Ericsson v. KLM

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Ericsson Limited and Ericsson Mobile Communications AB v. (1) KLM Royal Dutch Airlines (2) KLM Cargo (3) ASG Air & Sea AB (4) APC Asia Pacific Cargo (H.K.) Ltd (5) Hong Kong Air Cargo Terminals Ltd (6) Jardine Airport Services Ltd v. KLM Royal Dutch Airlines and KLM Cargo (Third Parties)
Hong Kong: High Court: Court of First Instance, Commercial Action Nos. 202 of 1999 and 2 of 2000: Stone J
Mr. Charles Sussex SC and Miss Audrey Campbell-Moffat, instructed by Richards Butler, for the Plaintiffs
Mr. Ambrose Ho SC and Mr. Jin Pao, instructed by Johnson Stokes & Master, for the 1st and 2nd Defendants and for the Third Parties
Mr Jonathan Harris, instructed by Clifford Chance, for the 3rd Defendant
Miss Sara Tong, instructed by Stephenson Harwood & Lo, for the 4th Defendant
Mr Russell Coleman, instructed by Deacons, for the 5th Defendant
Mr. James Thomson, instructed by Stevenson Wong & Co., for the 6th Defendant

In these two cases, the Plaintiffs were successful in breaking the carrier’s limitation of liability under Article 22 of the Amended Warsaw Convention ("AWC") and thereby, in reliance on Article 251 of the AWC, they were able to recover the full sound arrived value of the goods. The court held that the concession made by the fifth Defendant, HACTL, on the first theft that some kind of "inside involvement" on their part led to the theft, satisfied the element of "intent to cause damage" within Article 25 of the AWC . Although HACTL did not make a similar concession on the second theft, the Court reached the same conclusion and judgment was entered against the HACTL on a similar basis

DMC Category Rating; Confirmed

This case note is contributed by Crump & Co, the International Contributors to the website for Hong Kong

These two cases concerned thefts of two shipments of mobile phones. The first Plaintiff contracted to sell the two shipments of mobile phones to the second Plaintiff. The first Defendant and/or the second Defendant was the actual carrier whilst the third Defendant was the contractual carrier. The fourth Defendant was the local transport forwarder. The fifth and sixth Defendants were the local cargo handling services providers at the airport.

In November 1997, a consignment of 2000 mobile phones with an invoice value of HK$4.13 million arrived at Kai Tak airport and was stolen later that day from the warehouse of HACTL at Kai Tak. The second theft occurred some ten weeks later, when another consignment worth HK$12.352 million was stolen the day after its arrival at Kai Tak from the same warehouse. The release of goods from HACTL was regulated by a document called "shipment release form (SRF)", and the relevant SRFs in these two cases, which had been duly issued, were cancelled and then replaced by a person or persons unknown. The replacements were then transferred into the hands of the thief or thieves, who used them to obtain possession of the goods from the HACTL warehouse.

The Defendants claimed the protection of the limitation of liability per kilo under Article 22 of the Amended Warsaw Convention ("AWC"), which would in turn limit the claim to HK$135 per kilo in terms of the total weight of the lost cargo as there has been no special declarations of interest in this case. The Defendants also maintained that the Plaintiffs had no right to bring a claim against the carrier’s servants or agents under the AWC, nor could they concurrently to mount a claim at common law (such as in tort) against a carrier’s servant or agent. Furthermore, the Defendants submitted that the Plaintiffs’ claim were time-barred as the alleged Convention claim was brought only after the 2 years limit under Article 29 of the AWC had expired.

However, the fifth Defendant, HACTL, conceded that the court could find that the first theft, which had involved the cancellation of an existing SRF and the issuance of another in its stead, could be characterized as a theft which had occurred with the ‘inside involvement’ of a HACTL employee. No such concession was made, however, in the case of the second theft.

The judge held that nothing in the Conventions prevented any common law claims from being brought against the servant and/or agent of the carrier. Any liability of the fourth, fifth or sixth Defendants fell to be determined by the common law and they were, prima facie (at first impression), entitled to avail themselves of the limits of liability under Article 25A2 of the AWC, which appeared specially to contemplate and to regulate tort claims. The court also found that as the generally indorsed writs represented "a concise statement of the nature of the claim made or relief or remedy required in the action", and the writs were indorsed in sufficiently broad terms to include a claim under the AWC, it stopped the operation of the time bar as contained in Article 29.

Turning to the two thefts, although it was conceded by HACTL that the first theft had occurred with the inside involvement of its employee(s), the second theft had not attracted such concession and HACTL firmly refuted the suggestion that any employee was connected with this theft. However, after reviewing the evidence, the Judge found that the second theft could not be treated in isolation from the first. It was clear that neither theft could be regarded as merely an "opportunistic" crime, as each incident involved a significant degree of planning and preparation, together with a certain degree of insider knowledge, which was exclusively (emphasis added) available to the employee(s) of HACTL. Furthermore, the fact that there had been no employment terminations by or within HACTL by the time of the second theft, struck the judge as a powerful argument in favour of the Plaintiffs’ proposition that syndicate insiders within HACTL would also have been used in some capacity for the second theft.

Based on the above findings, the judge held that the first and third Defendants were liable as carriers and the Plaintiffs were entitled to break the limit in Article 22 in reliance on the element of "intent to cause damage" as contained in Article 25 and on the basis of Article III(1)3 of the Guadalajara Convention, namely that the acts and omissions of the servants or agents of the actual carrier shall be deemed to be also those of the contracting carrier. The action against the fourth Defendant was dismissed as the Plaintiffs decided not to pursue their claims against it. The fifth Defendants, HACTL, clearly had no defence to the claim and Article 25 of the AWC applied accordingly. The claim against the sixth Defendant was dismissed on the basis of the finding that both the thefts occurred due to a "high degree" of insider involvement flowing from HACTL.

In the Third Party Actions, judgment was entered in favor of the second Plaintiff (Ericsson HK) against each of the first, third and fifth Defendants (the actual carrier, the contracting carrier and HACTL), and HACTL was also ordered to indemnify the two carriers.

1Article 25 of the AWC reads as follows:
"The limits of liability specified in Article 22 shall not apply if it is proved that the damage resulted from an act or 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."

2Article 25A extends this right to limit to servants or agents of the carrier, although once again this right to limit can be broken if it can be shown that the damage in question arose from an act or omission of a servant or agent done with intent to cause damage or with knowledge that damage would probably result.

3Article III(1) of the Guadalajara Convention provides that "the acts or omissions of the actual carrier and of his servants or agents acting within the scope of their employment shall, in relation to the carriage performed by the actual carrier, be deemed to be also those of the contracting carrier", whilst Article III(2) provides in like terms for the converse situation, deeming the acts and omissions of the contracting carrier and of his servants or agents to be also those of the actual carrier, although that Article imposes the limitation that no such act or omission shall subject the actual carrier to liability exceeding the limits specified in Article 22 of the AWC.

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