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||Neutral Citation Number:  EWCA Civ 1418
||Case No: A3/2005/0597
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr Justice Andrew Smith
 EWHC 221 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
||29 November 2005
B e f o r e :
LORD JUSTICE BROOKE
Vice-President, Court of Appeal (Civil Division)
LORD JUSTICE SEDLEY
LORD JUSTICE RICHARDS
|| (1) Datec Electronic Holdings Ltd
(2) Incoparts BV
||- and -
||United Parcels Service Limited
Matthew Reeve (instructed by Clyde & Co) for the Appellants
Julian Flaux QC and Charles Priday (instructed by Barlow Lyde & Gilbert) for the Respondent
Hearing dates : 18-19 October 2005
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Richards :
- This case concerns the loss of three packages of computer processors that were consigned to United Parcels Service Limited ("UPS") on 25 July 2002 for carriage from the United Kingdom to the Netherlands. The consignor was Datec Electronic Holdings Limited ("Datec") and the consignee was Incoparts BV ("Incoparts"), one of Datec's customers. Carriage was arranged by Tibbett and Britten Ltd. ("T&B"), Datec's distribution agents. The consignment was to be carried by road from Datec's warehouse at Bletchley to Luton, by air from Luton to Cologne, and by road from Cologne to UPS's premises in Amsterdam (referred to as UPS's "hub") and onward to the warehouse at Schipol of Incoparts' agent, L&A Freight BV ("L&A"). It was collected by a UPS driver from Datec's warehouse on 25 July for delivery in Schipol by 10.30 a.m. on 26 July. Datec and Incoparts alleged that it did not reach its destination, and they brought a claim for damages against UPS as carrier.
- The claimants contended that carriage of the goods on the international leg of the journey between Cologne and the Netherlands was subject to the Convention on the Contract for the International Carriage of Goods by Road ("the CMR"), as set out in the schedule to the Carriage of Goods by Road Act 1965. Article 17.1 of the CMR provides for the liability of the carrier for the loss of, or damage to, the goods. Article 23 sets a limit on compensation by reference to the weight of the consignment. By article 29, however, that limit does not apply in a case of wilful misconduct by the carrier's agents or servants acting within the scope of their employment.
- In this case the limit on compensation if article 23 applied was £657.73. The claimants contended, however, that the loss had been caused by wilful misconduct on the part of UPS's servants, in that the packages had been stolen by an employee or employees of UPS, so that the article 23 limit was disapplied by article 29. On that basis they sought to recover the full value of the goods, which was agreed to be £241,241.14.
- UPS disputed liability altogether. It did not accept that it had failed to deliver the consignment to L&A. It also relied on its terms and conditions of carriage for a series of arguments to the effect that there was no contract of carriage falling within the CMR at all or, if there was, it was on terms that excluded any liability in the circumstances of this case. Those matters were said to provide a complete defence to the claim.
- In a commendably clear and detailed judgment, Andrew Smith J found that the three packages had not been delivered to L&A but that the claimants had failed to prove that non-delivery was the result of theft by an employee or employees of UPS. Accordingly he held that the compensation recoverable under the CMR was subject to the limit in article 23. He rejected UPS's contention that the CMR did not apply at all and held that UPS could not rely on the relevant provisions of its terms and conditions of carriage since they derogated from the CMR and were rendered null and void by article 41 of the CMR. In the result he gave judgment in favour of the claimants in the sum of £657.73.
- The claimants appeal against the judge's finding that the compensation was subject to the limit in article 23. UPS cross-appeals against the judge's rejection of the defences advanced by reference to UPS's terms and conditions of carriage.
- I think it sensible to deal first with the issues raised by UPS's cross-appeal since they go to the question whether UPS is liable at all. If the cross-appeal fails, it will be necessary to consider the extent of UPS's liability as raised by the claimants' appeal.
