Euro Cellular (Distribution) Plc v Danzas Ltd. (t/a Danzas AEI Intercontinental) & Anor

Shortly before Christmas 2001 a quantity of goods said to be 7000 Nokia mobile phones and worth Euro 801,500 were placed in a warehouse in Barcelona. After the Christmas and New Year holiday they were discovered to be no longer in the warehouse. The Claimants claim to be the owners of the mobile phones and say that the Defendants from whose warehouse the goods disappeared are liable in respect of the loss to the full value of the goods. The Defendants accept that amongst those goods were 2000 mobile phones which belonged to the Claimants but no more. They accept that they are liable to the Claimants in respect of the loss of those mobile phones but say that their liability is limited to 2 SDRs per kilo.

The Claimants are a company incorporated in the UK who, as their name suggests, dealt in mobile phones. In about August 2000 they entered into an agreement with the Defendants for the provision of freight forwarding, carriage and warehousing services. The parties had been negotiating since about May of that year when the Defendants made known to the Claimants that they would do business upon the standard terms of the British International Freight Association (BIFA). It is common ground that those terms limit the Defendants’ liability to 2 Special Drawing Rights (SDRs) per kilo. However, the Claimants had their own Freight Forwarders Guide to which they required the Defendants to adhere. The Guide referred to “Goods on Hold” which it defined as follows:

“Goods that are held by AEI or AEIR [the Defendants] waiting duly authorised written release instructions from ECD [the Claimants]. This instruction will clearly be shown on Movement Instruction faxes. It is vital that goods shipped “on hold” are under no circumstances released to the consignee or any other party unless and until AEI has received the correctly signed and referenced Release Fax. In case of any doubt the matter must be referred to ECD before the goods are released. If the goods “on hold” are released without the authorised written Release instruction from ECD and the customer or customer agent supplying the correct 4 digit numerical code it will be regarded a negligent release and AEI will be held liable for the full value of the shipment. The goods must be held exclusively to the order of ECD until it duly and properly releases them.”

The Guide set out a number of procedures to be followed and in a final section entitled Key Support Requirements stated that the Claimants required certain categories of “support”, the last of which was:

“Acceptance that liability is not restricted to any maximum amount, either by kilo weight or gross shipment value, but rather that liability will extend to the full value of the goods either on hold or in transit.”

A copy of the Guide was sent to the Defendants on 10 May 2000. Discussions ensued, in particular about liability for “goods on hold.” This was important to the Claimants because their insurers did not cover losses caused by negligent release. On 16 August 2000 the Defendants faxed the Claimants as follows:

“We confirm we have received your “freight forwarders guide” and agree to comply with the working parameters set out therein save that the acceptance of liability clause on the last page be stated as ‘full cover for negligent release will be covered by the insurers of danzas-aei intercontinental and full cover for any and all other eventualities leading to the loss of goods be covered by the insurers of euro cellular (distribution) ltd’. This clause will not diminish our standard liabilities as per our standard trading conditions 2000 edition eff.1/7/00.

It is common ground that the acceptance of liability clause as restated by the Defendants takes the place of the acceptance of liability clause as stated in the Guide. It is also common ground that the additional sentence reflects the agreement reached between the parties. There is however a dispute as to its true meaning and effect.

On 18 December 2001 the Claimants issued to the Defendants movement orders in relation to two consignments of mobile phones, no.5087, which related to 5000 mobile phones, and no.5088, which related to 2000 moble phones. The Defendants were instructed to collect the consignments from the Claimants’ warehouse in Croydon at 1800 on 18 December 2001. They were to be in the Defendants’ warehouse in Barcelona by 0900 on 20 December 2001. The goods were to be shipped “on hold”. The consignments were to be sold to Special Mobile Trading, a company with an address in Barcelona.

The transport was covered by two CMR notes. That in relation to consignment 5088 (the 4 pallets) evidenced carriage from the Claimants’ warehouse in Croydon to Barcelona and was issued by the Claimants. That in relation to consignment 5087 (the 9 pallets) evidenced carriage from Heathrow to Barcelona and was issued by GBA Services of Preston. The Claimants say that the reference to Heathrow was a mistake made by GBA.

The consignment of 4 pallets arrived at the Barcelona warehouse of the Defendants on 19 December and the consignment of 9 pallets arrived at the Barcelona warehouse on 20 December. This was recorded on the Defendants’ computer.

