Datec Electronics Holdings Limited and others (Respondents) v. United Parcels Services Limited (Appellants)
Article 1 of CMR states:
Here, UPS had discretion as to the route and means (cf clause 1D of their conditions), and they chose to perform as an international road carrier between Cologne and the final destination in Amsterdam. The $50,000 question apart, it is common ground that CMR would apply as between UPS and the respondents to the international road carriage which UPS was entitled, and chose, to undertake: cf Quantum Corpn Inc. v. Plane Trucking Ltd.  EWCA Civ 350;  2 Lloyd's Rep 25. Whether CMR in fact applied thus depends on whether there was any "contract for the carriage" of these packages from Milton Keynes to Amsterdam.
23. The umbrella agreement did not cover the despatch of particular packages - indeed it did not oblige Datec to despatch any packages at all. In the case of packages conforming to UPS's conditions, a contract for carriage would come into existence either when a shipment was booked by computer or at latest when it was collected pursuant to such a booking. That some form of contract was intended by UPS's conditions even in respect of packages not meeting UPS's restrictions seems clear. The "consequences" of a shipper presenting non-conforming packages for carriage were stated to involve rights on the part of UPS to suspend carriage (clause 3(c)(i) and (ii)), to retain any carriage charges paid (clause 3(e)) and to open and inspect any package tendered to it for transportation (clauses 3(c)(i) and (ii) and (f)). The conditions also include a positive obligation on the part of the shipper to be responsible for costs and expenses, for losses, taxes and customs duties suffered and for claims made against UPS because of the non-compliance (clause 3(d)). This last is an obligation which one can well envisage UPS wishing to be able enforce against a shipper - for example, in the case of dangerous goods damaging other goods or damaging the carrying vehicle itself, or in the case of goods prohibited for import, which resulted in UPS incurring a customs penalty or costs. The critical question is to my mind whether the contract was for carriage subject to such rights and obligations, or was for some form of bailment capable of conversion into a contract for carriage only if UPS discovered the non-conformity and decided to proceed with, rather than suspend, the actual carriage.
24. Short though the issue is, it is not an easy one. But I have come to the conclusion that the courts below were correct. I would adopt the reasons given succinctly by Andrew Smith J in paras 118-119 of his judgment, when he said:
25. To these reasons, I would add that the assumption behind the concluding words of clause 3(e) is that, where carriage occurs without the non-conformity being detected or the carriage being suspended, carriage charges are without more due contractually. An argument that they are due as reward for carriage inadvertently performed under a bailment which was not for carriage seems to run into the commercial unreality which the judge had in mind in para 119. To the case of mutual ignorance which the judge postulated in the second sentence of para 119, one may also add that many situations can be conceived in which there was room for disagreement or mistake about whether some of the restrictions applied. Differences of view or mistakes could well arise as to whether articles were of "unusual value" or "might . taint or damage other goods being transported by UPS". Finally, it is material to note that clause 3 regulates some situations where there is on any view a contract for carriage: cf the concluding sentence of clause 3(a), clause 3(b), clause 3(c)(ii) read with (iii) and the last words of clause 3(e) as well as clause 3(f). The more natural inference is, in my view, that the whole of clause 3 provides a contractual regime governing carriage of non-conforming goods.
26. It is well to remember that, in many circumstances, particularly in cases of domestic carriage and carriage not subject to mandatory rules, this conclusion, and the first issue, would not be significant. There would be no problem about UPS restricting its liability, whether or not there was a contract for carriage. Whether clause 3(e) would be sufficient to do this is a different matter. Mr Reeve for the respondents submitted that it would not be, because loss by failure to take due care or worse cannot be regarded as loss "arising out" of UPS carrying non-conforming packages. The word "loss" was not amplified by the usual phrases to embrace loss caused "howsoever" or by negligence, still less by employee misconduct or theft (cf Canada Steamship Lines Ltd. v. The King  AC 192, 208, per Lord Morton). However, I would reserve any opinion on the correctness of Mr Reeve's submission, at least in relation to loss or damage by negligence, in circumstances where, under clause 9.2 and apart from situations governed by Convention or mandatory national rules, UPS would not anyway be liable except for negligence. I should mention that Mr Flaux QC representing UPS disclaimed any submission that clause 9.2 could apply if there was no contract for carriage. UPS's argument that there was no contract for carriage of the three packages was aimed solely at invoking clause 3(e).
