Datec Electronic Holdings v UPS (HofL)

Datec Electronic Holdings v UPS (HofL)

DMC/SandT/07/27
Datec Electronic Holdings Ltd and Another v United Parcels Services Ltd
United Kingdom House of Lords: Lords Hoffmann, Hope, Walker, Mance and Neuberger.: [2007] UKHL 23: 16 May 2007
Julian Flaux QC and Charles Priday, instructed by Barlow Lyde & Gilbert, for the appellants, UPS
Matthew Reeve, instructed by Clyde & Co, for the respondent cargo interests
CARRIAGE OF GOODS BY ROAD: CARRIER’S TERMS EXCLUDE CARRIAGE OF CONSIGNMENTS ABOVE A CERTAIN VALUE: CARRIER’S LIABILITY WHERE SUCH CONSIGNMENT IN FACT CARRIED AND NOT DELIVERED: CMR CONVENTION: WHETHER CONTRACT EXISTS TO WHICH CMR APPLIES: WHETHER CARRIER ENTITLED TO LIMIT LIABILITY UNDER CMR: WHETHER LOSS DUE TO CARRIER’S ‘WILFUL MISCONDUCT’ RENDERING LIMIT OF LIABILITY INAPPLICABLE: APPROACH OF APPELLATE COURTS IN CASES WHERE NO DIRECT EVIDENCE ON THE CAUSE OF THE LOSS
Summary
In the context of the loss of high value goods at or from the carrier’s warehouse in the course of carriage by road, the House of Lords confirmed the judgment of the Court of Appeal to the effect that there was a contract of carriage between the consignor and the carrier, even though the consignment in question had a value in excess of the limit set out in the carrier’s standard terms and conditions of business. The fact that a carrier's standard terms entitled it to refuse to carry packages over a certain value did not mean there was no contract of carriage where packages accepted for carriage later turned out to be over the value limit. Further, that contract was subject to the CMR Convention, under which terms purporting to exclude liability for goods of excess value were rendered null and void by Article 41.1.

The House of Lords also upheld the Court of Appeal in finding that the cause of the loss was theft by the carrier’s employee(s). Although cargo interests had the burden of proving liability ‘on the balance of probabilities’, this principle did not mean that they had to identify specifically which employee(s) had committed the theft. Theft of the goods by the employee(s) of the carrier amounted to wilful misconduct under Art. 29(1) of the Convention. That in turn meant that the carrier could not take advantage of the limitations of liability provided in Art.23(3) and was accordingly liable to pay the full value of the loss.

The House also approved the approach of an appellate court to findings and inferences of fact made by a judge at first instance as set out in the case of Assicurazioni Generali SpA v. Arab Insurance Group [2003] Lloyd’s Rep IR 131

DMC Category Rating: Developed

This case note is based on a text written by Peter Stockli, Legal Counsel for the Through Transport Club, and Editor of TT Talk, the e-zine published by the Club.

Facts
Datec and UPS had in place a framework contract for carriage services which UPS provided to Datec on a regular basis. When Datec booked via computer the carriage for the consignment in question, it had to click on a box expressly confirming its acceptance of the UPS conditions. Clause 3(a), first sentence, stated that ‘UPS does not offer carriage of packages which do not comply with the restrictions in paragraphs (i) to (iv) below’. Pursuant to clause 3(a)(ii) ‘The value of any package may not exceed the local currency equivalent of USD 50,000’. Clause 3(c) provided that, if it came to UPS’ attention that any package did not meet such restriction, UPS could refuse to transport it or, if carriage was in progress, suspend carriage and hold it to the shipper’s order. Clause 3(e) provided that UPS would not meet any losses that the shipper might suffer arising out of UPS carrying packages that did not meet the above restrictions.

The claim between the parties concerned the carriage of three packages of computer processors, first by road from Milton Keynes in the UK to Luton Airport, then by air from Luton to Cologne in Germany, and finally by road from Cologne via the UPS Amsterdam hub to the consignee at Schipol South East in the Netherlands. These packages were typical ‘low weight high value’ cargo, weighing just 25kg, 25kg and 17 kg respectively, but in total worth some £241,241. The value of each of the three packages exceeded the amount specified in clause 3(a)(ii) of the UPS conditions.

Datec claimed that the three packages never arrived at their destination at Schipol and alleged that they were stolen while in UPS’s custody, probably at the UPS Amsterdam hub. UPS did not dispute that the three packages were handed over for carriage to a UPS driver in the UK but contended that, by reason of the value of the packages exceeding the amount set out in clause 3(a)(ii), the parties had not reached sufficient consensus for a contract of carriage to have come into existence between them.

At first instance, Mr Justice Andrew Smith held that the parties had concluded a CMR contract for the carriage of the three packages. Although the three packages had been handed over to UPS and had not been delivered to the consignee, Datec had failed to establish that the packages had been stolen by UPS employees. Without wilful misconduct on the part of UPS or their employees, Datec’s compensation was limited to a mere £658.