On 3 January 2002 the Claimants faxed to the Defendants an instruction to release to Special Mobile Trading the 2000 Nokia phones which had arrived in consignment no.5088. Ms.Vanessa Cantero, the Defendants’ Customer Services Manager, who worked in the Defendants’ warehouse and had responsibility for the Claimants’ goods, could not see the goods in the place in which they had been stored in the warehouse. Neither consignment no. 5088 nor no. 5087 (which related to the 5000 mobile phones) could be found.

One of the witnesses called by the Defendants was a forklift truck driver with responsibility for carrying out a weekly inventory of the goods in the warehouse. He was Narciso Bautista Aguilar (Mr.Bautista). In his evidence in re-examination he said that on Monday 31 December he noted that according to the computer the Claimants’ goods were still in the warehouse on that day but when he checked for them in the warehouse he could not find them. He said that he reported this to the warehouse foreman, Cristobal Ramirez Vaquez, that day. For reasons which I give later in this judgment I do not accept that Mr.Bautista reported that the goods were missing on 31 December 2001.

There is an issue as to the Claimants’ title to sue in relation to the consignment of 5000 mobile phones. This issue cannot yet be resolved and so this judgment is on liability alone.

The most important factual dispute in the case was the reason why the goods were lost. There was a dispute as to whether the loss was a result of “negligent release”, that is a release by the Defendants other than pursuant to an authorised release instruction from the Claimants and the supply by the customer of the appropriate 4 digit code, or the result of a theft or robbery from the warehouse over the weekend of 29 and 30 December 2001.

The Defendants’ warehouse is in an area containing some 50-60 warehouses and is usually closed at the week-end. The area is entered by gates. At those gates drivers of trailers are asked to identify themselves. The system is in operation throughout the week and at week-ends. At week-ends the area operates as a lorry park. So on Saturday mornings there are trailers leaving the area and on Sunday evening there are trailers arriving. There is a 24 hour patrol service for the area. Enquires were made after the loss of the goods had been discovered but there were no reports of anything unusual being seen in the area over the week-end of 29 and 30 December 2001.

The warehouse had been the subject of a security audit on 16 and 17 July 2001. The report of the audit suggests that there were serious shortcomings in the security procedures at that time. For example, door locks were broken, there was no alarm system and the emergency exits were used for access and egress. Prior to December 2001 steps were taken to improve security. However, there was still no functional alarm system by the time the Claimants’ mobile phones were deposited in the warehouse on 19 and 20 December 2001. Moreover, not all the lax procedures identified in the audit had been eradicated. For example staff continued to use the emergency exits on 31 December 2001. After the loss of the goods had been discovered no sign was found of a break in over the weekend. Had the warehouse been secure against entry this might have been an indication that the goods had been lost by reason of negligent release. But Mr.Merino, the Defendants’ Security Director, gave evidence that the emergency doors could be opened from the outside simply by pushing them.

The system within the warehouse for the release of goods belonging to the Claimants was that Ms.Vanesa Cantero, the Defendants’ Customer Services Manager, had to authorise the release of the Claimants’ goods. It was said that everyone working in the warehouse knew that but neither she nor Mr.Merino could identify the procedure by which the Defendants ensured that everyone who worked in the warehouse was made aware of that. Indeed, after the loss was discovered Mr.Borras, the Defendants’ regional manager with responsibility for the Barcelona warehouse, considered that it was possible that the goods could have been delivered by mistake.

The only evidence of anything suspicious which was discovered after the loss related to Special Mobile Trading. Before the loss had been discovered a Mr.Casals from Special Mobile Trading had visited the warehouse. But after the loss had been discovered there was either no-one of that name at Special Mobile Trading or, if there was, he was using another name, Calveras. Moreover, their delivery address was an ordinary residential apartment.

The Claimants’ goods had been placed in the warehouse in front of the office window so that those in the office could keep an eye on them. After the loss had been discovered Mr.Borras instigated a check on all deliveries into the warehouse shortly before the loss was discovered. He said that there were 3 or 4 consignments of similar shape and wrapping to the Claimants’ goods and of high value which came in the week before the loss was discovered. They were placed in the same area as the Claimants’ goods. Ms.Cantero did not deal with all valuable goods. Other staff dealt with them. Persons working in the warehouse would not know that a particular consignment of goods belonged to the Claimants and so were the responsibility of Ms. Cantero.