27. UPS's difficulties in relying on clause 3, if there was a contract for carriage of the three packages, arise from the application to international carriage of the Warsaw Convention in the case of air transport and (more pertinently in this case) of CMR in the case of road transport. These Conventions regulate the liability of international carriers by air and road for loss of or damage or delay to goods in terms from which no derogation is permissible: cf in particular Chapters IV and VII of CMR. For the benefit of carriers, they also include certain exclusions and strict limits on the extent of liability (8.33 units of account, about £10, per kilogram in the case of CMR: article 23(3)); and these apply in relation to extra-contractual as well as contractual claims against the carrier, its servants and agents and others of whose services the carrier makes use: article 28(1) and (2). In most situations, therefore, the application of the CMR regime to the carriage of non-conforming packages would not expose UPS to unlimited exposure. But the CMR exclusions and limits are not available if the claimant is able to prove wilful misconduct or its equivalent: article 29(1). The carrier is then exposed to unlimited liability. Hence, in the present case, UPS's concern to establish that CMR is inapplicable.
28. Exposure to unlimited liability in respect of wilful misconduct of its servants or agents is not normally a matter in respect of which a carrier can expect sympathy. But a carrier is entitled to refuse to carry particular goods or to require the shipper to give an undertaking as to the nature or qualities of goods which it agrees to carry. A carrier who unwittingly receives and carries goods which do not comply with stated restrictions is unlikely to be the ordinary carrier whom the drafters of CMR had in the forefront of their mind. It is relevant to consider whether the fact that goods did not conform to the carrier's restrictions retains any relevance if CMR applies. There are various ways in which it might do so, some of them discussed before the judge.
29. First, if the non-conforming nature of the goods (e.g. excess weight) itself led to damage to the goods themselves, this could be relevant under article 17(2) of CMR both to show that the damage occurred through circumstances which the carrier could not avoid and, quite possibly, to show that it was caused by wrongful act or neglect of the claimant. In the present case, UPS advanced before the judge the more ambitious contention that the loss was caused by wrongful act or neglect of the respondents through despatching goods worth more than US$50,000. The judge at para 127 was not persuaded that the despatch of excess-value packages was a "wrongful act" by Datec, and he did not regard it as necessary or permissible to interpret the contract as containing an implied undertaking not to despatch such packages. I have considerable doubts about this part of the judge's reasoning. But the judge also rejected UPS's contention for the more persuasive reason that the excessive value of the packages did not in any way cause the loss. The packages were not, in other words, lost because of their individual value (although, as will appear, they may well have been targeted because of the value of their contents). The judge further found that, had Datec not ignored the package value restriction, it could and would in any event have despatched the contents of the packages (that is the eight boxes each having a value of less than US$50,000) as separate packages via UPS.
30. Article 41 of CMR renders null and void "any stipulation which would directly or indirectly derogate from the provisions of this Convention", adding that "the nullity of such a stipulation shall not involve the nullity of the other provisions of the contract". So far as the first part of clause 3(e) of UPS's conditions purports to remove liability for loss, damage or delay which UPS would otherwise incur under article 17 of CMR, clause 3(e) is null and void. But CMR does not supersede all aspects of the contractual or legal relationship between a carrier and those contracting for the carrier's services. It is at least arguable that clause 3(d) of UPS's conditions would enable UPS to cross-claim, against those contracting for UPS's services, in respect of any excess exposure over and above US$50,000 per package which UPS could show that they only incurred as a result of the shipment of non-conforming packages. Before the House, the possibility that there might be or have been some relief based on an implied misrepresentation or misstatement of the characteristics of the packages being despatched was also raised. The limited scope of the first issue (cf paragraph 21 above) means that the validity of these arguments has not been tested. But, if they are not sound, the harsh, but clear-cut position will be that, where a carrier contracts unwittingly to carry non-conforming goods and chooses to perform internationally by road, CMR applies with its benefits and burdens, and that the carrier's restrictions will be relevant only if and in so far as they may assist the carrier to avoid liability under article 17(2).
31. I would therefore reject UPS's challenge to the application of CMR to the carriage of the three packages. The issue of wilful misconduct thus arises for consideration.
