stock for the agreement to apply, Mr. Graham said that no precise number had been agreed but he was relying on FM.
- Mr. Roberts' witness statements refer to "high value" goods. In cross-examination, however, he suggested that all his discussions with Mr. Graham were limited to mobile telephones. As to what would constitute "high" value, Mr. Roberts accepted in cross-examination that mobile telephones with a value above £500,000 would amount to a "high" value consignment.
- As to when the agreement would apply, though Mr. Graham's witness statement contains a reference to "at night", the particular focus related to weekends. In cross-examination, however, Mr. Graham was somewhat less sure; albeit that he had a particular concern as to weekends, he agreed that it made no sense for the agreement (if such there was) to be restricted to weekends; there could be other occasions when high value goods were stored overnight at the warehouse.
- The essence of the dispute lies with the true scope of the agreement reached in this second discussion. The nature of the rival cases has already been summarised. Mr. Graham's witness statement adequately summarises his evidence in this regard. Mr. Roberts' response best appears from the following passage in his cross-examination:
"Q. I am just suggesting to you that given that this was a theme developing through the summer of 2001, of increased volume of goods in your warehouse, there was simply no need for you and Mr. Graham to have a discussion every time this problem arose?
A. I think there was a definite need because somewhere there was going to be costs that needed to be sorted.
Q. The first agreement [i.e. that of the 10th August] was that you would –
A. Help Samsung out, correct.
Q. –you would pay for the costs.
A. We would help Samsung out.
Q. As Mr. Murphy explained, it is obviously to your benefit to have lots of goods going through your warehouse because that increases your revenue?
A. I will happily clarify that for you…We charge Samsung £16.50 for processing a customs entry. It does not take a genius to work out how many customs entries we would have to process to cover the cost of £80,000 for 3 months' security cover.
Q. …there was no need for you and Mr. Graham to have repeated agreements every time the problem arose given the fact that it was a recurrent problem?
A. I think there was every need. That is why we had the conversations.
Q. …what Mr. Graham and you agreed was that in future, if high value goods had to be stored, then [you]..would arrange for ..[your] employees to remain on site… as a means of providing additional security when the facility was otherwise closed?
A. I am afraid that is incorrect.
Q. The point of difference is a very narrow one between you and Mr. Graham, namely, you do not agree with the words 'in future'. Is that right?
A. …Correct."
- (4) Thursday 27th – Friday 28th September, 2001: Mr. Jacobs put much store on the events of these two days; he said the explanation for what follows lay in FM, through Mr. Ferguson (who would have discussed with Mr. Roberts that which the latter had agreed), implementing the commitment for the future made in the (alleged) Graham – Roberts oral agreement.
- At the time, Mr. Roberts was abroad. Mr. Graham was out of the office on the 26th and 28th September but it was not suggested to him in cross-examination that he had a conversation with FM employees on the 27th September. Mr. Elliot (SEUK) remembered conversations with Mr. Ferguson (FM) on the 28th September but not on the 27th September – had there been any conversations on that day, Mr. Graham would have dealt with them. As already noted, Mr. Ferguson did not give evidence; nor did a Mr. Wilson (also of FM), who also appears to have been much involved at the time.
- On the 27th September, Mr. Harrowing's secretary made a file note of a telephone conversation with Mr. Ferguson, in the following terms:
" Ian Ferguson from Hayes phoned
He has arranged that goods ….kept 'flowing' so no overnight stays for large value goods.
If they of large amounts he has made sure they do not come under the heading of 'theft attractive'
Apart from Monday 1st October 2001 when there will be approximately 2 million pounds worth of goods on premises.
Samsung are happy with FM's security set up and additionally have agreed to pay for two static guards, for the front and back of the building."
Mr. Harrowing's file note on the same day said this:
" Following receiving a message on the subject, I phoned and spoke to Ian Ferguson…Had heard that £2,000,000 of mobile phones were to be stored overnight on Monday night.
Ian confirmed and added that there were other computer bits and pieces as well.
Is having static security available all night. Outside security firm."
- I shall return, later, to consider the ramifications of these events.
- (5) The AIG survey: It will be recollected that following the 17th July meeting, arrangements were to be made by AON for an AIG surveyor to visit the warehouse in order to check security levels. In the event a surveyor attended on the 18th January, 2002 ("the AIG survey"). It is convenient at this point to record certain of the observations contained in the AIG survey:
" SECURITY AND WATCHMEN
…There is no watchman service or estate security patrols other than normal policing.
Security relies upon the intruder alarm.
EXTENDED COVERAGES
Burglary & theft:
Total warehouse contents are estimated at £3M by Frans Maas. The Samsung stock at the time of the visit was estimated at £500,000, the vast majority of which was mobile phones. The phones would be of great attraction to thieves, but there are limitations posed by the fact that they can all be disconnected by the networks and 90% of them are 'simmlocked'…
Physical protection does not include any ram-raid protection of the 2 warehouse roller shutters. (See risk improvements).
The warehouse is protected by an intruder alarm system ….There are 12 keyholders….
MANAGEMENT RESPONSE TO RECOMMENDATIONS
Discussed with Martin Roberts… and Terry Gibbons of Samsung. Interest was shown and the anti ram raid measures will be implemented immediately. The other items (requiring capital expenditure) will receive consideration."
A summary sheet contained boxes for "Inadequate", "Adequate" and "Good". Security was ticked as "Adequate".
- For present purposes, two matters arising from the AIG survey may be underlined. First, no mention was made of the secure cage; it would appear that AIG no longer pursued this idea. Secondly, the absence of on site security was noted. Strikingly, though the AIG survey was shown to SEUK, Mr. Graham neither told AIG of the alleged oral agreement to provide on site security nor raised the absence of such security with FM.
- (6) The credibility of Mr. Roberts: I have much earlier remarked on the unsatisfactory nature of Mr. Roberts' evidence. No useful purpose would be served by dwelling on demeanour or on peripheral matters. I think it right instead to concentrate on an important respect in which, I cannot avoid the conclusion that Mr. Roberts' evidence was untruthful – namely, the question of whether on site security was in fact provided on the occasions when FM accepted that it had agreed to do so, together with the purported charge for the provision of such security.
- Paragraphs 13 and 14 of Mr. Roberts' first witness statement said this:
"13. ….We did discuss providing personnel as 'static guards' on occasions where a particular high value consignment of theft attractive goods was anticipated that would remain at Hayes overnight (or longer).
14. For example, Samsung requested 2 guards to be at the warehouse overnight on 10.8.01 and on 1.10.01 and this we agreed. FM's personnel remained in the warehouse all night and reported every 20 minutes or so by mobile telephone. I recall that on one occasion additional cover was provided by Shaun Williams Transport."
- For some two years following the theft, Mr. Roberts consistently maintained the position that guards had indeed been supplied on these two occasions, when there had been a specific request from SEUK. I am satisfied, on all the evidence, that he said as much to Mr. Gill after the theft. Disconcertingly, Mr. Roberts gave evidence in criminal proceedings (arising out of the handling of the stolen goods) to like effect. Plainly too, Mr. Harrowing had been so informed, the FM pleaded case proceeded on this basis and, for completeness, the inter solicitor correspondence file is replete with similar assertions – for which Mr. Roberts, I am satisfied, was ultimately the or the principal source.
- However, from mid-January 2004, FM's position changed. It was now no longer said that guards had been provided on those two occasions; instead it was asserted that it had been intended to provide guards but that in the event – because the goods were not of sufficient value or were not in fact at the warehouse at the time – it had not been necessary to do so.
- Mr. Roberts' supplemental witness statement (dated very shortly before the trial) said this:
"1. I refer to paragraph 14 of my …[witness statement]… and wish to correct details I now realise are wrong. As a former employee of FM, at the time I made my Statement, I did not have access to all of FM's documents and records.
2. I referred to requests by Samsung for static guards to be provided on 10 August 2001 and 1 October 2001 because of anticipated high values of goods. It is correct that there were discussions with Samsung in advance of these dates about FM staff being available to stay overnight at the warehouse. However, I have been informed by FM's solicitor that it has been possible to establish from Ian Ferguson's records that in the event, no static guards were, in fact, needed or used on the dates in question, either because actual deliveries to customers substantially exceeded original expectations or because freight due to arrive was either delayed or diverted elsewhere.
3. On further reflection, I also realise that my reference in paragraph 14 to personnel having remained in the warehouse overnight and reporting by mobile telephone is to the system that we set up in anticipation.
4. Similarly, while FM did use Shaun Williams Transport Services as static guards, I have now been shown their invoice….which shows that they were used a few days after the theft and not before."
- This, if I may say so, remarkable documentary trail does not end there. On the 16th October, 2001, FM purported to raise a charge of £250 in respect of "security". On the face of it, such a charge is inexplicable if security had not in fact been provided.
- Understandably in the circumstances, Mr. Jacobs devoted some time to cross-examining Mr. Roberts on this aspect of the case. It is fair to say that Mr. Roberts was either unable or unwilling to clarify the matter. The suggestion that guards were not needed on the occasion covered by the 10th August agreement is untenable, given the value of the goods which SEUK was able to demonstrate must then have been in the warehouse (more than £500,000 worth, even if only mobile telephones are taken into account). A further suggestion, of which there had been no hint prior to Mr. Roberts' oral evidence, was likewise untenable. This suggestion was to the effect that no employees had remained overnight as guards – but that employees had in any event been present working on customer requirements. But this notion was belied or was at least unsupported by the FM records, which did not show employees working 24 hours a day in the warehouse prior to the theft. Against this background, the proposed charge for "security" was even more bewildering. Here, Mr. Roberts ventured various thoughts; first, that the charge was for overnight reworking on the 1st and 2nd October – but, again, quite apart from the fact that this is not how the matter was initially raised, this notion was belied by the overtime records. Secondly, that the charge was to "test the water", to see how serious SEUK was about the provision of security; I regret to say that, even leaving questions of propriety to one side, this explanation is simply a nonsense.
- In the light of the matters which I have sought to address, I reach the following conclusions on this aspect of Mr. Roberts' evidence:
i) It is common ground that there were agreements to provide on site security on the 10th August and 1st October, 2001; the fact that SEUK argues for a wider agreement being in place by the 1st October, is neither here nor there.
ii) No on site security was provided, nor were any FM employees coincidentally working overnight on these occasions.
iii) Mr. Roberts' repeated assertions that guards had been present were inaccurate. I regret that I am driven to conclude that these assertions were knowingly inaccurate, as were his attempts to explain the matter away in his oral evidence. I make every allowance for the fact that Mr. Roberts may not have had the FM records available to him at the time of making his first witness statement. But it is in the highest degree improbable (for example) that assertions as to the guards reporting in every 20 minutes by mobile telephone can be the product of mistaken recollection. Moreover, mistaken recollection cannot plausibly account for the consistent repetition of this account over the extended period described above. Having seen and heard Mr. Roberts give evidence, I attribute this evidential debacle to his tendency to clutch at the first convenient straw to come to mind, regardless of factual accuracy.
iv) There was no honest basis for the proposed raising of a charge for security which had not been provided. As already indicated, the explanations offered in this regard lack any substance.