I shall deal first with the contention, advanced by the Defendants, that the goods were lost as a result of a theft or robbery. The Defendants pointed to a number of suspicious circumstances concerning Special Mobile Trading and drew my attention to an oral report by the police to Mr.Merino in August 2002 that the police had concluded that Special Mobile Trading and some “gipsy people” had stolen the goods. The police did not consider that there was any possibility of a delivery using false delivery authorisation. However, counsel for the Defendants accepted that this report of an opinion by the police on the very matter which the Court had to determine was not admissible and that the Court had to reach a conclusion on the admissible evidence before it. In my judgment the suspicious circumstances concerning Special Mobile Trading were as consistent with their having arranged a theft or robbery as with their having dishonestly arranged a delivery or release of the goods to them, which would be a negligent release of the goods.

The Defendants suggested that a theft or robbery was the more likely explanation of the loss of the goods because the goods had been seen in the warehouse at about 1830 on Friday 28 December 2001 and were not in the warehouse on Monday 31 December. Since the warehouse was closed over the weekend the goods must have been stolen over the week-end.

The evidence in support of the allegation that the goods were in the warehouse at about 1830 on Friday 28 December was given by two forklift truck drivers from the Barcelona warehouse.

The first was Ivan Carlos Caballero Tejedor. He had a recollection of placing one lot of 4 pallets and one lot of 5 pallets of mobile phones in front of the office in the warehouse in the morning and in the afternoon of a day sometime late in December 2001. He recalled walking around them at 1830-1900 on Friday 28 December. On Monday 31 December he placed a pallet of internal files in the same place as he had placed the mobile phones. However, he gave no evidence linking the pallets of mobile phones with those which are the subject of this action. In circumstances where there were other pallets of valuable goods wrapped in black plastic in front of the office his evidence cannot be considered cogent evidence in support of the suggestion that the Claimants’ good were seen in the warehouse in the early evening of 28 December.

The second forklift truck driver was Roberto Louis Alonso Mula. He stated that he remembered seeing the two lots of cargo that arrived on 19 and 20 December wrapped in black plastic with aluminium banding on a number of occasions and specifically on 28 December when he left the building. However, when he gave evidence he did not appear to have any real recollection of any particular cargo in black plastic at the material time. Moreover, he accepted that there were other goods wrapped in black plastic which came in after 19 and 20 December. There was no other evidence that the Claimants’ goods had aluminium banding and in his oral evidence he said that was a mistake. He accepted that he could not really remember very much about events two years ago. I did not regard his evidence as compelling evidence that the Claimants’ goods were still in the warehouse in the evening of 28 December.

Since it cannot be established that the Claimants’ goods were still in the warehouse at 1830 on Friday 28 December the Defendants’ contention that the goods must have been stolen over the weekend cannot be sustained.

The Claimants advanced a case that their goods had been negligently released. In their opening submissions and in their cross-examination of the Defendants’ witnesses, the Claimants drew attention to the inventory of goods in the warehouse which was carried out on Monday 31 December 2001. There was evidence that this inventory did not show the Claimants’ goods as being in the warehouse on that day. It was suggested that for this to be so the Claimants’ goods must have been noted on the warehouse computer as having been released. This was therefore said to be cogent evidence of a “negligent release.”

Although this matter was put to several of the Defendants’ witnesses it was not until the last of their six witnesses was called that the Court had the benefit of hearing from the employee whose duty it was to prepare the inventory. Before considering his evidence I shall set out some matters which are not in dispute.

When goods arrive in the Defendants’ warehouse in Barcelona they are entered into a computer. Amongst other information the date on which they arrive is recorded. The Claimants’ goods were the responsibility of Ms.Vanesa Cantero. When the 13 pallets of the Claimants’ goods arrived on 19 and 20 December 2001 she entered the details of those goods into the computer. She understood that it was only she who could authorise the release of the goods. The procedure when goods were released from the warehouse was that she would make an entry on the computer recording the date on which the goods left the warehouse.

Every Monday Mr.Narciso Bautista Aguilar carried out an inventory check. In his statement which was made on 23 July 2003 he stated that he has worked for the Defendants for two years and four months, mainly as a forklift truck driver. The purpose of his weekly inventory check was to keep track of any goods which had been in the warehouse for an extended period. He described the taking of the inventory in his witness statement as follows:

“On Mondays, I would come in at around 10 o’clock, go to the computer in the office and print off the goods in the warehouse. I would then make notes of any goods that had been in the warehouse for two weeks or more. I would then compare these goods to the manifests of cargo that was going out that day. If the cargo was due to go out that day then I would delete those from the list. If there were any goods left then I would physically go and check that these goods were still in the warehouse.”