UPS'S CROSS-APPEAL: DEFENCES TO LIABILITY
The applicability of UPS's terms
- UPS's case on its cross-appeal is based on the UPS terms and conditions of carriage which came into effect on 4 February 2002 ("the UPS terms"). As explained below, the UPS terms include a restriction in respect of packages with an individual value in excess of US $50,000. Each of the three packages that made up the 25 July 2002 consignment had a value considerably in excess of that sum. UPS contends that in those circumstances the UPS terms provide it with a defence.
- The UPS terms provide, in material part:
A. These terms and conditions ('terms') set out the basis on which United Parcel Service will transport packages, letters and freight ('packages'). These terms are supplemented by the service details in the current applicable UPS Service and Tariff Guide ('the Service and Tariff Guide') relating to the particular service the shipper has chosen. The Service and Tariff Guide contains important details about the services of UPS which the shipper should read and which form part of the agreement between UPS and the shipper.
B. … Notwithstanding any clause to the contrary, international carriage by road may be subject to the provisions of the Convention on the Contract for the International Carriage of Goods by Road ….
D. … In these terms, 'Waybill' shall mean a single UPS waybill/consignment note or the entries recorded against the same date, address and service level on a pick-up record ….
2. Scope of Service
Unless any special services are agreed, the service to be provided by UPS is limited to the pick-up, transportation, customs clearance where applicable and delivery of the shipment ….
3. Conditions of Carriage
This section sets out various restrictions and conditions which limit and govern the extent of the service UPS offers. It also explains what the consequences are of the shipper presenting packages for carriage which do not meet these requirements.
(a) Service Restrictions and Conditions
UPS does not offer carriage of packages which do not comply with the restrictions in paragraphs (i) to (iv) below.
(i) Packages must not weigh more than 70 kilograms (or 150lbs) or exceed 270 centimetres (or 108 inches) in length or a total of 330 centimetres (or 130 inches) in length and girth combined.
(ii) The value of any package may not exceed the local currency equivalent of USD 50,000. In addition the value of any jewellery, other than costume jewellery, in a package shall not exceed the local currency equivalent of USD 500.
(iii) Packages must not contain any of the prohibited articles listed in the Service and Tariff Guide including (but not limited to) articles of unusual value (such as works of art, antiques, precious stones, stamps, unique items, gold or silver), money or negotiable instruments (such as cheques, bills of exchange, bonds, savings books, share certificates or other securities) and dangerous goods.
(iv) Packages must not contain goods which might endanger human or animal life or any means of transportation, or which might otherwise taint or damage other goods being transported by UPS, or the carriage, export or import of which is prohibited by applicable law.
The shipper shall be responsible for the accuracy and completeness of the particulars inserted in the Waybill and for ensuring that all packages set out adequate contact details for the shipper and receiver of the package and that they are so packed, marked and labelled, their contents so described and classified and are accompanied by such documentation as may (in each case) be necessary to make them suitable for transportation and to comply with the requirements of the Service and Tariff guide and applicable law.
(b) Perishable and temperature sensitive goods will be transported provided that the shipper accepts that this is at its risk. UPS does not provide special handling for such packages.
(c) Refusal and Suspension of Carriage
(i) If it comes to the attention of UPS that any package does not meet any of the above restrictions or conditions or that any COD amount stated on a COD Waybill exceeds the limits specified in paragraph 8, UPS may refuse to transport the relevant package (or any shipment of which it is a part) and, if carriage is in progress, UPS may suspend carriage and hold the package or shipment to the shipper's order.
(ii) UPS may also suspend carriage if it cannot effect delivery at the third attempt, if the receiver refuses to accept delivery, if it is unable to effect delivery because of an incorrect address (having used all reasonable means to find the correct address) or because the correct address is found to be in another country from the set out on the package or Waybill or if it cannot collect amounts due from the receiver on delivery.
(iii) Where UPS is entitled to suspend carriage of a package or shipment, it is also entitled to return it to the shipper at its own discretion.