32. Some further facts need stating. The three packages bore barcode labels with separate identification numbers. These labels were all twice scanned at about 7.30 a.m. on Friday, 26 July 2002 shortly after the packages arrived at UPS's hub premises in Amsterdam. The hub premises consisted of a yard surrounded by a 3 metre fence with one pedestrian and two vehicular gates. Inside the yard was a large secure warehouse, with gates on one side against which incoming vehicles reversed in such a way as to make it "virtually impossible" for anyone to enter or leave the warehouse along either side of the vehicles. Short feeder conveyors were extended into the backs of incoming vehicles, and staff called "unloaders" used these to discharge packages to a main conveyor belt inside the shed. The barcodes were scanned first on "import" and then, on reaching the main conveyor belt, as "out for delivery". Staff called "splitters" manually directed packages off the main conveyor onto one of two conveyor belt spurs, alongside each of which between five and perhaps ten loading vehicles destined for different delivery areas were backed up. Packages were unloaded from the spurs either by the driver for the relevant vehicle or by "pre-loaders". Loading was a quick operation giving very little time to assess what packages contained or their value (although Mr van Beusekom of UPS said in his written statement that a driver loading his own vehicle "might have more of an opportunity to assess" such matters). Loaded vans left the warehouse through roll-doors opened by "proximity" card. The vans had automatic locks on the doors between the cabin and their rear, as well as padlocks to their rear doors. Drivers were instructed to apply these padlocks whenever they left the van, including when making a delivery. Drivers carried a electronic "DIAD" board to obtain the recipient's signature for each package delivered. The information on each DIAD board was down-loaded to UPS's mainframe computer each day. Any package not delivered should have been returned by the driver to the hub, where it should on "import" have been scanned and then placed in a secure "overgoods" area inside the warehouse, for identification and delivery as appropriate as soon as possible. There was some, but not complete, CCTV coverage inside the warehouse.
33. L&A's premises were in the Schiphol South East area about 15 km from the UPS hub. On 26 July 2002 the van due to make deliveries there was driven by a Mr Kadim. The last recorded sighting of the three packages was by a UBS employee, Mr Kharbouche, at the hub. He saw the packages stacked behind Mr Kadim's vehicle and checked their barcodes to make sure that they had been correctly sorted. But Mr van Beusekom, gave evidence that this did not mean that the packages were necessarily loaded into Mr Kadim's van. Being large packages, they might have been stacked there for stowage in an accessible part of the vehicle, or because there was no space for them on the vehicle, or in order to be loaded onto another vehicle.
34. Mr Kadim delivered only one package not the subject of these proceedings to L&A on the morning of 26 July 2002. By about mid-day, L&A were complaining of non-delivery of the three packages. L&A later also complained of non-delivery of a fourth package consigned by Datec to L&A as agents for Axxis Hardware BV ("Axxis"). UPS started their enquiries as soon as L&A complained about the missing three packages. Mr Kadim was telephoned on the evening of 26 July. He told UPS to contact their other drivers, some of whom, he said, had taken packages from his lorry. At trial, UPS did not call any evidence about the outcome of any such enquiries.
35. On Sunday, 26 July 2002 Mr Kadim flew back to his country of birth, Morocco. He already had a poor attendance record, and, when he did not appear for work on Monday, 29 July, UPS issued a notice dismissing him. Mr Kadim returned to Holland in late September 2002. After being informed by a friend that the police were looking for him, he went to the police, and in interview explained that he had gone to Morocco as a result of an urgent call from his mother at 11.30 p.m. on Friday, 26 July informing him that his father had been seriously ill. He said that he "did not think it necessary to notify" UPS that he was in Morocco because he "knew that [his] contract was not going to be extended". He said that his van had been loaded on 26 July by pre-loaders, Sebastian (Roux) and Rob (Wiegant), and repeated that other drivers - three, whose names he did not know - had on 26 July taken parcels from his lorry to deliver themselves. Asked how he knew what was on his lorry and where to go, he said that he would look to see just before he set out, but that "since I no longer have the Sloterdijk route, I no longer know my way around very well". The evidence is that the Sloterdijk route had been his regular route, and he was not the regular driver for the Schiphol South East route which he was due to take on 26 July 2002. Mr van Beusekom's inspection of the CCTV footage and enquiries of the pre-loaders, Mr Roux and Mr Wiegant, yielded nothing relevant or abnormal. The loading of Mr Kadim's van could not be directly observed on the footage and Mr van Beusekom was not aware what the three packages looked like.
36. The judge had to consider whether the three packages, and so far as relevant the Axxis package, had been delivered to L&A. He was satisfied that they had not been. No DIAD signature existed for any of the packages except the fifth package which Mr Kadim did deliver, and it was improbable that the relevant barcodes had (all) been damaged in their pouches or become illegible. The nature of L&A's premises and procedures added to the unlikelihood of any loss occurring after delivery to L&A. The judge's finding of non-delivery was not appealed before the Court of Appeal or therefore the House.