Thus, in this account, the first step he took was to “print off the goods in the warehouse.” He exhibited to his statement an example of the printout. He explained, during the course of his cross-examination, that his understanding was that if an entry on the computer had been made that goods had been released from the warehouse they would not be present on the computer when he printed off the list of goods in the warehouse.

In his statement he dealt specifically with the events of Monday 31 December 2001 as follows:

“On 31 December, I did the usual inventory check. I went through the goods and made a note of those which had been in the warehouse for two week or more. Everything was in order on the 31^st. ….. When I came in on the 31^st. I do remember arriving and coming into the warehouse and going into the changing room and then coming back to go into the office. As I came back I would have been heading in the direction of the goods and before I got to them I would have turned into the office. I do remember that they were not there.

In this account he does not suggest that he was aware of anything untoward on 31^st. December. On the contrary he states that “everything was in order”. He does not mention reporting anything odd to his superiors.

In his re-examination he gave a different account both of the manner in which he conducted the inventory and of the events of 31st. December 2001. He was shown the example of a printout which he had exhibited to his statement and asked how he got it. He replied:

“I do it myself. I put it on Excel format and print it. …..I look in the computer, all the merchandise has been left for a week, there is no date of release then, by hand, I pick up the entry numbers and go and check that the merchandise is there, I go back to the computer and then I print this.”

Thus, on this account, the print out is the last step he takes, rather than the first. Moreover, the print out appears to be the result of his own searches as to what is in the warehouse. Those searches commence with his looking at the computer and end with his checking what is physically in the warehouse.

As to the events of 31 December 2001 he said in re-examination that when he looked at the computer it showed that the Claimants’ goods were present in the warehouse. But when he looked in the warehouse those goods were not there. In reply to further questions from counsel for the Claimants he said that in such circumstances “we need to find out why it is not there.” He said that he passed the information he had found (that goods said by the computer to be in the warehouse were not in fact in the warehouse) to his superior, Mr.Cristobal Ramirez. He said that he told his superior that there was “a big problem because two consignments had gone missing .”

On this account, far from everything being in order, he had discovered a serious discrepancy between what the computer believed to be in the warehouse and what was actually in the warehouse.

Mr.Cristobal Ramirez was the warehouse foreman. He made a written statement but did not give oral evidence. In his statement which was dated 21 July 2003 he said that on 31 December Mr.Bautista reported no problems to him.

I have been invited by the Defendants to prefer the evidence Mr.Bautista gave in re-examination. In view of the differences between his evidence in chief and his evidence in re-examination it is necessary to consider carefully whether his evidence in re-examination can be accepted.

With regard to his different accounts of the procedure involved in the weekly inventory it is necessary to bear in mind that this is a procedure with which he must be very familiar. One would expect him to be able to give an accurate account of what was involved. But there were differences between the two accounts he gave. However, I consider that the reason for those differences was that it was only when giving evidence in re-examination that he was specifically required to give a detailed and sequentially correct account of the procedure. It was suggested that he gave an untruthful account of the procedure in his re-examination but this seems most unlikely to me. I have therefore accepted as correct his account in re-examination of the inventory procedure.

But with regard to his account of the events of 31 December I am unable to accept his evidence in re-examination. The difference between his evidence in chief and his evidence in re-examination was very marked. Moreover, his evidence in re-examination is contradicted by the statement of Mr.Ramirez. The fact that he gave such different accounts persuaded me that he simply had no reliable recollection of what happened on that day. As a result I am unable to make any findings on the basis of his evidence as to what was listed on the computer when he consulted it on the morning of 31st. December. However, having regard to the statement of Mr. Ramirez I find that Mr.Bautista made no report to him that day.

There was other evidence as to what was found on 31 December 2001 when the inventory was carried out. In an e-mail dated 3 January 2002 Mr.Borras, the Defendants’ Regional Manager with responsibility for Barcelona, informed Graham Craig, the Defendants’ Freight Forwarding Consultant, that “we have confirmation that they [the goods] were in our warehouse last 27 December in the morning but once checked the weekly inventory last Monday 31 they were not in our warehouse.” Mr.Borras said the same in his witness statement dated 11 August 2003. (In his statement he said that he had done the check but in his oral evidence he said that the check had not been done by himself but by another employee.) Having regard to Mr.Bautista’s evidence of the inventory these references to the inventory must be to the print out produced by him on 31 December. Thus the print out did not list the Claimants’ goods as having been in the warehouse. Whether this was because they were marked on the computer as having been released or because they were not found in the warehouse is not stated in the e-mail or statement. The same can be said of the statement in the Investigation Report dated 1 February 2002 by Mr.Merino that “we checked that the goods did not appear in the inventory as stock of the warehouse on December 31, first hour in the morning.” Ms. Cantero was not asked by anyone, when the goods could not be found, to check on the computer whether the goods were marked as having been released. It does not appear that the Defendants made any attempt to record what was shown on the computer on 3 January when the loss of the goods was discovered.

However, the circumstance that Mr.Bautista made no report on 31 December 2001 to Mr.Ramirez is inconsistent with Mr.Bautista having noted that, according to the computer, the goods were still in the warehouse then failing to find the goods actually in the warehouse. That would have merited a report as Mr.Bautista accepted. Yet there was none. Further, the absence of a report is consistent with the computer showing on 31 December that the goods had been released. This would not have merited a report from Mr.Bautista. I have considered whether the absence of a report, in circumstances where it must be common ground that there had been an inventory check on 31 December (because of the evidence that the inventory was studied on 3 January), is consistent with any other explanation. The only other explanation is that Mr.Bautista, when he looked at the computer on 31 December, failed to list the goods in question, notwithstanding that they were shown as having been in the warehouse since 19 and 20 December. However, in his oral evidence he stated more than once that when looking at the computer he listed goods which had been in the warehouse for more than 7 days. Thus it is unlikely that he failed to list the goods in question if they had been shown as still being in the warehouse. The possibility that he might have failed to list the goods does not appear to have occurred to those who studied the inventory on 3 January. Thus this explanation is most unlikely. It follows that the evidence of the inventory, coupled with the absence of any report of an apparent loss of goods by Mr.Bautista on 31 December, is a strong pointer to the goods having been negligently released.

In summary there is no evidence which points to a theft or a robbery as opposed to a negligent release. The loss of the goods and the suspicious circumstances surrounding Special Mobile Trading are consistent with either explanation. There is evidence, namely the fact that an inventory was carried out on 31 December and that no report was made by Mr.Bautista of an apparent loss of the goods on 31 December, from which it can be inferred that the computer showed the goods as having been released. This is a clear pointer to there having been a negligent release. For these reasons I find, on the balance of probabilities, that the goods were lost by reason of a negligent release.

In case I am wrong to find on a balance of probabilities that the goods had been negligently released and the correct conclusion is that this is one of those rare cases where the cause of the loss cannot be established by either party I must consider on whom lies the burden of proving how the goods had been lost.

The Claimants submitted that the burden of proving that the goods had not been lost by reason of negligent release lay upon the Defendants. The Defendants submitted that the burden of proving that the goods had been lost by reason of negligent release lay upon the Claimants.

The Claimants submitted that on the true construction of the contract the Defendants promised to take care of the goods and to be liable in the event of their loss but with a right to limit that loss to 2 SDRs per kilo if the loss was caused other than by negligent release. Upon that construction the burden rested upon the Defendants to prove that the loss which had occurred fell within the scope of the limitation upon their liability. In this regard reliance was placed upon Chitty on Contracts Vol.1 para.14.018, Munro, Brice and Co. v War Risks Association [1918] 2 KB 78 and Firestone Tyre & Rubber Co. v Vokins [1951] 1 LR 32. The Claimants also relied upon the approach of the Court of Appeal in Levison v Patent Steam Carpet Cleaning [1978] QB 69 to the incidence of the burden of proof in bailment cases.

The Defendants relied upon the principle that the burden of proof lies upon the party who is required to assert a fact in order to succeed to prove that fact. It was said that the contract made between the parties was one pursuant to which the carrier was liable for one particular loss and so the Claimants had to assert and prove that that loss had occurred. It was said that fundamentally this is not a case where a person is seeking to bring himself within an exception clause. The Defendants’ liability is limited to 2 SDRs per kilo but “super-added” to that limited liability was an unlimited liability for negligent release. They relied upon the decisions of the Court of Appeal and the House of Lords in James Archdale v Comservices [1954] 1 WLR 459 and Scottish Special Housing Association v Wimpey [1986] 1 WLR 995 concerning the scope of exceptions to the liability of building contractors.

It is first necessary to consider the true construction of the contract made between the parties. The movement instructions issued by the Claimants to the Defendants on 18 December 2001 were for the carriage by road from Croydon to Barcelona of two consignments of mobile phones and for the storage of those goods in the Defendants’ warehouse until released. The instructions were issued pursuant to the contract made between the parties on or about 16 August 2000. The fax bearing that date which it is agreed evidences the oral agreement reached between the parties refers to the Defendants’ “standard liabilities as per our standard trading conditions 2000 edition eff.1/7/00.” I was provided with a copy of those conditions and referred in particular to clause 27(A) (Footnote: ¹). I shall set out the terms of that clause but also clauses 24 and 25 which appear under the heading Liability and Limitation.

“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)……..

(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.

27(A). Subject to clause 2B and 11B above and sub-clause D below the Company’s liability howsoever arising and notwithstanding that the cause of loss or damage be unexplained shall not exceed

(i)

in the case of claims for loss or damage to goods: (a) the value of any goods lost or damaged, or (b) a sum at the rate of two Special Drawing Rights as defined by the International Monetary Fund (hereinafter referred to as SDRs), per kilo of the gross weight of any goods lost or damaged whichever shall be the least.”

However, as already stated the parties also agreed the following provision:

“full cover for negligent release will be covered by the insurers of danzas-aei intercontinental and full cover for any and all other eventualities leading to the loss of goods be covered by the insurers of euro cellular (distribution) ltd”.

It was agreed that that provision “will not diminish our standard liabilities as per our standard trading conditions.” The reference to negligent release was plainly a reference to that term as explained in the definition of Goods on Hold in the Claimants’ Freight Forwarders Guide which I have already set out.

The scheme of liability agreed between the parties was thus one pursuant to which the Defendants were obliged to exercise reasonable care when performing their duties. Their duties under the movement instructions issued on 18 December 2001 were to carry the two consignments of mobile phones from Croydon to Barcelona and to keep them in their warehouse on hold, that is, until released in accordance with the procedure set out in the Freight Forwarders’ Guide. In the event that the loss of the goods was caused by an event which they were unable to avoid by the exercise of reasonable diligence they would not be liable. But if they were liable in respect of the loss their liability would be limited to 2 SDRs per kilo unless the loss had been caused by releasing the goods from the warehouse other than pursuant to the agreed procedure for goods on hold.

Although the agreed acceptance of liability provision referred to full cover for negligent release being covered by the insurers of the Defendants it was not suggested that the Defendants had no liability other than to arrange insurance cover for negligent release. It was accepted both in the Re-Amended Defence and in Counsel’s Outline Final Submissions that the Defendants were liable in full for negligent release. Any suggestion to the contrary would be inconsistent with the Defendants’ duty to perform their duty of retaining goods on hold with reasonable care. The agreed acceptance of liability provision does not state that such duty was replaced by a duty to arrange insurance cover for loss caused by negligent release. On the contrary the clause was agreed “not to diminish” the Defendants’ standard liabilities. Similarly, the agreement that full cover for any and all other eventualities leading to the loss of the goods was to be covered by the Claimants’ insurers did not operate so as to exempt the Defendants from liability for such losses. They remained liable for such losses but in a limited amount. Thus the clause did not diminish the Defendants’ standard liabilities.

The Claimants submitted that the words “this clause will not diminish …” are not capable of introducing a limit on liability so that even if the goods had been lost by reason of a cause other than negligent release there was no limit on the Defendants’ liability. I was not persuaded that this argument was correct. The effect of the words “this clause will not diminish our standard liabilities as per our standard trading conditions” evinces an acceptance by both parties that the liability provisions in the standard trading conditions, which must include the limitation provisions, are binding upon the parties.

I shall deal first with the Claimants’ argument based upon the true construction of the contract. The Claimants submitted that although the burden lies upon a defendant to bring himself within the scope of an exception, where there is an exception to an exception the burden lies upon the Claimant to show that the loss was within the exception to the exception; see Chitty on Contracts Vol.1 para.14-018.

The Claimants’ goods, when in the Defendants’ warehouse, may be lost or damaged by one of several events. They may be lost or damaged by fire. They may be lost or damaged by being crushed under the weight of some other object. They may be stolen by persons who enter the warehouse as a trespasser. They may be stolen by an employee. Or they may be released to a person who is not entitled to them as a result of negligence upon the part of an employee and/or deception upon the part of the person requesting their release. The effect of the contract made between the parties is that the Defendants’ liability for all of these losses is limited except for loss by negligent release.