The Court of Appeal, reversing the judgment of Mr Justice Andrew Smith, held that employee theft was the most likely cause of the disappearance of the three packages and, as this amounted to wilful misconduct on the part of UPS, held UPS liable for the full value of the computer processors.

Judgment of the House of Lords
In its judgment of 16 May 2007, the House of Lords unanimously upheld the Court of Appeal judgment. The House of Lords backed the finding of the courts below that between Datec and UPS, a CMR carriage contract came into existence, even though UPS, when concluding the contract, was unaware that the goods exceeded the agreed value limit of US$50,000. The UPS terms expressly set out in clause 3 the consequences of the shipper presenting packages that did not meet UPS’ restrictions and conditions. Clause 3 did not provide that there would be no contract of carriage if such a package was presented and accepted. On the contrary, sub-clause 3(c) provided that the effect of the shipper presenting a package that did not meet the restrictions was that UPS had the right to refuse to carry it or, if carriage was in progress, to suspend carriage. The implication was that unless and until UPS exercised their right, there was a contract that UPS would carry the package. Clause 3 provided, therefore, a contractual regime governing carriage of non-conforming goods.

Lord Mance conceded that the issue whether a carriage contract came into existence was ‘not an easy one’, but concluded: ‘(…) 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).’ So far as clause 3(e) purported to remove UPS’ liability for loss, damage or delay that UPS would otherwise incur under that Article, it was null and void by virtue of Art.41 of the CMR Convention.

As to the cause of the loss, Lord Justice Richards in the Court of Appeal had provided a systematic and meticulous analysis on the causation of loss in a situation without any direct evidence. He had concluded that theft by one or more UPS employees was the probable cause of the loss and that Datec had proved its case on the balance of probabilities. It was not necessary for them to identify the particular UPS employee(s) responsible for the theft. In the House of Lords, Lord Mance quoted large parts of Lord Justice Richard’s judgement and found that the reasons given by him for reversing Mr Justice Andrew Smith were ‘compelling’. Lord Mance concluded: ‘I share, without hesitation, the view which he formed overall that theft involving a UPS employee was shown on a strong balance of probability to have been the cause of the loss’. Lord Walker expressed reservations on the wilful misconduct point, but felt it unnecessary to press this doubt to the point of dissent.

The House of Lords confirmed that, in reversing the findings of the first instance judge, the Court of Appeal had not exceeded its proper role in reviewing the judge’s conclusions as to the cause of the loss. As the headnote to the case says: "The essential issue related to the inferences to be drawn from primary facts which were not in dispute. The situation was one where the Court of Appeal was entitled to reconsider for itself the judge’s findings as to what should or should not be inferred regarding causation from the primary facts found by him. The Court of Appeal was entitled to reverse the judge’s finding on causation. None of the possibilities mentioned by the judge afforded any plausible explanation of the disappearance of the three packages." The correct approach, said Lord Mance, in an appellate court to findings and inferences of fact made by a judge at first instance after hearing evidence, was as stated by Clarke LJ in the case of Assicurazioni Generali SpA v. Arab Insurance Group [2003] Lloyd’s Rep IR 131, at paragraphs 14 to 17.

Comment
All judges in the three courts which judged Datec v UPS came to the conclusion that the parties concluded a carriage contract. For instance in the Court of Appeal Lord Justice Richards said: ‘in my view there was plainly a contract of carriage, concluded at the latest when the UPS driver accepted the goods. It may be that the UPS driver would have declined to take the goods had he known that they exceeded the value limit, but the fact remains that he accepted them’. In the House of Lords, Lord Hope and Lord Mance also emphasized the importance of the physical acceptance of the goods.

UPS had not presented the ‘no contract’ argument from the very outset of proceedings, and was unable to argue misrepresentation and/or mistake. Lord Mance felt it was ‘at least arguable’ that their conditions would enable UPS to cross-claim in respect of any excess exposure above US$50,000 per package, had UPS been permitted to raise new allegations of fact’. Another carrier who finds himself in UPS’s situation of carrying without its knowledge excess-value goods may want to exploit arguments of ‘no contract’, misrepresentation and/or mistake fully. This may mean that on this point Datec v UPS might not be as important as it appears at first sight.

Yet Datec v UPS is without any doubt highly significant for its approach to a claim without any direct evidence on the causation of the loss, in particular on account of Lord Justice Richard’s seminal judgment. It is true that Datec v UPS confirmed once again that the relevant test in cargo claims is ‘on the balance of probabilities’ and that the burden to establish this balance rests on the claimant cargo interests, but Datec v UPS also illustrated the limits of this principle, because Datec did not need specifically to identify the responsible employee or employees. It was somewhat paradoxical that evidence gained from UPS’s surveillance equipment was used in court to its disadvantage.

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