- It is for these reasons that I indicated, much earlier, my view of Mr. Roberts as a witness; namely, that I could not place reliance on his evidence unless supported by other evidence or objective probability. That is, of course, not a conclusion arrived at lightly. But, also as foreshadowed earlier, difficulties with the factual evidence do not end with Mr. Roberts. I must now turn to look critically at evidence concerning SEUK.
- (7) Failure to record or mention the (alleged) oral agreement: FM argued that if indeed Mr. Graham had concluded an oral agreement as alleged, it was remarkable that no note had been made of it at the time and curious that there was so consistent a failure to refer to it, both before and after the theft. All this, FM submitted, told strongly against any such agreement having been concluded.
- The context, as will be recollected, is that it was common ground and rapidly apparent to all concerned, that there had been no on site security in place on the Sunday when the theft occurred.
- Further, the following matters are here common ground or not seriously disputable:
i) No contemporaneous note or any record was made by Mr. Graham of the alleged oral agreement.
ii) From about June 2001 onwards, there was considerable correspondence between Mr. Graham and FM on matters concerning security at the warehouse. No mention was made at any time prior to the theft of the alleged oral agreement.
iii) As set out above, following receipt of the AIG survey, Mr. Graham said nothing to AIG or FM concerning the alleged oral agreement.
iv) In a letter dated 14th February, 2002 ("the 14th February letter), some four days after the theft, signed by Mr. Murphy, SEUK gave formal notice to FM of its claim in respect of the loss of the goods. No mention was made of the alleged oral agreement. Mr. Graham was not involved in the drafting of this letter but he accepted that he had seen it at about the time when it was e-mailed to FM; Mr. Graham said nothing about the absence of any reference to the oral agreement in the 14th February letter.
v) Even after the theft, Mr. Graham accepted that he said nothing to Mr. Roberts, along the lines of, "what about the oral agreement?", although they were in fairly regular contact.
vi) Mr. Gill was retained (see further below) by SEUK on or about the 11th February, 2002 the day after the theft. He first visited the warehouse on the 12th February. Following that initial visit to the warehouse, Mr. Gill had various discussions with SEUK's management, including Mr. Murphy and Mr. Graham; nothing, however, was said to him about the existence of any oral agreement. Instead, Mr. Gill, knowing nothing of any arrangements between SEUK and FM, concluded that security guards should have been on site. Subsequently, he asked Mr. Graham why there had not been on site security; Mr. Graham's response was that he had asked Mr. Roberts the same question. Mr. Gill's witness statement, dated 17th June, 2003 made no mention of the alleged oral agreement although it is fair to say that his earlier "Security Review and Assessment", dated 9th April, 2002, did refer to it.
- (8) Other SEUK evidence: I begin with Mr. Murphy. He was initially to be called to give evidence largely but not solely as to quantum. His witness statement made no reference to the alleged oral agreement. Nor had Mr. Graham's witness statement made any mention of discussing that agreement with Mr. Murphy. However, when cross-examined, Mr. Graham said that he had told Mr. Murphy about the oral agreement he had made with Mr. Roberts. Mr. Murphy was in court at the time. This statement by Mr. Graham, if anything, increased the puzzle as to the silence on the topic in both witness statements, the absence of any note or record (why did one not prompt the other?) and the failure to mention it in the 14th February letter.
- Against this background, SEUK sought to call Mr. Murphy to give evidence on the question of the oral agreement and Mr. Graham's discussions with him relating thereto. I gave leave but on terms that there should be a summary of the proposed evidence available and that evidence in chief should take place orally and should not be led.
- In his evidence in chief, Mr. Murphy said that Mr. Graham had informed him of an agreement with Mr. Roberts that "when required, there would be additional security arrangements" at the warehouse. The security issues had become "quite critical" in about July/August 2001 and he thought that these conversations with Mr. Graham would have taken place between August and September, 2001; everything had been agreed prior to the 28th September (to which reference has already been made). According to Mr. Murphy, Mr. Graham had said that there was "an ongoing arrangement to have people in place, especially at weekends, when there was a risk of attack to our products because it was obviously high value". As the SEUK products moved by air freight, they were by definition "high value" goods.
- Cross-examined, Mr. Murphy said that when there was a high volume of high value goods in the warehouse, guards would be present. For his part, a "high volume" meant goods to a value of more than £250,000. Mr. Murphy estimated that the cost of two static guards over a weekend would amount to £1,000 per day, though it may be guards (especially if FM employees) could be obtained for less; it was not uncommercial to contemplate FM bearing the cost of this arrangement, given the amount of business passing through the warehouse – it would be a "minor cost". The oral agreement was "very important" but it had not been recorded anywhere. He had not referred to it in his statement because, as he had no direct discussions with FM, it had not been thought necessary to take one from him. He had made no reference to an oral agreement in the 14th February letter because it was "far too early" to put his case. Mr. Murphy added that he had heard from Mr. Graham in "July and August" that guards had been put in place; challenged that Mr. Graham himself had not spoken of discussing guards until August, Mr. Murphy asserted that "the issues had been on the agendas and …in an open meeting with AON".
- I come next to Mr. Elliot. Mr. Elliot's work mainly involved day to day issues, for instance overseeing at the warehouse the re-packaging of goods and the documentation accompanying goods to ensure that they reached customers appropriately and on time. He was not directly involved with security but he worked in the same office as Mr. Graham and said that he had discussed such matters with him. It may be noted that, for his part, Mr. Graham could not remember any such discussions with Mr. Elliot. At all events, according to Mr. Elliot's witness statement (dated 17th June, 2003):
" 4. I was generally aware of Paul Graham's discussions with Martin Roberts on around 10th August but not of the detail. I knew the problem was that there were high value goods being left at the Frans Maas site over the weekend and that Frans Maas had agreed to use two of its own staff as additional security outside the normal working hours of the premises.
6. From my discussions with Paul Graham I was also aware of the second occasion later in August as a result of which Frans Maas agreed to put two employees as additional security whenever high value goods were to be stored overnight or over the weekend…."
Unheralded by his witness statement, Mr. Elliot added in cross-examination that immediately after the theft the first thing he had said to Mr. Graham was "are the guards alright?".
- Mr. Elliot had begun working for SEUK in July 2001. He could not remember precisely when he had first visited the warehouse but thought it was late August or early September. He was there for the purpose of re-working goods. He had not gone there to discuss security. However, after introducing himself to Mr. Roberts, according to his witness statement:
" We had a discussion and I raised the question of FM's additional security cover over the weekend. I asked if he had difficulty getting staff for security purposes and whether he gave the staff time off in lieu, whether they slept on the premises and similar points. I cannot remember the precise words he used but he gave me to understand that he did not have any problem getting the staff….So the impression Martin Roberts gave me was that providing overnight and weekend security was a regular occurrence."
- Finally as to Mr. Elliot, it may be noted that he accepted that he had had a telephone conversation with Mr. Ferguson on the 28th September, 2001. The question of the "extra cost" for weekend cover came up. Mr. Elliot denied, however, that that "extra cost" related to additional guards; it concerned instead, "something to do with insurance". Intriguingly, Mr. Murphy, with whom Mr. Elliot had discussed this telephone conversation, appeared to be of a different view; the impression given by Mr. Murphy's evidence was that the telephone conversation of the 28th September related to FM asking SEUK to pay for guards.
- (9) Mr. Harrowing's note of the 11th February, 2002: Mr. Jacobs sought to place some reliance on a file note made by Mr. Harrowing of a conversation with Mr. Roberts on the 11th February, 2002 ("the 11th February note"), the day after the theft. I will return to Mr. Harrowing's file notes later in another context; for present purposes, the 11th February note records the observation by Mr. Harrowing:
" Despite the fact we had £3,600,000 of mobile phones did not have a static guard."
Mr. Harrowing maintained that this was a factual comment only; there had not been a guard; he was not expressing a view that there should have been a guard.
- (10) Conclusions as to the alleged oral agreement: With respect to Mr. Jacobs' sustained argument as to the existence of the alleged oral agreement for the future, I am not persuaded. I do not think that any such oral agreement was entered into. My reasons follow:
i) Uncertainty: As has been seen, at least a measure of uncertainty has attached to the questions of when the alleged agreement was entered into, to what goods it was said to relate and when it was intended to be operative. The contrast in this regard between Mr. Graham's witness statement (especially the highlighted passages) and his oral evidence, as it unfolded, is itself noteworthy. In consequence, by the conclusion of the evidence, nothing more precise than the following could realistically have been asserted: (1) An agreement entered into in late August or early September, 2001; (2) principally but not solely relating to mobile telephones; (3) operative when goods of a value higher than about £500,000 were in the warehouse; (4) applicable primarily but not only at weekends. In my view, while uncertainty here is not by itself fatal to SEUK's case, it does nothing to encourage confidence in the existence of the alleged agreement. Had uncertainty been the sole objection, an agreement along the above lines would not have been so uncertain as to be incapable of enforcement; but to find the alleged oral agreement so vague, as on the evidence it was in all these respects, at once calls for the case as a whole to be subjected to very close scrutiny.
ii) An open-ended commitment: As already observed, if SEUK's case is well-founded, FM had entered into an open-ended commitment to supply guards, on its own initiative, whenever the situation required such on site security and at its own expense. I am bound to say that I find the suggestion of any such agreement most implausible. It may be that as a matter of FM's duty as a bailee, it was under an obligation to supply on site security when alerted to the need and requested by SEUK; but any such duty would hinge on a request being made. It may even be that from time to time, FM's duty as a bailee to protect the bailed goods against theft extended to the supply of guards on its own initiative. But in all such cases, the question would also remain of who was to pay for the additional security; in determining the extent of the precautions a bailee is duty bound to take, cost is a relevant consideration. This is one of those areas where Mr. Roberts' evidence is supported by inherent probability. Granted that FM was paid for handling the SEUK goods and that SEUK was FM's major customer in respect of the warehouse, it was not charging for the short term "storage" of those goods at the warehouse. With respect to Mr. Murphy's assertion to the contrary, the notion that FM against this background would take on so extensive a commitment for the future as to the provision of "free" on site security – without any negotiations as to payment - strikes me as uncommercial. One-off instances where FM agreed to help out, such as the 10th August agreement, are, in my view, very different. Pausing here, therefore, the doubts as to the agreement are by now such that some very convincing supporting evidence would be needed to make good the SEUK case.