(d) The shipper will be responsible for the reasonable costs and expenses of UPS (including storage), for such losses, taxes and customs duties as UPS may suffer and for all claims made against UPS because a package does not meet any of the restrictions or conditions in paragraph (a) above or because of any refusal or suspension of carriage or return of a package or shipment by UPS which is allowed by these terms. In the case of the return of a package or shipment, the shipper will also be responsible for paying return transport charges calculated in accordance with the prevailing commercial rates of UPS.
(e) UPS will not meet any losses which the shipper may suffer arising out of UPS carrying packages which do not meet the restrictions or conditions set out in paragraph (a) above and, if UPS does suspend carriage for a reason allowed by these terms, the shipper shall not be entitled to any refund on the carriage charges it has paid.
(f) UPS reserves the right, but is not obliged, to open and inspect any package tendered to it for transportation at any time.
9.1 Where the Warsaw or CMR Conventions or any national laws implementing or adopting these conventions apply …, the liability of UPS is governed by and will be limited according to the applicable rules.
9.4 Subject to the provisions of paragraph 9.5, UPS operates a facility for the shipper to obtain for a shipment the benefit of a greater limit of liability … than is provided by Covnention Rules …. The shipper may use this facility by declaring a higher value on the Waybill and paying an additional charge as stated in the Service and Tariff Guide. The value of the goods concerned shall not in any event exceed the limits specified in paragraph 3(a)(ii)."
- The Service and Tariff Guide does not add materially to those terms, though it does serve to underline the restrictions in clause 3.
- The judge held that the UPS terms applied to the consignment in question. From time to time UPS and T&B had entered into an "umbrella" agreement which specified the services that UPS was to provide, the documentation required for shipments, when payment was to be made and what discounts were available to T&B. The umbrella agreement in force in July 2002 stated expressly that "All goods are carried subject to the UPS Terms and Conditions of Carriage effective at the date of shipment as amended by UPS from time to time". Moreover, the documentation for the consignment on 25 July 2002 was prepared by T&B on a "Worldship" computer system provided to T&B by UPS to create the shipping documents; and in order to operate the system T&B had to answer "yes" to a question whether it accepted the UPS terms. For those and other reasons the judge found (para 82):
"If necessary, I would hold that similarly the UPS terms were incorporated into the contract that they made with Datec on 25 July 2002, but it does not seem to me that UPS need resort to arguments of this kind: the contract of 25 July 2002 for the carriage of the three packages was made under, and governed by, the umbrella contract, which provided for the UPS terms."
- The judge also rejected an argument by the claimants that the parties' conduct of their business and exchanges before July 2002 evinced an intention that the US $50,000 restriction should not be incorporated into the contract of carriage made on 25 July 2002 or that UPS waived the restriction by its conduct or had precluded itself from relying upon it.
Was there a contract of carriage?
- The first submission by Mr Flaux QC for UPS is that the three packages were not the subject of a contract of carriage at all. By the UPS terms, in particular by clause 3(a), UPS made clear that it did not offer to carry packages with a value in excess of US $50,000. The value restriction had been the subject of discussion and was known to T&B. Had UPS known that the packages were over the value limit it would have refused to carry them. As it was, UPS believed that they were within the limit and had no reason to believe otherwise. In those circumstances, it is submitted, there was no sufficient consensus between the parties for a contract of carriage. There was at most a bailment of the goods.
- If that submission were correct, it would take the transaction outside the scope of the CMR, which applies by article 1 only to a "contract for the carriage of goods by road in vehicles for reward …".