I was referred to the following discussion by Devlin J. in Firestone Tyre & Rubber Co.Ltd. v Vokins [1951] 1 LR 32 at p.38 where he was considering the London Lighterage Clause which limited the lightermen’s liability except where the loss arose from pilferage and theft of goods on board the barge whilst in the course of transit.

“If the lighterman desires to rely upon a very extensive list of exceptions it may be convenient as a mere matter of drafting, instead of enumerating them all separately, to define them as being any cause of the loss except the certain matters for which he is willing to take liability. If I may illustrate it in this way: he can enumerate the exceptions by setting them out as A-W; but one might define A to W by saying that it is the whole alphabet except X,Y and Z, and if one, as a matter of convenience, chooses to word the clause in that way, it does not, in my judgment, make it any different from the ordinary exceptions clause.”

Devlin J. considered (see p.39 of the report) that the clause was an ordinary exceptions clause pursuant to which the person who desires to bring himself within the scope of the exceptions clause must prove the necessary facts. However, the discussion as to the burden of proof was not part of the decision on liability because Devlin J. in fact held that the Defendants had established that they had delivered all the goods they had received. The burden of proof was only mentioned because of an issue as to the costs of the hearing. Moreover, in expressing his opinion on the burden of proof with regard to the London Lighterage Clause Devlin J. was differing from the decision of Lord Goddard CJ in William Soanes v FE Walker (1946) 79 Ll.Rep. 646 in which he held that the London Lighterage Clause was an exception on an exception such that the burden lay on the claimants to show that the loss within the exception on the exception. I of course am not concerned with the construction of the London Lighterage Clause. However, I consider that the approach of Devlin J. to questions of this nature is one that I should follow in this case. That approach has regard to the substance of the contract which has been agreed by the parties rather than to the form in which they have chosen to express their agreement. The substance of the parties’ agreement in this case is that the Defendants’ liability is limited in certain but not all causes of loss. For convenience those causes are defined as being all causes of loss except negligent release. Following the approach of Devlin J., I consider that the burden lies upon the Defendants in this case to prove that the cause of the loss was an event other than negligent release in order to be able to rely upon the limitation provision.

No attempt was made by the Defendants to rely upon the words in clause 27 of the standard terms, “notwithstanding that the cause of the loss or damage be unexplained”. I consider that the Defendants were right not to rely upon these words. They make sense where the limitation on liability for loss or damage is not subject to an exception but do not make sense where the limitation applies to some but not all causes of loss or damage.

The argument advanced on behalf of the Defendants was that it was necessary for the Claimants to allege and prove a loss by negligent release. I consider that, strictly speaking, the Claimants need only allege and prove a loss of the goods whilst in the possession of the Defendants in their warehouse. That gives rise to an inference of negligence in the performance of their duties in breach of their obligation under clause 24 of the BIFA terms which can be rebutted by the Defendants proving that the goods were lost despite the exercise of reasonable care. If they cannot do that but wish to claim that their liability is limited they must allege and prove that the cause of the loss was an event other than negligent release.

The Defendants also argued that the unlimited liability for negligent release was “super-added” to the Defendants’ limited liability, that their liability was “more akin to the insurance of a particular peril, namely, negligent release”. It seems to me that this was another way of putting the argument that it was necessary for the Claimants to allege and prove a loss by negligent release. The argument misunderstands or misdescribes the nature of the Defendants’ liability. The Defendants’ liability arises under a contract of bailment not under a contract of indemnity. The Defendants are obliged to take reasonable care of the Claimants’ goods whilst they have them in their possession. Their liability is not that of an insurer who has undertaken to indemnify the Claimants in respect of a certain type of loss in which case it would be necessary for the claimant to allege and prove an insured loss; cf the response of Devlin J. to a similar argument in Firestone Tyre & Rubber v Vokins at p.39.

Finally, it did not seem to me that the cases of James Archdale v Comservices [1954] 1 WLR 459 and Scottish Special Housing Association v Wimpey [1986] 1 WLR 995 upon which reliance was placed were relevant to the issues in the present case.