37. On the basis that there was non-delivery, the judge turned to consider the likelihood of theft by an employee of UPS. Mr van Beusekom's evidence was that the hub had lost only eighteen packages due to theft between 1998 and 2002, with "17 of them being lost to a crime ring that was broken in March 2001", and that UPS's security systems were sound and UPS's approach to theft that it was always prosecuted. He also said that the hub lost 41 packages in July 2002 alone, an average of around 1 in every 2712 packages handled, and gave various possible explanations as to how packages could go missing "inexplicably" (as the judge put it). They included delivery without any record being made, mis-delivery and theft from a van on its rounds. So far as Mr van Beusekom in his witness statement expressed opinions as to what might have happened to the three packages, Mr Reeve did not cross-examine, taking the view that this was a matter for the experts called on either side (and the judge in a comment during cross-examination endorsed this approach).
38. Experts were called and examined on both sides, Mr Holmes for the respondents and Mr Heinrich-Jones for UPS. But it was for the judge to decide whether, in the light of all the evidence, any and if so what probable cause of loss could be determined. In the event, the judge found their evidence "of limited value". He went on
The judge said later (in para 57):
39. So far as the last sentence is relevant, I do not regard it as an accurate summary of the effect of Mr Holmes' evidence under cross-examination on 18 November 2004 (transcript pp. 76-80 and 85). Mr Holmes went on to make clear that he believed that he had said that the probable cause was theft by Mr Kadim or another UPS employee and that this was indeed both "highly likely" and the probable cause, although "one cannot be 100% certain". He was also plainly, and rightly, unhappy about being asked to decide questions on a balance of probabilities which he understood were "for the court to decide".
40. Mr Julian Flaux QC for UPS stressed in his submissions that, based on an original list by Mr Heinrich-Jones, the experts had in a joint memorandum identified a range of 17 possibilities, grouped under four headings: (I) Misplaced, (II) Delivery Issues, (III) Labelling Issues and (IV) Theft. Two such possibilities, "Delivered but no proof of delivery" under head II and "Bar code problems" under head (III). fall out of the picture in the light of the judge's finding that the packages were not delivered to L&A. There is nothing in Datec's or UPS's documentation or in the course of known events to suggest any likelihood of the remaining possibilities listed as "Labelling Issues" under head III, that is Incorrectly labelled, Incorrectly addressed or Over labelled. This is particularly so when (a) it would be a remarkable coincidence if three or four packages due for delivery to the same place all went astray on 26 July 2002 for such a reason, (b) all four packages were satisfactorily scanned both on import and as "out for delivery" at UPS's hub on the morning of 26 July 2002, and (c) Mr Kharbouche checked the labels on the three packages and found them visually in order just before they were due for loading on 26th July. Two possibilities under head IV (Theft by UPS Delivery Driver and by Unknown UPS Employee) involve wilful misconduct. The remaining possibilities listed under head IV were Third party theft from the hub, Theft following forcible entry, In transit theft from delivery vehicle and Theft by deception. Mr Heinrich-Jones considered that the security and operations at the hub effectively precluded the first two, that the third could not be eliminated as one of the likely causes of the loss, and that the last (in the form of deception persuading the driver to deliver the packages to unconnected third parties) was "possible". However, as he observed, there was no DIAD signature to suggest that Mr Kadim or any other driver was innocently deceived into any such mis-delivery. There was also no positive support for the possibility of theft from the delivery vehicle without the complicity of the driver. Even if one confines attention to the three packages (and the loss of the Axxis package would involve a remarkable coincidence, if due to some entirely different cause to that causing the loss of the three packages), an untargeted, adventitious theft of three heavy packages during an unguarded moment would be unlikely. It is far more likely, as Mr Heinrich-Jones recognised in paragraph 6.78 of his report, that any theft "would be a clear example of theft of high value targeted items". But, if these packages were targeted, it is also highly likely that there was collaboration or information as to their movement from within UPS. Consistently with this, the judge accepted (at paragraph 59) that "if they were stolen, it is probable that an employee of UPS was responsible for the theft".
41. The judge concluded that the probable cause of loss was not theft, but was accidental, so falling within one of the three possibilities given as under head I, Misplaced (viz Missorted, Mislaid or Damaged then thrown away) or within one of the remaining two possibilities under head II, Delivery issues (viz Failed delivery, Mis-delivery or Delivered in error). He said,  1 Lloyd's Rep 470, 481:
42. Richards LJ gave the principal judgment in the Court of Appeal with which Brooke LJ agreed:  1 Lloyd's Rep 279. Richards LJ summarised the criticisms made of the judge's approach by Mr Reeve in his submissions as follows, at p 295: