Samsung Electronic Limited (and others) -v- (1) J & C Cargo services Company Limited (2) Yeung’s Logistics Company HCCL 14/2005
There is often a misconception that a bailee who sub-contracts part of the care of goods to an independent contractor discharges their duty to the bailor simply by believing it has selected a competent sub-contractor. This was a misconception held by the Defendants in this case, to their cost.
The Hong Kong Commercial Court has helpfully set out the correct test that a bailee for reward must satisfy when caring for a bailor’s goods. The Court also clarified that once the plaintiff bailor has established that the defendant bailee has lost (or damaged) the goods in question, then the burden of proof switches to the bailee to establish that it took “all reasonable care” for the goods.
The facts
Samsung Electronics Limited (“Samsung”) sold a consignment of approximately 6,000 mobile telephones to a Hong Kong company, Ezcom Electronics Limited (“Ezcom”). J&C Cargo Services Limited (“J&C Cargo”) were retained by Ezcom to deliver the telephones by road from Hong Kong airport to their warehouse in Kowloon, Hong Kong. J&C Cargo in turn sub-contracted the collection and delivery of the telephones to a small local haulier, Yeung’s Logistics Company (“Yeung”). Yeung had been one of J&C Cargo’s sub-contractors for over five years during which there had been no other losses of this nature. There were no written contracts or standard terms between Ezcom and J&C Cargo, or J&C Cargo and Yeung.
The goods were allegedly stolen in transit. Ezcom claimed on their insurance policy and insurers brought a subrogated claim against J&C Cargo and Yeung’s as bailee and sub-bailee of the goods respectively.
The driver was the only witness to the theft. He claimed that it had been necessary to leave his assistant, who would otherwise have been in the truck with him, at the airport after collection. He then claimed that a stranger had entered the cab of his truck via the passenger door while he was at traffic lights en route to his destination. His evidence was that the central locking system for the cab to the truck was broken and that the windows were wound down. Moreover, it was his evidence that it was known to various other transport companies that the locking system in this truck was broken. The driver claimed that the stranger then forced him, at knife point, to swallow some tablets which caused him to lose consciousness. When he regained consciousness the telephones had disappeared from his truck.
The law
The Court clarified the following principles with regard to bailment under Hong Kong law:
(a) a bailee for reward will be liable for loss or damage of the goods unless he can prove that he took all reasonable care for the goods;
(b) the burden of establishing that all reasonable care was taken is not discharged by simply delegating the care of the goods to an independent contractor;
(c) unless it can establish that it took all reasonable care then a bailee cannot avoid liability for loss or damage caused by the negligent acts of a sub-bailee or independent contractor;
(d) the obligation to take all reasonable care includes the bailee taking appropriate steps to stop goods being stolen by employees, servants or agents of the bailee. Failure to take such steps is a breach of the primary duty owed by the bailee to the bailor.
In concluding the Judge stated that “at the end of the day … … in the vast majority of bailee cases the issue comes down to whether, on the evidence, the bailee/sub-bailee … … are able to successfully discharge the burden of proof which lies upon them … of taking all reasonable care.”
Taking the driver’s account at face value, which the Judge stated “required a certain suspension of disbelief”, there could be no doubt that Yeung’s carelessness caused the loss of the telephones. There was no need for insurers to challenge the driver’s evidence in order to implicate him in the theft. Since neither J&C Cargo nor Yeung had been able to establish that they took reasonable care, judgment was given against them both.
Comment
Carriers who choose to sub-contract out the care and/or physical carriage of goods provided to them as bailees for reward should ensure that, in the event that these goods are lost or damaged by the sub-bailee or sub-contractor, they can produce documents to demonstrate to a Court that they took all reasonable care, both (i) in selecting the sub-contractor and (ii) in so far as it was possible, that the sub-contractor had in place suitable systems to care for the goods in question.
Such documentation should include standard terms and conditions for sub-contractors setting out appropriate minimum standards of care to be taken with respect to the goods. For a road haulier transporting high-value goods, such conditions may include the requirement that the locking system to the cab must be working and engaged during transport, the windows must be wound up and a second person must be present in the passenger seat.
In the case of long term sub-contractors a Court may expect to see some evidence of enquiries being made by the bailee to ensure that the sub-contractor is abiding by such terms. For a new contractor, enquiries into their operational practices and loss might also be carried out prior to their retention.