The Claimants also relied upon the decision of the Court of Appeal in Levison v Patent Steam Carpet Cleaning [1978] QB 69. That was a case concerning the bailment of a Chinese carpet for the purpose of cleaning it. It was lost. The bailee said that his liability was limited under the terms of the contract to a particular sum. At the time the doctrine of fundamental breach still had influence so that the limit would not apply if the loss had been caused by a fundamental breach of contract. The claimant pleaded by way of reply that the carpet had been lost by reason of a fundamental breach. The question arose whether the burden lay upon the bailor to establish a fundamental breach of contract or upon the bailee to establish that there had been no fundamental breach of contract. The Court of Appeal, whilst recognising that there had been conflicting decisions, held that the burden lay upon the bailee to establish that there been no fundamental breach. Lord Denning MR said this:

“Upon principle, I should have thought that the burden was on the cleaners to prove that they were not guilty of a fundamental breach. After all, Mrs. Levison does not know what happened to it. The cleaners are the ones who know, or should know, what happened to the carpet, and the burden should be on them to say what it was……

It is, therefore, a moot point for decision. On it I am clearly of opinion that, in a contract of bailment, when a bailee seeks to escape liability on the ground that he was not negligent or that he was excused by an exception or limitation clause, then he must show what happened to the goods. He must prove all the circumstances known to him in which the loss or damage occurred. If it appears that the goods were lost or damaged by a slight breach - not going to the root of the contract- he may be protected by the exemption or limitation clause. But, if he leaves the cause of loss or damage undiscovered and unexplained – then I think he is liable: because it is then quite likely that the goods were stolen by one of his servants; or delivered by a servant to the wrong address; or damaged by reckless or wilful misconduct; all of which the offending servant will conceal and not make known to his employer. Such conduct would be a fundamental breach against which the exemption or limitation clause will not protect him.”

Orr LJ agreed with Lord Denning saying that

“as a matter both of justice and of common sense the burden ought to rest on the bailee who, if the goods have been lost whilst in his possession, is both more likely to know the facts and in a better position to ascertain then than the bailor.”

Sir David Cairns also agreed, saying

“however difficult it may sometimes be for a bailee to prove a negative, he is at least in a better position than the bailor to know what happened to the goods while in his possession.”

It was submitted that I should disregard this decision because it concerned fundamental breach, which no longer exists as a doctrine. But the question which confronted the Court of Appeal as to the burden of proof was similar to that which arises where the bailee is protected in circumstances where the cause of the loss of the goods is one cause but not if it is another cause. The Court of Appeal answered the question before it by reference to the circumstance that the bailee is plainly in the better position to say what has happened to goods which have been lost whilst in his possession and therefore, as a matter of justice and common sense, the burden of proving what has happened to the goods should be on him. It seems to me that that approach is not invalidated by the demise of the doctrine of fundamental breach.

It can however be said that the decision of the Court of Appeal was questionable in the light of a previous decision of the Court of Appeal concerning carriage of goods by road (see Hunt & Winterbotham (West of England) v BRS [1962] 1 QB 617) and of a line of shipping cases (beginning with The Glendarroch [1894] P.226), has since been criticised by the Supreme Court of New South Wales (see The Antwerpen [1994] 1 LR 213) and has been the subject of detailed criticism by Palmer on Bailment 2^nd ed. at pp. 1552-1557. However, the approach of the Court of Appeal to the incidence of the burden of proof in bailment cases has not subsequently been said by the Court of Appeal (or House of Lords) to be erroneous and therefore I consider that I ought to give effect to the arguments based upon justice and common sense which persuaded the Court of Appeal in Levison to hold that the burden of proof lay upon the defendants in that case.

In the present case the goods were lost whilst in the possession of the Defendants. They are or ought to be able to say what happened to those goods. They may have been lost by theft or by reason of negligent release. In the former case the Defendants are liable for a limited sum; in the latter case they are liable to the full extent of the value of the goods. “As a matter of justice and of common sense” the burden or proving what happened to the goods ought to lie with the Defendants who are in a much better position than the Claimants to say what happened to the goods.

For each of these two reasons, the construction of the contract and considerations of justice and common sense in bailment cases, I have decided that the burden of proving what happened to the goods lies upon the Defendants. They have failed to discharge that burden and accordingly have not been able to prove that the goods were lost in circumstances where they are entitled to limit their liability.

To the extent that the Claimants have title to the goods the Defendants are liable in full for the loss of the goods because, on the balance of probabilities, the goods were lost by negligent release. If that is the wrong conclusion on the facts and neither party can prove on the balance of probabilities what happened to the goods, then the Defendants are still liable for the full value because the burden of proof is on them and they cannot prove that the goods were lost in circumstances where they are entitled to limit their liability.