iii) A shortfall in supporting evidence: It is here, to my mind, that the SEUK case, already faltering, now unravels. Overall, the failure by SEUK to record or mention this agreement makes it unlikely that any such agreement as alleged was entered into. Individual aspects of this failure, surprising though they may be, may not themselves be fatal; for instance, the failure to make a contemporaneous note of the agreement is worthy of remark but it must be kept in mind that no note was made of the 10th August agreement. Looked at as a whole, however, the picture is both remarkable and improbable. I can think of no good reason, for instance, why Mr. Graham did not raise the question of the oral agreement after receipt of the AIG survey. It would have been to SEUK's advantage, in its dealings with AIG, to do so. Moreover, the absence of any on site security, as recorded in the survey, cried out for discussion with FM. Likewise, the failure to mention the oral agreement, if one existed, in the 14th February letter, beggars belief - as does Mr. Graham's failure to comment, when he saw the letter, on the absence of any such reference. Further, as it seems to me, it is inconceivable that Mr. Graham would not have mentioned the agreement to Mr. Gill, when they first met in the immediate aftermath of the theft. So far, I have looked separately at (1) uncertainty (2) inherent improbability and (3) the shortfall in supporting evidence. Once considered cumulatively, these matters firmly suggest that SEUK has failed to make good its case on the existence of the alleged oral agreement for the future. What, however, of the other matters on which SEUK relied?
iv) The secure cage: It will be recollected that Mr. Jacobs submitted that the documentary trail went cold on the "caged area" after the 3rd August letter because it had been superseded by an oral agreement as to the provision of on site security. Neat though the submission was, that is not an inference which I am persuaded to draw. Instead, the probable explanation is that there was uncertainty as to what precisely AIG required and its practicality. It is noteworthy that by the time of the AIG survey, it would appear that AIG was no longer pursuing the idea of a secure cage; as the AIG survey also noted the absence of on site security, it is improbable that there was any question of an agreement for on site security superseding the requirement for a secure cage.
v) The events of the 27th-28th September: As to the submission that the events of the 27th – 28th September evidence FM implementing the oral agreement, I cannot agree. I accept that there is something of a puzzle about these events and that it is unsatisfactory that Mr. Ferguson was not called to give evidence. But the question remains as to whether these events can be taken as supporting the case for the alleged oral agreement. At this point, the argument breaks down. The file note of 27th September records that SEUK would pay for the additional guards. It was, however, of the essence of the SEUK case as to the alleged oral agreement that FM would bear the cost of additional on site security. Therefore whatever the true explanation for the events of those days, the material does not evidence the implementation of the alleged oral agreement. It is certainly possible (as Mr. Murphy's evidence suggested) that Mr. Elliot was mistaken as to the substance of his discussion with Mr. Ferguson on the 28th September and that, somewhere, a telephone call has been missed which would explain the file note of 27th September; but in the absence of Mr. Ferguson, I would not wish to rest my decision on such surmises. For completeness, as to a related point, Mr. Roberts had said in his evidence that "systems" were put in a place on a number of occasions. In the absence of other communicated requests for on site security, what else could this be, asked Mr. Jacobs but evidence of the implementation of the alleged agreement? Again, I do not agree. I confess that I was quite simply not at all persuaded that this evidence was reliable; I do not accept that Mr. Roberts did that which he said had been done.
vi) The SEUK witnesses: As to the SEUK witnesses, there was, rightly, no suggestion of dishonesty on their part. But I do think that they have collectively persuaded themselves after the event that more was agreed than had in fact been agreed. Mr. Jacobs argued that there would be no motive for such self-deception; this was a subrogated claim. I do not agree. In the case of Mr. Graham, I suspect that understandable professional pride played a considerable role in his rationalisation of events. In the case of Mr. Murphy, as illustrated by his demeanour when giving evidence, it was anger at the loss of the goods; indeed, had Mr. Murphy's late recollection of his discussions with Mr.Graham been correct, it is manifestly implausible that the agreement would not have been noted, recorded, mentioned and relied upon – features so conspicuously absent from the evidence. All in all, I confess that Mr. Murphy made a poor impression (at least in respect of this aspect of his evidence). Mr. Elliot, in my judgment, fell victim to over-statement when dealing with his discussions with Mr. Graham, based on a genuine desire to help the SEUK case. As to his suggested discussion with Mr. Roberts, I fear that here Mr.Elliot was simply mistaken in his recollection; given the reason for his presence at the warehouse, it is improbable that he would have had the discussion he described.
vii) Mr. Roberts: Finally, I come to Mr. Roberts. It will be apparent that I am unable to accept Mr. Jacobs' submissions on the oral agreement because of difficulties inherent in SEUK's own case; my rejection of that case does not turn on Mr. Roberts' evidence; the case fails to satisfy the necessary threshold before I even reach Mr. Roberts. Insofar as Mr. Roberts made untruthful statements or gave untruthful evidence as to the deployment of on site security, such falsehoods to my mind suggest concern that FM had perhaps failed to comply with its duty as a bailee by reason of matters for which he might be held responsible. I do not, however, think that it is permissible to leap from Mr. Roberts' lies to the conclusion that an oral agreement had been entered into as alleged by SEUK.
- (11) A collateral contract? In the light of my conclusion that there was not an oral agreement as alleged by SEUK, the question of the status of any such agreement becomes academic. As will be recollected, the issue here was stark; did the (alleged) oral agreement prevail over any standard terms otherwise applicable or was it subject to those terms? Although the matter was fully argued, it is invidious to reach a decision on this question - as so much turns on the evidence as to the alleged oral agreement which I have rejected.
- In fairness to the arguments advanced, I therefore say no more than the following:
i) Whether an oral agreement amounts to a collateral contract strictly so-called (i.e., having the effect that it ousts standard terms otherwise applicable) depends on the facts of the individual case and the construction of the terms and the assurance in question.
ii) On the relevant hypothesis, there would have been evidence from Mr. Graham to the effect that if he had not received the assurance from Mr. Roberts as to the provision of guards in the future, he would have considered taking SEUK's business elsewhere or taking some other action to protect SEUK's goods. Such evidence would have tended to support the existence of a collateral contract; see, for example: Gallagher v BRS [1974] 2 QB 440; Evans v Andrea Merzario [1976] 1 WLR 1078.
iii) Conversely, however, in the present case, there would have been a number of pointers to the conclusion that any oral agreement entered into would itself have been subject to the BIFA terms. First, it would have been difficult to say that the BIFA terms were repugnant to an oral agreement for on site security with the result that any such oral agreement was illusory. As will be considered further in due course, the standard set by the BIFA terms is that of a reasonable degree of care, diligence, skill and judgment (cl. 24). The fact that liability is limited under the BIFA terms (cl. 27(A)) is a matter of the first importance (see below) but does not or not obviously by itself render the oral agreement illusory. Secondly, as Mr. Graham's evidence recognised, standard terms such as BIFA were routinely used; there was no question of seeking to take SEUK's business elsewhere because FM relied on BIFA terms. Thirdly, there would have been the question of whether the oral agreement (always assuming one had been entered into) was of an overriding nature or whether it was part and parcel of the services to be provided. If the former, then I could follow the argument that it should not be subject to any standard form limitation of liability provision. But the latter view was certainly well arguable. The provision of guards could be seen as part of a continuing review of SEUK's needs, undertaken as the business developed and in the light of the then current risk assessment and insurance requirements. If so, then there would have been considerable force in Ms. Hilliard's submission, namely, that the agreement as to the provision of on site security could not enjoy a much enhanced status when compared to the other matters dealt with in the 3rd August letter, simply because it was oral rather than in writing. Hence, any oral agreement while involving the extension or enlargement of FM's duty as bailee did not result in the introduction of some wholly separate or overriding obligation.
iv) For my part, I confess to an initial inclination to prefer Mr. Jacobs' submissions. On reflection, however, I regard these rival arguments as relatively finely balanced. In the circumstances, I am unwilling to express a conclusion based on a hypothetical view of the evidence in respect of an issue now academic.
ISSUE (III): THE THEFT
- The inquiry here is as to the circumstances in which the theft took place. The immediate relevance of the inquiry is as to whether the theft was an "inside job" – i.e., as to whether it took place with the complicity of any employees or ex-employees of FM, by way of the provision of information or other assistance to the thieves. The inquiry is further relevant to the question of whether FM performed its duties with a reasonable degree of care, diligence, skill and judgment. As will be anticipated, the answers to these questions lead on to the issues of liability and limitation of liability, to be dealt with below. Before proceeding further, I should make it plain that there was no suggestion that any employee implicated in the theft was in a position to be regarded as an alter ego of FM; in short, there was no suggestion of deliberate wrongdoing on the part of FM itself.
- (1) The security system at the warehouse: In broad terms, there was no dispute that the principal security arrangements at the warehouse were as follows.
- First, the front door had two locks. As explained by Mr. Hack (FM's expert), the top lock was a yale lock and insignificant for purposes of security. The bottom lock was significant; it was a dead lock; a key was needed to open it; it had been changed on the 17th August, 2001.
- Secondly, there was an electronic coded burglar alarm, with sensors at the front door and in various locations within the warehouse. The alarm was situated on the wall immediately inside the main door in the reception area. After entry through the main door, a period of time was available for entering the alarm code and de-activating the system. The security code to the alarm had been changed in August 2001.
- Thirdly, there was a 24 hour DVD CCTV system. The cameras were located in strategic positions outside and within the facility and linked to a DVD recorder in an office/monitoring room. There was, however, no off-site recording or monitoring facility.
- Fourthly, on the night of the theft, an 11.5 ton forklift truck had been positioned across the roller shutters at the rear of the warehouse. This was a recent security measure, introduced subsequent to and in the light of the recommendations of the AIG survey; the intention was to minimise the risk of a "ram raid". The keys to the forklift truck and the padlock for the roller shutters were hidden, it would appear, in a metal filing cabinet beside the rear shutter doors.
- (2) The manner in which the theft took place: Again, there was in the main no or no serious dispute with regard to the manner in which the theft took place.
- At about 16.00 or 18.00 – there was some uncertainty as to the precise time but nothing turns on that – the warehouse was locked and "alarmed" by an FM employee. At about 18.51, the alarm was switched off and some 25,738 Samsung mobile telephones were stolen. Other telephones, DVD players and computers were left untouched in the warehouse.
- The thieves entered through the front door; there were no signs of any forced entry. It follows that the thieves must have had a key to open the dead lock. The thieves then disarmed the alarm before it sounded; it must further follow that the thieves knew the code. The thieves then walked into the office/monitoring room and disconnected the DVD recorder; that too was stolen, together with the disc in use. Although this was not common ground, I think it probable that the thieves knew that there was no off-site recording or monitoring. Thereafter, the thieves opened the roller shutters at the rear of the warehouse by unlocking the padlock; to do so, they must have known where to find the key to the padlock. The thieves also moved the 11.5 ton forklift truck, which as already remarked, had been positioned across the rear roller shutters; once again, the thieves must have known where to find the keys to the forklift truck. Quite plainly too, the thieves knew where to find the mobile telephones which had been or must have been "targeted". Having moved the forklift truck out of the way, the thieves could move their own vehicle(s) into the warehouse; the volume of goods stolen amounted to some 57-60 pallets and would likely have required a 40 foot articulated trailer or more than one trip using a smaller vehicle. The operation must have taken a matter of hours to complete; it is inherently likely that the thieves must have felt comfortable that they would not be disturbed.
- (3) First thoughts: Unsurprisingly in the light of this summary, the first thoughts of all or most of those concerned was that this had been an "inside job".
- A Mr. Marwick, of CKM Security Consultants, instructed by FM's liability insurers, said this:
"It is our opinion that this burglary was carried out by persons who had a good knowledge of the warehouse security operations either as employees or by the receipt of 'insider' information…."
The tenor of the discussions between Mr. Roberts and Mr. Harrowing at the time, as recorded in various file notes, is unmistakably to the same effect. Mr. Gill, who had been engaged in the immediate aftermath of the incident, thought so too and so, according to him, did the police.
- It is, however, fair to record that a Mr. Remmelts, of Toplis & Harding, who conducted a relatively contemporaneous investigation on behalf of FM's parent company in the Netherlands, was non-committal in his views on this matter (as appears from documents produced only very late in the day, "the Remmelts report").
- (4) Later reflections: Subsequently, some "revisionist" thinking emerged in the evidence of Mr. Harrowing, Mr. Roberts and Mr. Hack and was deployed in the cross-examination of Mr. Gill, as to whether the theft was truly an inside job. For his part, Mr. Hack said this when cross-examined:
"Q. …it looks as if it is an inside job…?
A. …if one looks at it immediately one would draw that conclusion. But if you looked at it further with greater knowledge you might consider it different…"
At all events, this reasoning proceeded as follows.
- First, there was the 37,000 telephones point. The origins of this point lay in Mr. Gill's evidence. He recounted that he had been told by the police that they had been telephoned by a man, shortly after the theft and the considerable attendant publicity, who stated that he had been offered 37,000 telephones. At the time of the theft there were in fact some 37,000 mobile telephones in the warehouse, yet, as already noted, a lesser quantity had been stolen. The reason for there being some 37,000 telephones in the warehouse was that a delivery of 10,000 telephones from the warehouse to a SEUK customer had been delayed. The suggestion, espoused by Mr. Roberts in his evidence, was that warehouse personnel would not have been aware of the total number of telephones in the facility at any given time; therefore, the thieves, who on this evidence were apparently anticipating stealing 37,000 telephones, must have obtained their information from someone other than FM personnel.
- Secondly, in particular against the above background, the information relied upon by the thieves could have come from a SEUK employee, with access to the stock details, or some other third party visitor to the warehouse who had acquired knowledge of the layout and the security arrangements.
- Thirdly, although the police interviewed no fewer than 27 FM employees, none had been arrested, still less charged, in connection with the theft; further, there was no basis for suspecting that any of the 27 FM employees had been present at the warehouse at the time of the commission of the theft.
- Fourthly, even if the thieves had received information from a FM employee or ex-employee, it could not be said that the individual(s) in question had not been coerced, i.e., subjected to force or the threat of force capable of amounting to duress. As demonstrated by the Nokia theft, mobile telephone thieves could be ruthless. Concerns to like effect had emerged in connection with threats said to have been made against the families and associates of those remanded in custody in connection with the handling of the telephones the subject of this theft. Still further, the unusually high reward of £200,000 offered by SEUK and their insurers had not been claimed, perhaps reflecting a fear of retribution.
- Fifthly and in the alternative, even if the thieves had received information from a FM employee or ex-employee, it could not be said that such information had not been imparted accidentally, reflecting guile on the part of the criminals and gullibility on the part of the employee(s) concerned. Examples were suggested of a copy of the front door key being obtained by stealth or a trusted stranger observing the code used for the alarm.
- (5) Conclusion: I very much prefer the first thoughts to the later reflections; in my judgment, the considerations pointing to the theft having been an inside job are overwhelming. I further think it probable that the thieves obtained information or assistance from an employee rather than an ex-employee. My reasons are these:
i) It is fanciful to suppose that the theft could have taken place in the manner already described without "inside" information or other assistance as to the security arrangements. The facts as to the absence of forcible entry, the ability to open the front door lock, the knowledge of the alarm code and the ability to locate the padlock to the roller shutters and the keys to the forklift truck, all, to my mind, speak for themselves.
ii) As to the 37,000 telephones point, there is, if I may say so, less to it than might first have appeared. The short answer is that as some internal FM documentation accompanying the Remmelts report made clear, FM did have a system for monitoring what was in fact in the warehouse at any given time; in this respect too, no reliance could be placed on Mr. Roberts' evidence to the contrary. If necessary to go further, extreme caution would have been required when dealing with this point, given the multiple hearsay nature of the evidence (Mr. Gill recounting what the police had told him some third party had told them). Still further, whatever the merits of this point (even had Mr. Roberts' evidence proved reliable), it would have been outweighed by the body of evidence pointing towards an inside job.
iii) Insofar as it is suggested that some of the information assisting the thieves could have come from a SEUK employee or some third party, the possibility cannot be discounted. But the notion that all of the information could have been supplied by anyone other than a warehouse insider, I view as fanciful. I add this; provided only that an employee (or ex-employee) provided some material information or assistance to the thieves, in my view this would constitute an inside job - consider the example of the thieves obtaining information as to stock in the warehouse from others but a key to be copied and knowledge of the alarm code from a warehouse employee.
iv) I do not think that anything turns on the fact that the police have not arrested or charged any FM employee. To do so, suspicion would have had to centre on an individual employee or a number of identified employees. The inquiry in these proceedings is of a different nature; it is sufficient for these purposes to conclude that information or assistance was probably imparted or provided by an unidentified employee or number of employees of FM.
v) It is certainly possible that information or assistance was obtained by coercion from a FM employee but I do not think that this is probable. In his evidence, Mr. Gill, with the benefit of his experience as a scene of crimes officer ("SOCO"), gave detailed reasons, which need not be set out here, as to why this was unlikely. Mr. Hack very fairly said that in this regard, given his different (military) background, he would defer to Mr. Gill. Leaving aside questions of Mr. Gill's instincts and Mr. Hack's concession, there is simply no evidence of coercion with regard to the thieves. The position is markedly different in the case of the handlers and their families. Mr. Gill explained why, on the information available to him, the thieves and the handlers were likely to constitute two separate and distinct groups; perhaps it suffices to say that there is no evidence of linkage between the thieves and the handlers. The highest that the argument for coercion can be put is that (1) mobile telephone thieves can be ruthless (the Nokia theft) and (2) that there is evidence of threats made to the handlers and their families in this case. In my judgment, this evidence makes coercion a possibility but not a probability with regard to such information or assistance as was provided by a FM employee to the thieves in this case.
vi) As to the accidental provision of all the information or assistance by a FM employee to the thieves, the volume of such information or assistance (already described) was such that accidental or involuntary provision is wholly improbable; to my mind, even as a possibility, this suggestion can be discounted.
vii) For my part, I think it is probable that the thieves obtained inside information or assistance from a current employee rather than an ex-employee. First, the bottom lock to the front door and the alarm code had been changed in August 2001; on the evidence, however, only two employees had left between then and the theft. Secondly, the positioning of the forklift truck to prevent ram raids was a very recent innovation which followed the January 2002 AIG survey; the thieves were, however, in a position to locate the keys to the forklift truck and the padlock to the roller shutters. Thirdly, there was a clear element of targeting in the theft; but the inventory of stock in the warehouse necessarily comprised recent information.
- In summary therefore, as a matter of probability, the thieves received material information or assistance, voluntarily supplied by an employee or employees of FM. In this sense, this was an inside job. Questions of FM's liability and FM's entitlement to limit its liability must be assessed in the light of this conclusion.
ISSUE (IV): LIABILITY
- (1) Introduction: SEUK submits that FM was in breach of its duty as bailee of the goods stolen in the theft and that such breach was causative of the theft and SEUK's loss. SEUK's case is put in two ways which, it underlines, are not said to be alternatives:
i) The theft was caused by the wilful default of FM, its servants or agents ("wilful default");
ii) The theft was caused by the negligence of FM, its servants or agents ("negligence").
I shall consider each in turn.
- Before doing so, it is convenient to set out the principal BIFA clauses governing FM's liability:
" 24. The Company shall perform its duties with a reasonable degree of care, diligence, skill and judgment.
25. The Company shall be relieved of liability for any loss or damage if and to the extent that such loss or damage is caused by:-
(A) strike, lock-out, stoppage or restraint of labour, the consequences of which the Company is unable to avoid by the exercise of reasonable diligence;
(B) any cause or event which the Company is unable to avoid and the consequences whereof the Company is unable to prevent by the exercise of reasonable diligence."
- (2) Wilful default: The conclusion that the theft was an inside job is sufficient to establish wilful default on the part of the FM employee or employees responsible; no elaboration is called for. Furthermore, causation is self-evident with regard to wilful default. What remains is the question of whether FM is vicariously liable for the wilful default of the employee or employees concerned. If FM is vicariously liable for such wilful default, then, given (1) the inability to identify the employee(s) concerned and (2) the general nature of a bailee's duty (see, East West Corp. v DKBS 1912 [2003] EWCA Civ 83; [2003] 1 Lloyd's Rep 239, esp. at [24] – [30], per Mance LJ), it was not or not realistically in dispute that FM would be in breach of cl.24 of the BIFA terms and would not be relieved of liability under cl.25 thereof. It was not, for instance, contended that, notwithstanding wilful default on the part of an employee for which it would otherwise be answerable, FM had performed its duties with reasonable care and skill and had been unable to prevent the theft and its consequences by the exercise of reasonable diligence.
- On this issue, therefore, all hinges on the question of vicarious liability. It is now well-established that an employer can be held vicariously liable for an employee's deliberate wrongdoing: see Lloyd v Grace, Smith & Co [1912] AC 716; Morris v Martin [1966] 1 QB 716; Lister v Hesley Hall Ltd [2001] UKHL 22 [2002] 1 AC 215. But the same authorities also make it clear that vicarious liability is not established simply because the "guilty" servant had, by reason of his employment, the opportunity to commit the wrongdoing in question. To establish vicarious liability, more than a mere opportunity to commit wrongdoing must exist; there must be a close connection between the work the servant had been employed to do and the wrongdoing. As it seems to me, inevitably matters of degree arise; the flavour of the inquiry appears from the authorities.
- In Morris v Martin (supra), the plaintiff sent a mink stole to a furrier to be cleaned. With the plaintiff's consent, the furrier delivered the fur to the defendants, who were well-known cleaners, to be cleaned by them for reward. Whilst the fur was with the defendants, it was stolen by one of their servants whose duty it was to clean the fur. On appeal, the plaintiff's claim for damages against the defendants succeeded. Diplock LJ (as he then was) said this (at pp. 732-3):
" If the bailee in the present case had been a natural person and had converted the plaintiff's fur by stealing it himself, no one would have argued that he was not liable to her for its loss. But the defendant bailees are a corporate person. They could not perform their duties to the plaintiffs to take reasonable care of the fur and not to convert it otherwise than vicariously by natural persons acting as their servants or agents. It was one of their servants to whom they had entrusted the care and custody of the fur for the purpose of doing work upon it who converted it by stealing it. Why should they not be vicariously liable for this breach of their duty by the vicar whom they had chosen to perform it? …"
Later, Diplock LJ added this (at p.737):
"…Nor are we concerned with what would have been the liability of the defendants if the fur had been stolen by another servant of theirs who was not employed by them to clean the fur or to have the care and custody of it. The mere fact that his employment by the defendants gave him the opportunity to steal it would not suffice…..
I base my decision in this case on the ground that the fur was stolen by the very servant whom the defendants as bailees for reward had employed to take care of it and clean it."
Salmon LJ (as he then was) likewise emphasised (at p.740) the importance of the thief being the servant through whom the defendants had chosen to discharge their duty to take reasonable care of the fur. He continued as follows (at pp. 740-1):
" A bailee for reward is not answerable for a theft by any of his servants but only for a theft by such of them as are deputed by him to discharge some part of his duty of taking reasonable care…..So in this case, if someone employed by the defendants in another depot had broken in and stolen the fur, the defendants would not have been liable. Similarly…if a clerk employed in the same depot had seized the opportunity of entering the room where the fur was kept and had stolen it, the defendants would not have been liable…."
- In Heasmans v Clarity Cleaning Co. [1987] ICR 949 (CA), a contractor, engaged under a contract to clean offices and entrusted with the keys to the premises, was held not to be vicariously liable for an employed cleaner's wrongful use of an office telephone to make international calls; as the matter was summarised in the headnote:
"…before a master could be held vicariously liable at common law for the act of his servant there had to be established some nexus other than mere opportunity between the servant's tortious or criminal act and the circumstances of his employment so that it was committed in the course of the servant's employment; that the mere fact that the servant's employment had given him access to the plaintiffs' premises was not sufficient to establish such a nexus…."
- In Lister v Hesley Hall Ltd (supra), the warden of a school boarding house sexually abused the claimants who had been resident there; the defendants, who owned and managed the school were held vicariously liable for the warden's abuse; there was a sufficient connection between the work that he had been employed to do and the acts of abuse that he had committed for those acts to be regarded as having been committed within the scope of his employment. Overall, the House of Lords emphasised that the law no longer struggled with the concept of vicarious liability for intentional wrongdoing.
- Of particular relevance to the boundaries of the scope of employment, Lord Clyde said this:
" 45. …while the employment enables the employee to be present at a particular time at a particular place, the opportunity of being present at particular premises whereby the employee has been able to perform the act in question does not mean that the act is necessarily within the scope of the employment. In order to establish a vicarious liability there must be some greater connection between the tortious act of the employee and the circumstances of his employment than the mere opportunity to commit the act which has been provided by the access to the premises which the employment has afforded: Heasmans…
46. Among the multifarious kinds of employment one situation relevant to the present case is where the employer has been entrusted with the safekeeping or the care of some thing or some person and he delegates that duty to an employee. In this kind of case it may not be difficult to demonstrate a sufficient connection between the act of the employee, however wrong it may be, and the employment. One obvious example is Morris v Martin…"
Lord Hobhouse put the matter this way:
"59. …Whether or not some act comes within the scope of the servant's employment depends upon an identification of what duty the servant was employed by his employer to perform…If the act of the servant which gives rise to the servant's liability to the plaintiff amounted to a failure by the servant to perform that duty, the act comes within the 'scope of his employment' and the employer is vicariously liable…..
60. …the correct approach to answering the question whether the tortious act of the servant falls within or without the scope of the servant's employment for the purposes of the principle of vicarious liability is to ask what was the duty of the servant towards the plaintiff which was broken by the servant and what was the contractual duty of the servant towards his employer….."
- Against this background, Ms. Hilliard submitted that even if the theft had been an inside job, it could not be established that FM was vicariously liable for the employee(s) concerned. Not all FM's employees at the warehouse were engaged in a managerial capacity or were warehousemen; some of the employees were import clerks or secretaries. Given that the "guilty" employee(s) could not be identified, it was as likely that a clerk or secretary as any other employee could have assisted the thieves. But of the clerks and secretaries the most that could be said was that their employment had given them the opportunity to assist the thieves; they had not been entrusted with the care of the goods. This was not sufficient to impose vicarious liability on FM.
- For his part, Mr. Jacobs underlined the circumstances of the theft (discussed above), together with the fact that (as will be seen below) all or virtually all members of the warehouse staff had keys to the bottom lock of the front door of the warehouse and access to the single master code which operated the alarm. As the evidence of Mr. Roberts made clear, members of staff were provided with such keys and information in order to enable them to open and close the warehouse as part of their employment. The "main point", which applied to all staff alike (including clerks and secretaries) was put this way by Mr. Jacobs in his closing oral submissions:
"…we have the giving of keys and the alarm code to employees, entrusting them with the security of the premises, and therefore the security or the custody and security of the goods. You cannot divorce the giving of the keys from the custody of the premises, and therefore the custody of the goods….
…If in Morris v Martin, the furrier's secretary had opened up the premises and let all her friends in to take all the fur coats out, having been given the authority to open up the premises, it is inconceivable that the furrier would not have been vicariously liable for those wrongful acts of the servant or agent…"
Applying the approach suggested by Lord Hobhouse in Lister (cited above), Mr. Jacobs said that the breach of duty of the employee towards SEUK involved the giving out of keys and information going to the security of the warehouse and the goods, in particular the alarm code. That breach also amounted to a breach of the employee's duty owed to FM, namely, to take care of the keys and code.
- With respect to Ms. Hilliard's submissions, my clear preference on this issue is for those of Mr. Jacobs, essentially for the reasons he advanced. I agree with Mr. Jacobs that, in this case, the custody of the premises cannot be divorced from the custody of the goods; indeed it seems unreal to attempt to do so. On the evidence, the employees, whether warehousemen, clerks or secretaries, were entrusted as part of their employment by the bailee with the security of the warehouse and hence the goods, by virtue of having the front door keys and knowledge of the alarm code. This feature distinguishes the present case from those concerning mere access. Further, as shown by Mr. Jacobs' analysis, the approach of Lord Hobhouse points to vicarious liability here. It does not of course follow that in every case, the possession of the keys to the premises will be decisive in favour of vicarious liability. As foreshadowed, there are questions of degree involved, unsurprisingly given that the task of the court is to "deliver principled but practical justice" (per Lord Steyn in Lister, at [17]). Heasmans may be seen as a decision on the other side of the line in a very different factual and contractual context; in that case, there was indeed nothing more than the opportunity provided by access to commit the wrongdoing in question. In all the circumstances, I conclude that FM is vicariously liable for the wilful default of the warehouse employee(s) in question, whatever the precise job description of those involved.
- (3) Negligence: The conclusion as to wilful default is sufficient to establish liability on FM's part for the theft and hence the loss of the goods but as I have been urged to do so, I go on to consider SEUK's case on negligence. That said, I shall do so comparatively briefly, given that the considerations as to limitation of liability to which I shall come, render it of very limited practical importance.
- Plainly, if FM was negligent then it would be liable to SEUK in respect of the theft and the loss of the goods stolen; that much is clear from cll. 24 and 25 of the BIFA terms. Nor, here, given the nature of the case on negligence, can there be any realistic doubt as to FM's vicarious liability. Accordingly, the issue is simply whether causative negligence is established.
- SEUK advanced a great many criticisms as to FM's security arrangements at the warehouse at the time of the theft. It is unnecessary to set them all out here. As they appeared to me, the principal specific criticisms may be summarised as follows:
i) The keys to the bottom lock: It was bad practice to let all or virtually all members of staff have the keys to the bottom lock on the front door.
ii) The burglar alarm: First and foremost, it was bad practice to permit all or virtually all members of staff to have access to the one master code which operated the burglar alarm. Secondly, the alarm code was only changed once in the 2-3 years before the theft.
iii) Record-keeping: There was no proper system for ensuring that members of staff not only signed for their front door keys but returned those keys. There was no accurate record of how many employees were aware of the burglar alarm master code at the time of the theft.
iv) CCTV monitoring: There was no off-site CCTV monitoring and the recorder should have been placed in a more secure location.
v) Security guards: Given the value of the mobile telephones in the warehouse (said to be some £6 million) on-site security guards should have been deployed.
- In the light of the evidence and Mr. Hack's sensible and fair concessions, FM realistically admitted that it was negligent in respect of criticisms i), ii) (at least as to access to the code) and iii).
i) As to keyholders for the bottom lock to the front door, I am content to accept Mr. Hack's evidence that the number should have been restricted to 6-8 as a maximum.
ii) As to the alarm, ideally there should have been individual codes; but too much time need not be spent on that because, plainly in my view, if there was only to be one code, then information as to that code should have been restricted to key members of staff. Furthermore, the code should have been regularly changed when members of staff left; there was no good reason for not doing so.
iii) As to record-keeping in the respects criticised, suffice to say it was a shambles; there was much evidence on this aspect of the case but there is no need to belabour the point by setting it out here.
- I am not satisfied that criticism iv) is made out. In short, while some warehousemen may have done things differently, I am not persuaded that the CCTV monitoring arrangements in place disclosed negligence on FM's part.
- As to criticism v), I am satisfied that given FM's knowledge as to the goods in the warehouse (as evidenced by the documents produced late in the day together with the Remmelts report), it was negligent at least not to broach the question of guards with SEUK. Moreover, while Mr. Hack rightly emphasised that the practicalities required careful consideration – to avoid either compromising the electronic security or exposing the guards to undue risk – I cannot accept that such difficulties were insuperable by a prudent warehouseman. Further too, there was no real dispute that on site security would have been a sensible additional precaution. As it seems to me, however, the engaging of guards would have given rise to commercial considerations; in blunt terms, as Mr. Hack put it:
"That depends very much on who is going to pay for such a service."
Granted that a bailee is at least ordinarily duty bound to protect the bailed goods against theft, the extent of the precautions to be taken cannot be considered regardless of cost. Unless it is appropriate to conclude that FM was bound to engage guards if need be at its own expense, any failure to discuss the question of guards cannot have been causative unless it is to be assumed that commercial negotiations between SEUK and FM would have resulted in an agreement as to on site security. That is an assumption I would be unwilling to make. Further and to my mind, it is a leap too far from FM engaging guards on an isolated occasion when it thought it appropriate to do so to a duty on FM to engage guards on all such occasions at its own expense. In the circumstances, while FM should have raised with SEUK the question of on site security, I cannot conclude that FM's negligence in that limited regard was causative. No more therefore need be said on this topic.
- What remains is the question of whether FM's negligence in respect of criticisms i), ii) and iii) was causative. Although not (strictly at least) a point for him, Mr. Hack suggested that such negligence could not be shown to be causative; unless the identity of the "guilty" employee(s) was known, it could not be said that FM's failures had made any difference; if, for instance, one of the key employees had been the "guilty" individual, the fact that the alarm code had been made available to all or virtually all employees at the warehouse was neither here nor there. Thus prompted, Ms. Hilliard resisted the conclusion that negligence on FM's part in respect of criticisms i) , ii) and iii) was causative.
- Although I confess to having been troubled by Mr. Hack's reasoning, I am satisfied that it is not well-founded and that that FM's negligence was indeed causative of the theft and, hence, SEUK's loss. The short answer is that FM's failures in respect of criticisms i), ii) and iii) materially contributed to the theft; it is permissible, in my view, to draw the inference that these failures assisted in the commission of the theft. This is especially so when regard is had to them cumulatively, to the culture (or lack of any security culture) which they exemplified and the freedom of manoeuvre which they unnecessarily gave to the "guilty" employee(s).
- Accordingly, I am persuaded that on the ground of negligence as well, FM is liable to SEUK.
ISSUE (V): LIMITATION OF LIABILITY
- (1) Introduction: The question which next arises is whether, given FM's liability to SEUK for the wilful default of its warehouse employee(s) and in negligence, FM is entitled to limit its liability under the BIFA terms. With considerable prescience, on the first day of the hearing, Mr. Jacobs remarked:
" In the final analysis….this case is all about the application of either the BIFA or the UKWA limitation provisions…"
In the light of the conclusions to which I have already come, I respectfully agree. The application of (in the event) the BIFA limitation provisions gives rise to a question of the first importance; as I understand it, the limit thereunder is some £25,000, contrasting starkly with the pleaded counterclaim for about £2.6 million.
- Cll. 24 and 25 of the BIFA terms, dealing with liability, have already been set out. Cl. 27(A) is central to the question of limitation; it, together with cll. 26, 27(D) and 28 provide as follows:
"LIABILITY AND LIMITATION
24. …[see above]
25…..[see above]
26. Except under special arrangements previously made in writing the Company accepts no responsibility for departure or arrival dates of goods.
27(A) Subject to clause 2(B) and 11(B) above and sub-clause (D) below the Company's liability howsoever arising and notwithstanding that the cause of the loss or damage be unexplained shall not exceed…. [the various limits set out in sub-clauses (A) to (C)]
(D) By special arrangement agreed in writing, the Company may accept liability in excess of the limits set out in Sub-Clauses (A) to (C) above upon the Customer agreeing to pay the Company's additional charges for accepting such increased liability. Details of the Company's additional charges will be provided upon request.
28(A) Any claim by the Customer against the Company arising in respect of any service provided for the Customer or which the Company has undertaken to provide shall be made in writing and notified to the Company within 14 days of the date upon which the Customer became or should have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred except where the Customer can show that it was impossible for him to comply with this Time Limit and that he has made the claim as soon as it was reasonably possible for him to do so.
(B) Notwithstanding the provisions of Sub-Paragraph (A) above the Company shall in any event be discharged of all liability whatsoever howsoever arising in respect of any service provided for the Customer or which the Company has undertaken to provide unless suit be brought and written notice thereof given to the Company within nine months from the date of the event or occurrence alleged to give rise to a cause of action against the Company."
For completeness, for present purposes, cll. 2(B) and 11(B) are irrelevant and need not be set out. Further, as will by now be apparent, no special arrangement under cl.27(D) was entered into here.
- One aspect of the matter can be summarily disposed of. It is plain - and Mr. Jacobs did not seriously contend otherwise – that the wording of cl. 27(A) entitles FM to the benefit of the BIFA limitation provisions, insofar as the basis for FM's liability to SEUK lies in negligence.
- The critical question, at least under this Issue and subject only to the impact, if any, of UCTA, is whether FM is entitled to limit its liability insofar as such liability is founded on the wilful default of its employee(s).
- (2) The rival cases on cl. 27(A) and FM's vicarious liability for wilful default: For SEUK, Mr. Jacobs advanced the following submissions:
i) Clear words were needed to entitle a party to limit its liability in respect of its employees' (or ex-employees') deliberate criminal wrongdoing. Wilful default, as it has been termed in the present case, amounted to dishonesty or fraud. The wording of cl. 27(A), "liability howsoever arising" was not sufficiently clear. Such wording was to be contrasted with the wording found in cl. 3(ii) of the UKWA terms:
" The Company excludes liability for any claim relating to loss, damage, deterioration, delay, non-delivery, mis-delivery, unauthorised delivery or miscompliance with instructions of or to or in connection with the Goods ("Claim"). This exclusion does not apply if a Claim arises from the neglect or wilful act or default of the Company, its employees (acting in furtherance of their duties as employees) or sub-contractors (acting in furtherance of their duties as sub-contractors). In any case, the Company's liability shall not exceed a total of £100 per tonne weight of that part of the Goods in respect of which a claim arises. In no case shall the Company be liable for any loss of profit or indirect or consequential loss of any kind."
ii) On its true construction, contra proferentem, cl. 27(A) applied to negligence; it did not extend to cover wilful default. That was a matter outside its scope and there was no good reason for giving the clause an extended construction. Fraud was a thing apart. See: HIH v Chase [2003] UKHL 6; [2003] 2 Lloyd's Rep 61.
iii) Cl. 27(A) formed part of the "Liability and Limitation" section in the BIFA terms. It was to be read in context; the section was to be read as a whole. The focus of cll. 24 and 25 rested on liability for negligence. So too, cl. 28(A) was designed to meet ordinary contractual claims, not those involving fraud: see, Granville Oil v Davis Turner [2003] EWCA Civ 570; [2003] 2 Lloyd's Rep. 356. If this be right, then cl. 27(A) was likewise concerned with negligence; in short, "howsoever arising" referred back to and "mopped up" (Mr. Jacobs' expression) the bases of liability contemplated under cll. 25 and 26.
iv) If, however, these SEUK submissions were wrong, then cl. 27(A) contained words of unlimited width and there was no satisfactory stopping point short of FM's own wilful default (i.e., its own fraud). That could not be right; it was, however, the reductio ad absurdum of FM's argument as to the construction of the clause and gave rise to grave difficulties once UCTA was taken into account (see below).
- For FM, Ms. Hilliard's submissions began by emphasising the context in which cl. 27(A) was to be considered. First, it was a limitation clause not an exemption clause; it was not to be construed by the "specially exacting" standards applicable to exclusion and indemnity clauses: Ailsa Craig v Malvern Fishing [1983] 1 WLR 864. Secondly, there was no rule of law that liability could not be excluded, let alone limited in respect of deliberate breach: Photo Production v Securicor Ltd [1980] AC 827. Thirdly, there was no or no proper basis for saying that as the clause covered negligence, it could not cover other matters; that was (to cite Securicor, at p.846) a perversion of the rule that if a clause can cover matters other than negligence it would not be applied to negligence. Fourthly, SEUK had had the option, furnished by cl. 27(D), of paying more and obtaining a higher limit of liability. Fifthly, the particular business context was to be underlined; given a floating population of labour, much of it menial and theft attractive goods of considerable value, the risk of theft or connivance at theft was obvious and apparent. Against this background, the context of this case was very different from that considered in HIH, which was in any event concerned with fraud in the inducing of an insurance contract, rather than vicarious liability for deliberate wrongdoing in the course of performance of a contract: HIH, esp. at [98]. Putting the matter positively, the parties had meant what they said; "howsoever arising" meant just that. The parties had agreed that FM could limit its liability in all cases save where it was itself guilty of fraud; whether as a matter of construction or policy, cl. 27(A) would not extend to limit FM's liability in respect of its own fraud; but that was not this case. Granville did not give rise to difficulty; the Court of Appeal was there concerned with the personal fraud of a party. Ultimately, this clause was concerned with risk allocation; as a matter of construction, there was no good reason for not giving effect to cl. 27(A) in accordance with its terms.
- (3) Discussion: Attractively as Mr. Jacobs couched his submissions, I am unable to accept them. In my judgment, FM is entitled to limit its liability under cl. 27(A) of the BIFA terms in respect of wilful default on the part of employees or ex-employees; that was the bargain struck by the parties. My reasons follow.
- Authority: To begin with, perhaps somewhat surprisingly, there does not appear to be any authority directly in point on the BIFA terms. That said, some but necessarily limited guidance can be obtained from the authorities principally relied on by counsel and to which I now turn.
- Securicor is, with respect, an important authority, on striking facts, for the proposition that, at least in commercial cases (now subject only to the impact, if any, of UCTA), words, even in exclusion clauses, mean what they say and the parties will be held to the bargain into which they have entered. Further, it is a matter of construction rather than law as to whether liability for deliberate acts will be excluded, though of course the wording must be clear. Still further, as already observed when summarising Ms. Hilliard's submissions, the fact that a clause covers negligence does not entail that it does not cover deliberate acts. In that case, the House of Lords held that the general wording was clear and that the defendants were not liable for the act of their employee in deliberately starting a fire which, in the event, burnt down the plaintiffs' factory. As is apparent from the speeches (see, especially at pp. 846, 851 and 852), the reasoning had regard to the apportionment of risk agreed by the parties, coupled with their ability to insure against the risks and losses in question. It must, however, be reiterated that authority cannot be pressed too far and it is inherent in Securicor that each contract turns on its own construction.
- Ailsa Craig establishes that limitation clauses are not regarded by the courts with the "same hostility" (Lord Wilberforce, at p.966) as exclusion clauses. As Lord Fraser explained, at p.970:
" ….these principles [i.e., those applicable to exclusion and indemnity clauses] 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. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him. But there is no such high degree of improbability that he would agree to a limitation of the liability of the proferens, especially when ….the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for…."
Again, such guidance is not to be adopted unthinkingly and certain caveats must be noted. First, the passage was dealing with negligence rather than wilful default. Secondly, as observed by Lord Hoffmann in HIH, at [63], it must be doubted whether Lord Fraser was introducing one "mechanistic rule …to mitigate the rigour of another"; all turned on the language of the clause in question and the context. I keep these cautions very much in mind.
- HIH concerned a trial of preliminary issues in the setting of the "film finance" litigation. The context is far removed from that of the present case, a point, as it seems to me, of no little importance and to which I must return.
- Before doing so, however, it is convenient to set out a number of propositions for which HIH is undoubtedly authority. First, fraud is a thing apart; as expressed by Lord Bingham, at [15]:
"…This is not a mere slogan. It reflects an old legal rule that fraud unravels all…It also reflects the pratical basis of commercial intercourse. Once fraud is proved, 'it vitiates judgments, contracts and all transactions whatsoever'…Parties entering into a commercial contract will no doubt recognize and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal. What is true of the principal is true of the agent, not least in a situation where, as here, the agent, if not the sire of the transaction, plays the role of a very active midwife."
Secondly, the law, on public policy grounds, does not permit a contracting party to exclude liability for its own fraud in inducing a contract: see, Lord Bingham, at [16] and Lord Hoffmann, at [76]. Thirdly, the House of Lords left unresolved the question of whether there was a similar rule in respect of the agent of a party, acting as such, in the making of a contract: Lord Bingham at [16]; Lord Hoffmann, at [76] – [81]. Where, however, it was sought to exclude the ordinary consequences of such fraud or dishonesty on the part of the agent, that intention was to be expressed in clear and unmistakeable terms on the face of the contract: Lord Bingham, at [16].
- As foreshadowed, I must, however, now return to the context. HIH was dealing with fraud in the making of a contract, rather than the question of excluding liability for the fraud of an agent in the performance of a contract. As Lord Hobhouse expressed it, at [98]:
" I would add, for the sake of completeness that the present case is not concerned with a situation of the dishonest conduct of a servant or agent in the course of the performance of a wholly valid contract, say a contract of carriage, and an exemption of, say, the theft of the goods in transit. There questions of construction may well arise…."
See too, Lord Hoffmann, to like effect, at [76].
- In my respectful view, the reasoning for this difference in approach is at once apparent. Parties do not contemplate fraud in the making of a contract; as observed by Lord Bingham, there would be no deal. But it is another thing altogether to say that parties do not contemplate the risk of deliberate wrongdoing at some point in the performance of a valid contract. That is a matter for construction of the contractual provisions and risk allocation, whether by way of insurance or otherwise.
- Context: It is helpful to turn next to the commercial context in which cl. 27(A) is found. A corporate bailee such as FM, performs its duties vicariously and is inevitably exposed to the risk of vicarious liability. More specifically, in the context of the bailment of theft attractive goods, the risk of theft must be, if not notorious, then at least apparent and obvious. Sadly but realistically, the same must be said with regard to the risk of attendant dishonesty on the part of the bailee's workforce. If it is wrong to take "judicial notice" of such risks, then to my mind the concerns and criticisms as to security noted in the evidence speak here for themselves; indeed, an important part of SEUK's case against FM in negligence was that, in essence, FM had failed to take adequate precautions against the risk of employee dishonesty. That the scale of the theft in the present case was very much out of the ordinary is neither here nor there; it is the type of risk which matters. Accordingly, as it seems to me, amongst the commonplace risks which the parties must contemplate when contracting, are negligence, losses by unexplained causes and deliberate wrongdoing, extending to dishonesty on the part of the bailee's employees for which he may be vicariously liable. Against this background, it would hardly be surprising if the parties sought to address and allocate such risks in their contract; still less would it be surprising if standard terms in this area of commerce, such as the BIFA terms, sought to do so.
- The wording: That which the parties might be expected to address is one thing; the wording they choose to use may be another – and it is from the contractual wording, read in context, that the parties' intentions must be ascertained.
- I start with the words themselves. It is true that they are to be construed contra proferentem. It is further true that the wording is general; it does not in express terms refer to negligence or wilful default or employee dishonesty or deliberate wrongdoing. Nonetheless, on any natural reading, the wording of cl. 27(A) is wide indeed. As already remarked, there was no or no serious dispute that cl. 27(A) entitled FM to limit its liability in respect of the case of negligence advanced against it. To my mind, the clause does not stop there. As a matter of language, considered in isolation, I am amply satisfied that the wording was capable of extending to cover deliberate wrongdoing. If that be right, there is no good reason why, as a matter of language, the answer should be any different when the deliberate wrongdoing is comprised of or includes employee dishonesty; the words "howsoever arising" are certainly broad enough to encompass dishonesty on the part of employees for whom FM is or may be vicariously liable.
- What of the wording in context? Here, as it seems to me, the arguments are essentially one way:
i) The risk of employee wilful default is a real, foreseeable, commonplace risk.
ii) Cl. 27(A) is a limitation clause.
iii) Both the nature of the clause and the commercial background against which it is intended to operate, suggest that the parties intended cl. 27(A) to provide an uncomplicated safety net for FM; if, however, cl. 27(A) does not extend to the commonplace risk in question, then there would be a significant hole in that safety net. These considerations lend powerful support to the proposition that the parties intended the wording to mean what it said; "howsoever arising" meant just that – cl. 27(A) scooped up FM's liability, "howsoever arising", including employee wilful default.
iv) Nothing in the authorities to which I have referred tells against such an approach. To the contrary, this approach to cl. 27(A) is consistent with both Securicor and Ailsa Craig; commercial contracts are not to be artificially construed and liability even for deliberate wrongdoing can be excluded, a fortiori limited, provided appropriate wording is used. While a suggested limitation of liability for employee wilful default does require close scrutiny, HIH underlines that, so far as concerns deliberate wrongdoing in the course of performance of an admittedly valid contract, the matter is one of construction.
v) I add this; in practical terms, one or other party was to or would be well advised to insure against the risk of employee wilful default; the party directly at risk was SEUK; all other things being equal, it was likely to be better placed than FM to do so. The above construction of cl. 27(A) would mean that the parties had addressed this risk and left it to SEUK to obtain insurance (for losses above the limit). As a matter of fact, giving me some comfort if irrelevant to the construction of the BIFA terms, I was told by Mr. Jacobs, that SEUK did so; the present is (primarily at least) a subrogated claim.
- Next, I am not dissuaded from my preferred if still provisional view as to the construction of cl. 27(A), by the somewhat different wording found in cl. 3(ii) of the UKWA terms (set out above). While it is true that the words "wilful default" are expressly set out in the liability section of the UKWA clause, the sentence dealing with limitation is entirely general in its language. Unless it is to be said that cl. 24 of the BIFA terms does not contemplate liability for wilful default at all – an impossible construction, even if the standard is set in terms of negligence – I do not think that this difference in wording is or should be decisive.
- In summary, provisionally at least, I am persuaded that the language of cl. 27(A) of the BIFA terms, read in context, was clear and was not only capable of extending to employee wilful default but was intended by the parties to do so. Neither the language of the clause nor its context points towards straining the clause so as to read into it some restriction which it is not naturally there. The words "howsoever arising", to which the parties have agreed, mean what they say.
- The contractual scheme: reading the section on "Liability and Limitation" as a whole: Clearly, any suggested construction must make sense having regard to the contractual scheme and, in particular, the section of the BIFA terms dealing with liability and limitation. The construction which, as already indicated, I am otherwise minded to favour must therefore be tested against this yardstick.
- While the relationship between cll. 24 and 25 of the BIFA terms may involve an element of overlap or tautology, in very broad terms (sufficient for present purposes), cl. 24 addresses liability, cl. 25 relief from liability and cl. 27(A), limitation of liability. Necessarily, there is a relationship between these clauses. If there is no breach of the obligation contained in cl. 24, no question of relief from or limitation of liability arises. On any view, in a case where FM can bring itself within the relieving provisions of cl. 25, then the limitation provisions of cl. 27(A) are never reached. It follows that cl. 27(A) comes into play when and only when, first, FM is in breach of duty under cl. 24 and, secondly, is unable to take advantage of the relieving provisions of cl. 25.
- Cl. 24 provides for a due diligence standard. However, it could not possibly be contended that liability for a breach of cl. 24 was restricted to liability for negligence; nor indeed, given its case on wilful default, does SEUK so contend. But if that be right, then, on SEUK's case, though cl. 24 contemplated liability for employee wilful default, such liability could not be limited under cl.27(A). The upshot would be to render cl. 27(A) inapplicable in an important, commonplace respect. As a matter of contractual scheme, that seems unlikely.
- As already noted and perhaps shifting his focus, Mr. Jacobs submitted that "howsoever arising" in cl. 27(A) was a "shorthand" for the bases of liability contemplated under cll. 25 and 26. I cannot accept that submission. First, as it seems to me, cl. 26 raises separate considerations and is of little assistance in the construction of cl. 27(A); I return to cl. 26 presently. Secondly, with respect, this submission is misplaced as to cl. 25; that clause defines exhaustively the circumstances in which FM will be relieved of liability; it contains no definition, certainly no exhaustive definition, of the bases of FM's liability. It is entirely understandable that FM should only be relieved from liability in certain limited circumstances. It simply does not follow that the limitation clause should be similarly restricted; indeed if it was co-extensive with cl. 25, there would be no point in cl. 27(A) at all. The scheme of the contract, to my mind, necessarily contemplates circumstances in which FM will be unable to obtain relief from liability under cl. 25 but will be entitled to limit its liability under cl. 27(A). By way of simple illustration taken from the express wording, cl. 27(A) applies in terms "notwithstanding that the cause of loss or damage ..[is]..unexplained"; in such a situation, it would be unlikely that FM could bring itself within the relieving provisions of cl. 25. Thirdly and in any event, the references to "reasonable diligence" in cl. 25 go solely to the circumstances in which FM is or may be entitled to relief from liability; by contrast, the wording in cl.25(B) which refers to liability - "any cause or event" – is itself wording of considerable width, in no way restricted to liability in negligence.
- For my part, this analysis of cl. 27(A) within the scheme of the section of the BIFA terms dealing with "Liability and Limitation", lends further support to the conclusion that cl. 27(A) is a simple "catch-all" provision, having the effect that FM is entitled to limit its liability, "howsoever arising". There will be no liability absent a breach of duty under cl.24; in some instances, relief from liability will be available under cl. 25; liability "howsoever arising" and for which, ex hypothesi, relief cannot be obtained, will be limited under cl.27(A).
- What of the decision in Granville and SEUK's submission that it told against cl. 27(A) extending to wilful default? I am unpersuaded; to explain why, I must turn to Granville itself.