- The judge rejected the submission, or a more elaborate version of it, stating:
"118. … I acknowledge that paragraph 3 of the UPS Terms refers to restrictions upon the service that UPS 'offers', and to a lawyer this terminology has connotations of the rules about contracts being concluded through an offer and acceptance, and of the need for them to correspond. However, the issue is about the meaning of the UPS terms in a commercial contract made between businessmen, and they are to be interpreted in that context. I consider that UPS's submission places too much weight upon the reference to what UPS 'offers', and, more importantly, the UPS terms expressly state that paragraph 3 explains the consequences of the shipper presenting packages that do not meet UPS's restrictions and conditions. The paragraph does not explain that there will be no contract of carriage if such a package is presented and accepted: on the contrary, sub-paragraph (c) provides that the effect of the shipper presenting a package that does not meet the restrictions is that UPS have the right to refuse to carry it or, if carriage is in progress, to suspend carriage. The implication is that unless and until UPS exercise their right, there is a contract that UPS will carry the package. …
119. I consider that this interpretation of the UPS terms is in accordance with commercial reality and the business expectations of the parties. After all, UPS's argument would, I think, apply by parity of reasoning even if the consignor and UPS were both unaware that the consignment contained a package worth more than US$50,000 and understood that the consignment complied with the UPS terms.
121. … The agreement between UPS and Datec made on 25 July 2002 was for the carriage of the packages accepted by the UPS driver. Their value does not mean that UPS did not agree to carry those packages. …"
- I agree entirely with the judge. In my view this 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. The UPS terms did not negative the existence of a contract. They governed the contract that was made, defining the rights and liabilities of UPS in relation to, inter alia, goods that did not comply with the restrictions in clause 3(a). The effect of the CMR on those contractual provisions is a separate question, to which I now turn.
Is UPS entitled to rely on clause 3 of the UPS terms as excluding its liability?
- Mr Flaux's alternative submission, and one on which he puts greater weight, is that, if there was a contract of carriage, clause 3 of the UPS terms was effective to exclude UPS's liability for the loss of the packages.
- One of the obstacles that UPS has to overcome in seeking to rely on clause 3 is article 41.1 of the CMR, which provides:
"Subject to the provisions of article 40 [which concerns agreements between carriers], any stipulation which would directly or indirectly derogate from the provisions of this Convention shall be null and void. The nullity of such a stipulation shall not involve the nullity of the other provisions of the contract."
- The judge held that article 41 defeated the various arguments advanced by UPS in reliance on clause 3 of the UPS terms. It was argued before him that by presenting the goods for carriage, Datec, through T&B, impliedly gave a warranty that the packages were within the scope of the service that UPS offered and, more specifically, that the value of the packages did not exceed the sterling equivalent of US $50,000; and that the loss was therefore caused by Datec's own wrong because, but for the breach of contract, the packages would not have come into UPS's possession and would not have been lost in transit. The judge held that no such warranty was to be implied. He also rejected an alternative argument that T&B made an implied representation about the value of the packages. He went on:
"124. I should add that the claimants submit, and I agree, that they have a further answer to this part of UPS's case in article 41 of the CMR: any such stipulation in the contract of carriage would be null and void in that it derogates from the provisions of the CMR. …
125. If I am right that the CMR applies to the contract for carriage of the consignment (so far as is relevant: that is to say from Cologne to L&A's premises), then UPS cannot protect themselves from liability by relying upon paragraph 3(e) of the UPS terms, nor can they rely upon paragraph 3(d) to argue that under it Datec, and not UPS, are to bear that loss. Those are stipulations that derogate from the provisions of the CMR, and so are null and void."
- The judge also rejected a more general argument to the effect that there is nothing in the CMR that prevents a carrier from limiting the scope of the service that he provides and that it would be surprising and unbusinesslike to conclude that the CMR effectively prevents carriers from choosing not to carry and be responsible for particular kinds of packages, in view of their value or for other reasons. In relation to that argument the judge observed:
"126. … The CMR regime does indeed allow carriers to define their obligations with regard to the extent of the service that they are to perform, in that, for example, they can stipulate that they are not obliged to load or to unload goods: the CMR does not settle who has responsibility for this. That is very different from saying that a carrier is free to define whether he is responsible for goods that he does accept for carriage under a contract to which the CMR applies. Here the scope for the parties to define or limit their duties, responsibilities and liability is governed by the CMR. For example, I have already referred to the articles of the CMR that contemplate that there should be a consignment note and that it might include a declaration of the value of the goods, so that the carrier can thereby protect himself from expenses, loss and damage if he accepts a package and the sender has given inaccurate particulars of its value. UPS did not avail themselves of this protection."
