DFS v. Swissair

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DFS Trading Ltd. v. Swiss Air Transport Co. Ltd. and Jacky Maeder (Geneva and Hong Kong)

Hong Kong Court of First Instance: Stone J.: [2001 HKEC 589]: May 2001
Counsel for DFS: Mr. Joseph Fok SC, leading Mr. Anselmo Reyes, instructed by Messrs. Clyde & Co.
Counsel for Jacky Maeder: Mr. Charles Haddon-Cave QC, leading Mr. Aarif Barma, instructed by Messrs. Haldanes

In this case the claimants succeeded in invoking the terms of Article 25 of the Amended Warsaw Convention to break the carrier’s limit of liability under Article 22 AWC, thereby recovering full damages for the theft of a consignment of valuable watches from the terminal operator at Kai Tak airport in Hong Kong. The court held that the carrier had failed to implement any system to safeguard the Shipment Release Forms in its possession. This failure, combined with the fact that the carrier’s servants knew that the SRF was, in commercial usage in the airfreight industry in Hong Kong, a bearer document, amounted to recklessness ‘with knowledge that loss would probably result’ within the meaning of Article 25 AWC. The court held also that, although it could not pin the theft on any one individual, it was an ‘inside job’ and therefore the loss had resulted from "an act of omission of the carrier, his servants or agents, done with intent to cause damage….." as provided by Article 25 AWC. Sending valuable consignments as general consolidated cargo, rather than as valuable cargo (an option which would have cost more but ensured a greater degree of security) did not amount to contributory negligence in the face of evidence that the vast majority of such consignments were shipped on this basis.

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In March 1995, Duty Free Shoppers, Geneva, shipped a consignment of 39 packages by air to Duty Free Shoppers in Hong Kong, under House air waybills issued by the freight forwarder, Jacky Maeder, Geneva. These air waybills were subject to the Warsaw Convention of 1929, as amended by the Hague Protocol 1955, the provisions of which applied to Hong Kong by virtue of the Carriage by Air Ordinance of 1997. It was common ground that, at the time of the theft, the carriage of the consignment had not ceased. The consignment contained 33 packages of expensive Swiss watches, predominantly of the Rolex brand, worth approx. HK$12,000,000 at full retail value. The consignment was carried by Swissair and arrived at Kai Tak airport in Hong Kong on 13 March 1995. The consignment was unloaded from the aircraft and stored in the import terminal of Hong Kong Air Cargo Terminal Ltd. (‘HACTL’), pending completion of customs formalities and collection by Jacky Maeder Hong Kong (‘JM’). HACTL deconsolidated the consignment. Meanwhile, the import cargo office of Swissair’s Hong Kong agents, Cathay Pacific Airways, produced a Shipment Release Form (‘SRF’) for the consignment. That afternoon Cathay handed over the SRF, together with the relevant air waybills, to representatives from the airport office of JM, who had called to collect them, together with the documents for other consignments they were handling.

On return to the JM airport office, the SRFs were placed in an unlocked drawer, awaiting collection by JM’s personnel for presentation to HACTL in return for the cargo. This was scheduled for the morning of the following day, 14 March. Some time later on March 13, the SRF for the DFS consignment was removed from the drawer in the JM airport office and found its way into the hands of a Mr. Ching. Mr Ching handed it to an independent trucker that he had engaged. Acting on Mr. Ching’s instructions, the trucker presented the SRF to HACTL and obtained delivery of the cargo, which he then delivered in his turn to a place in town designated by Mr. Ching. The goods were never seen again.

DFS sued JM under the House air waybills for the full value of the cargo, which was agreed to be HK$10,992,241, after allowance had been made for some retail discounts. JM accepted liability for the loss under Article 18 of the Amended Warsaw Convention (‘AWC’) but claimed the benefit of the limitation of liability per kilo provided under Article 22. This would have limited the claim to HK$101.689. The defendants also claimed that DFS had been contributorily negligent, under Article 21 of AWC, in that, in order to save money, they had chosen to consign the watches as ‘general merchandise’ rather than as ‘valuable cargo’. Had the cargo been shipped under the valuable cargo regime, security procedures would have been much tighter.

DFS countered that JM were not entitled to limit their liability, by reason of Article 25 of AWC, which provided:

"The limits of liability specified in Article 22 shall not apply if it is proved that the damage resulted from an act of omission of the carrier, his servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result; provided that, in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment".

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The judge noted that the case law on the interpretation of Article 25 of the AWC had established that a subjective, rather than an objective, test was to be applied in determining whether the loss had been caused intentionally or recklessly, with knowledge that the loss would probably result. The judge held, on the evidence of the various witnesses, including those from HACTL, that whilst the airline agents had in place a system of security for checking the identity and authority of persons collecting SRFs from them, there was no such system at HACTL. HACTL checked the identity of the person collecting the cargo and kept a record of it, but did not check the authority of that person to collect the cargo. The judge found that, for reasons of commercial convenience, the airfreight industry in Hong Kong had consistently regarded the SRF as a ‘bearer document’ in the sense that HACTL would give delivery of cargo to whomsoever produced the relevant SRF, without further enquiry. The judge further held that, despite their statements to the contrary, the JM personnel in the airport office were well aware of the bearer status of the SRF.

On this basis, the judge held that "the so-called system operated by JM in their airport office for the handling and safeguarding of SRFs, once collected from the airlines, was reckless…. The evidence of slack, undisciplined and uncontrolled practice is incontrovertible". Given his finding that the JM personnel were aware of the bearer status of the SRF, the judge held that they had the requisite knowledge that ‘damage would probably result’ from the inadequate security arrangements that were in place.

The judge also held that the theft of the cargo had, more likely than not, been an ‘inside job’ on the part of the JM airport office staff and that the loss had therefore "resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage". For this purpose, the judge held, in reliance on the Canadian case of Swiss Bank Corp. v. Air Canada in 1981, that it was not necessary to prove which of the carrier’s servants or agents had been individually responsible.

The allegation of contributory negligence, based on DFS’ decision to ship the cargo as general consolidated cargo, as opposed to valuable cargo, "manifestly failed to get off the ground". In this regard the judge relied on the uncontradicted evidence that there was a widespread industry practice of shipping goods of this type as general consolidated cargo. He added that it was difficult for a freight forwarder "who had failed utterly to demonstrate the basic minimum standard of care" to raise such an argument.

Judgment was accordingly given in favour of DFS, for the full amount claimed, together with interest and costs. The court held that, since the AWC limits had been broken, the issue as to whether the AWC limits were inclusive of interest did not need to be decided in this case.

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