- The decision in Granville was that the time bar provision, now found in cl. 28(B) of BIFA, satisfied the requirements of reasonableness under UCTA; in due course I shall return to this decision when dealing with UCTA. In differing from the Judge at first instance and in reaching this conclusion, Tuckey LJ said this at [15]:
" I think it is an inescapable conclusion from what he said that the Judge did think that the clause applied to a claim for fraud and to a claim which had been fraudulently concealed by the conduct of the freight forwarder….I do not think such a construction was justified. The clause is obviously designed to meet ordinary contractual claims …which a freight forwarder would expect to have to face in the ordinary course of his business. As Lord Justice Rix put it in HIH Casualty at p.512:
Parties to a contract plainly look to performance rather than non performance or misperformance, but they also contemplate the latter. It seems to me however that fraud is a thing apart. Parties contract with one another in the expectation of honest dealing.
The majority decision of the House of Lords in HIH Casualty…does not cast doubt on these principles."
- With respect, I do not think that this passage affords Mr. Jacobs the assistance which he sought to derive from it. First, it is quite understandable that a contractual time bar provision should be inapplicable when a claim has been fraudulently concealed (cf., s.32 of the Limitation Act 1980); that can have no bearing on the true construction of cl. 27(A). Secondly, when considering the discussion in Granville as a whole, to my mind the references to "fraud" are references to fraud by the freight forwarder; they are not references to theft by the freight forwarder's employees for which the forwarder is vicariously liable. Such a construction is itself a noteworthy inroad into cl. 28 of the BIFA terms (contrast, in a different area of the law, The Captain Gregos [1990] 1 Lloyd's Rep 310), but, again sheds no light on the true construction of cl. 27(A). Thirdly, even if the time bar provisions of BIFA are inapplicable to claims involving employee dishonesty for which the freight forwarder is vicariously liable, it does not follow that cl. 27(A), a limitation clause, is similarly restricted. While it is true that the section in the BIFA terms, "Liability and Limitation" must be read as a whole, there is nothing necessarily remarkable in the finding that the scope of clauses within that section differs; it is one thing to exclude or bar a claim or liability but it is or may be another to limit liability in respect of any such claim. With respect, therefore, I do not find in Granville the answer to the question as to the true construction of cl.27(A) of the BIFA terms.
- It remains to mention cl. 26. This clause addresses the distinct topic of delay and, as with cl. 27(D), makes provision for "special arrangements". Whatever the true scope of cl. 26 (for example, the question of whether there would be liability for delayed arrival of goods if the delay is attributable to employee wilful default), the separate considerations underlying cl. 26 are such that its scope does not shed light on the true construction of cl. 27(A).
- Where does cl. 27(A) stop? SEUK's final submission was that if wrong on the true construction of cl. 27(A), then, as a matter of construction, there was no stopping place short of cl. 27(A) extending to the personal fraud or wilful default of FM itself. I disagree. The short answer, as it seems to me, is that when it comes to personal fraud of a party, then, whether as a matter of public policy or construction (it is unnecessary to resolve which), fraud is indeed a thing apart. It is in this context, with respect, that the observations of Tuckey LJ in Granville at [15], set out above, are particularly apposite. So far as concerns construction, even with regard to the invocation of a limitation clause in the course of the performance of an otherwise valid contract, the parties do not contemplate that one of them may take advantage of personal fraud. The various considerations already discussed (as to risk allocation, clarity of language and context) which point to cl. 27(A) extending to FM's vicarious liability for wilful default, suggest a different conclusion where personal fraud on FM's part is concerned.
- (4) Overall conclusion: For the reasons given, I am satisfied that cl. 27(A) of the BIFA terms entitles FM to limit its liability in respect of SEUK's claims in this case, whether advanced on the basis of employee wilful default or negligence. The commercial ramifications do not of course end with the resolution of the legal issues; subsequent to the theft, on the material available to me, SEUK decided to terminate its relationship with Maas – in the light of the facts as found in these proceedings, unsurprisingly if I may say so. But that is neither here nor there on the issue of limitation of liability. Reverting to the matters with which I must deal, I shall be grateful for assistance from counsel in determining the precise limitation figure.
- (5) A footnote on the UKWA terms: Had I concluded that the UKWA rather than the BIFA terms were applicable, it is unnecessary to say more than the following:
i) It is clear from cl. 3(ii) of the UKWA terms that there is no exclusion of liability in the case of either negligence or wilful default; accordingly, on the facts which I have found, FM would have been liable to SEUK for the theft and the loss of its goods.
ii) Given the wording of cl. 3(ii) of the UKWA terms, FM would have been entitled to limit its liability in respect of SEUK's claims.
iii) In short, the outcome under the UKWA terms would have been no different from that arrived at under the BIFA terms, save for the the limitation figure, which would require a different calculation. Again, if here only for completeness, I should be grateful for counsel's assistance in calculating the precise figure.
ISSUE (VI): UCTA
- (1) Introduction: As already foreshadowed, the question here is whether the limitation provisions contained in the BIFA, alternatively the UKWA, terms, satisfy the requirement of reasonableness under UCTA. In the light of my conclusions so far, I shall concentrate on the BIFA terms and add a footnote on the UKWA terms. I should add that I do so on the basis that cl.27(A) of the BIFA terms would not permit FM to limit its liability in respect of its own fraud.
- (2) The relevant UCTA provisions: Insofar as relevant, UCTA provides as follows:
"3. Liability arising in contract
(1) This section applies as between contracting parties where one of them deals ...on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term –
(a) when himself in breach of contract, ...restrict any liability of his in respect of that breach....
except in so far as ...the contract term satisfies the requirement of reasonableness.
11 The 'reasonableness' test
In relation to a contract term, the requirement of reasonableness ...is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
(5) It is for those claiming that a contract term ... satisfies the requirement of reasonableness to show that it does."
- (3) The rival contentions: Insofar as this point ultimately remained live, Mr. Jacobs contended that cl. 27(A), if it extended to FM's vicarious liability for employee wilful default, did not satisfy the requirement of reasonableness. He underlined that the limit was derisory. He further emphasised that if there had been an oral agreement for the provision of on site security, then if that agreement was subject to cl. 27(A), the clause would not satisfy the requirement of reasonableness; in the light of my earlier conclusion that no such oral agreement had been established, it is unnecessary to say more on this particular submission.
- Ms. Hilliard submitted that cl. 27(A) did satisfy the requirement of reasonableness. First, there had been no inequality of bargaining power. Secondly, terms such as cl. 27(A) are routinely used in the freight industry. Thirdly, it was open to SEUK to agree with FM to a higher limit upon payment of additional charges, pursuant to s.27(D) of the BIFA terms.
- (4) Conclusion: I confess to no real doubt that Ms. Hilliard's submissions are to be preferred. The context is illuminated by Granville, where Tuckey LJ said this, at [31]:
"The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms."
- I respectfully adopt those observations. In the present case:
i) The parties were of equal bargaining power;
ii) The reason that the limit under cl. 27(A) is said to be derisory relates to the value of the goods lost. But, in the passage cited much earlier from Mr. Harrowing's evidence, as he put it, no freight forwarder in his "right mind" would contract on the basis of value; at the time of contracting freight forwarders may well not know the value of the goods with which they may come to deal. Accordingly, the limit in cl. 27(A) is calculated in terms of weight.
iii) In any event, SEUK could have contracted under cl. 27(D) of the BIFA terms for a higher limit had it wished to do so.
iv) Clauses such as cl. 27(A) are commonly used by freight forwarders; see, for instance, Mr. Graham's evidence, set out much earlier.
v) As evidenced by the fact that it did so, SEUK could obtain insurance cover in respect of the goods.
- For all these reasons, I am amply satisfied that cl. 27(A) of the BIFA terms satisfies the requirement of reasonableness under UCTA. Accordingly, UCTA has no impact on FM's entitlement to limit its liability under cl. 27(A).
- (5) A postscript on UKWA: It suffices to say that I would have come to the same conclusion in respect of cl. 3(ii) of the UKWA terms, on the basis that I would not have read that clause as permitting FM to limit its liability in respect of its own fraud.
ISSUE (VII): QUANTUM
- (1) Introduction: Save for one very small item, the issue here goes to the true quantum of SEUK's loss, on the assumption that FM was not entitled to limit its liability. In the light of the conclusions already reached, this issue is therefore very largely academic. In the circumstances, I deal with it summarily.
- (2) Conclusions which are now academic: The parties remained in dispute as to the following items, which are academic in the light of the conclusion that FM is entitled to limit its liability under cl. 27(A) of the BIFA terms:
i) First, there was the question of whether SEUK could claim the resale or the purchase price for the stolen telephones. The parties helpfully agreed that a claim based on the resale price would amount to £2,573,100.00, whereas a claim based on the purchase price would amount to £2,252,460.00. Relying on Mr. Murphy's evidence that demand so outstripped supply that it lost the orders for which the (stolen) telephones had been intended, SEUK argued for the resale price. FM countered by saying that this was assertion only and no documents whatever had been produced in support of this claim. For my part, while acknowledging the evidence that SEUK's business was expanding at the time in question, I would not have been willing to accede to the higher resale price claim simply on the basis of Mr. Murphy's assertions. In the event, had FM not been entitled to limit its liability, I would have allowed £2,252,460.00 in respect of this head of claim.
ii) FM disputed SEUK's entitlement to claim some £82,548.22 in respect of invoices from Mr. Gill's company, referred to as "security arrangement costs". It was said that these costs do not arise out of the theft. Additionally, SEUK claimed some £22,563.12 as survey fees; FM said that insofar as any of the security arrangement costs related to the theft, they duplicated the claim for survey fees. Again, had it mattered, I would have allowed: (1) the claim for £22,563.12 in respect of the survey fees; (2) the claim for the security arrangement costs, less £5,875.00 in respect of a particular invoice where duplication is apparent, thus a total of £76,673.22; in my view, the security arrangement costs generally did arise out of the theft.
iii) It follows, as a matter of arithmetic, that had FM not been entitled to limit its liability, I would have allowed SEUK's claim in the total sum of £2,252,460.00 + £22,563.12 + £76,673.22 = £2,351,696.34.
- (3) The remaining live dispute: Mr. Jacobs contended that even if FM was entitled to limit its liability under cl. 27(A), the £22,563.12 claim for survey fees was to be allowed in full. The argument was that cl. 27(A) applied only to "loss or damage to goods" and therefore did not extend to limit the claim for the survey fees. The point is a short one and I am unable to accept Mr. Jacobs' submission. Cl. 27(A)(i) limits FM's liability in respect of a claim for loss or damage to goods to a particular amount; the survey fees form part of that claim; they do not have an independent existence; on the question of limitation, they stand or fall with the claim for the loss of the goods.
- I shall be grateful for counsel's assistance on the matters of calculation already referred to, on all questions of costs and in drawing up the appropriate order.