- It is that last, more general line of argument that Mr Flaux has developed before us in his submissions on this aspect of the case. He submits that it must be open for a carrier to say that he will not carry goods in a particular category and that he will not be liable if, unknown to him, goods within that category are consigned to him. The particular case concerns valuables, where there are good reasons (such as lesser security and lesser temptation for employees) why a carrier may wish to limit the value of packages carried; but the same principle applies to size, weight, dangerous content and so forth. The effect of clause 3, in making clear that UPS does not offer to carry packages which do not comply with the stated restrictions, is to define the scope of the contract service rather than the terms on which the contract service is to be performed. Thus the contract service is the carriage of goods complying with the clause 3 restrictions. The CMR does not define the scope of the service that a carrier may offer: there is nothing in the CMR that requires a carrier to take goods that he does not want to carry. Accordingly, clause 3 does not amount to a derogation from the CMR so as to fall foul of article 41.
- In support of that argument, Mr Flaux cites observations of Devlin J in Pyrene Co. Ld. V. Scindia Navigation Co. Ld.  2 QB 402 on the provision in article 3, rule 2 of the Hague Rules that "the carrier shall properly and carefully load … the goods carried":
"The phrase 'shall properly and carefully load' may mean that the carrier shall load and that he shall do it properly and carefully: or that he shall do whatever loading he does properly and carefully. The former interpretation perhaps fits the language more closely, but the latter may be more consistent with the object of the rules. Their object … is to define not the scope of the contract service but the terms on which that service is to be performed. … I see no reason why the rules should not leave the parties free to determine by their own contract the part which each has to play. On this view the whole contract of carriage is subject to the rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide."
- Mr Flaux submits that clause 3 applied in any event to the carriage of the packages as far as Cologne, since the CMR was engaged only by the international road haulage leg from Cologne. The CMR should not be held to deny a carrier all protection in circumstances where the carrier has made clear the limits of what he is willing to carry and the consignor, through its distribution agent, is aware of the restrictions yet ignores them. If, in those circumstances, the carrier unwittingly ends up carrying goods that do not comply with the restrictions, he should be able to say that he is under no liability in relation to them. Clause 3(e) is sufficiently wide to confer that protection.
- In my judgment that line of argument is fallacious. I accept, of course, that the CMR does not define the scope of the service that a carrier may offer, in the sense of compelling him to carry goods that he does not want to carry. But that is not what this case is about. The reality here is that UPS agreed to carry the three packages in question. As I have already held, it entered into a contract of carriage in respect of them. It was not compelled to do so, whether by the CMR or otherwise, but it did so. The contract service is one of carriage of the goods that it accepted for carriage. It is plain that clause 3 defines the terms on which that contract service is to be performed; and it follows that, by virtue of article 41, it is null and void in so far as it contains stipulations which would directly or indirectly derogate from the provisions of the CMR.
- The particular stipulation relied on in Mr Flaux's submissions to us was clause 3(e). There was some argument as to the precise meaning and effect of that provision, but I think it unnecessary to deal with the detail of that argument. It seems to me that, in so far as UPS relies on clause 3(e) as displacing the liability to which UPS would otherwise be subject under article 17.1 of the CMR (whether compensation is on the limited basis defined by article 23 or on the unlimited basis arising out of the application of article 29), it necessarily derogates from the provisions of the CMR and is to that extent null and void. It cannot lawfully operate as an exclusion of the liability to which UPS is otherwise subject under the CMR. The same applies to any other provision of clause 3 on which UPS may continue to rely as excluding its liability in the circumstances of this case. (Mr Reeve, for the claimants, contended that the entirety of clause 3, including for example the power to suspend carriage, derogated from the provisions of the CMR and was null and void. I see no need to rule on that wider contention. It is sufficient that any provisions of clause 3 that are relied on as excluding liability in the circumstances of this case must in my view yield to article 41.)
- Accordingly, I agree with the judge's conclusions on this issue.
- I do not consider that such an outcome leaves a carrier without protection or forces him to carry goods of a kind that he does not choose to carry. Much more could be done than UPS has sought to do by clause 3. At the simplest level, it is open to a carrier to require a consignor to sign a declaration that the goods comply with the restrictions laid down by the carrier: for example, to reflect clause 3(a)(ii) of the UPS terms, a carrier could require a consignor to sign a declaration that the value of any package did not exceed the local currency equivalent of US $50,000 or, in the case of jewellery other than costume jewellery, did not exceed the local currency equivalent of US $500. In the absence of such a declaration the carrier could refuse to accept the goods for carriage. If the carrier were induced to accept the goods by a false declaration of their value, he would in principle have remedies for misrepresentation that were not available on the facts of the present case.
- More particularly, however, reliance could be placed on the regime laid down by the CMR itself. As Andrew Smith J observed at para 27 of his judgment: "Had the parties, intending to have a contract of carriage that was to be subject to the CMR, used the system of documentation contemplated by the CMR, some of the disputes in this litigation might not have arisen." Thus:
(1) Article 4 provides that the contract of carriage shall be confirmed by the making out of a consignment note (though lack of a consignment note does not affect the validity of the contract of carriage). Article 5 requires the consignment note to be made out in three original copies signed by the sender and the carrier, and lays down certain other requirements. Article 6 deals with the particulars to be contained in a consignment note. Those referred to in paragraph 1 are mandatory. Paragraph 2 provides that "[w]here applicable, the consignment note shall also contain the following particulars: … (d) a declaration of the value of the goods". Paragraph 3 provides that "[t]he parties may enter in the consignment note any other particulars which they may deem useful". Thus it is open to a carrier to require that a declaration of value (or of maximum value) along the lines that I have indicated be included in the CMR consignment note.
(2) In the absence of a satisfactory declaration of value in the consignment note, it would be open to the carrier not to accept the goods for carriage.
(3) If there were a false declaration of value in the consignment note and the carrier could show that he would not have accepted the goods for carriage but for that declaration, article 7 would provide him with a strong counter-argument in the event of a claim by the consignor. Article 7 reads:
"The sender shall be responsible for all expenses, loss and damage sustained by the carrier by reason of the inaccuracy or inadequacy of:
(b) the particulars specified in article 6, paragraph 2;
(c) any other particulars … given by him to enable the consignment note to be made out …."
I accept that the application of article 7 would not be altogether free from doubt or difficulty. Mr Flaux drew attention to a not dissimilar issue that arose in the present case. UPS contended that the loss was caused by the "wrongful act" of the claimants, within the meaning of article 17.2, in sending packages in breach of the article 3 restrictions. In rejecting that contention, the judge held not only that it was not a "wrongful act" but also that UPS had failed to prove that any such act had caused the loss. His reasoning was that if the claimants had not sent three packages each worth more than US $50,000, they would probably have sent a consignment of smaller packages each worth less than US $50,000; and that UPS had failed to prove that the loss would not have occurred if there had been a larger number of smaller packages. Those were findings on the particular facts – findings which are not the subject of appeal. Mr Flaux was entitled to rely on them as an example of the kind of issue that can arise in practice, but I do not regard them as being of general application or as seriously undermining the protection that article 7 is capable of providing to a carrier who makes proper use of the consignment note provisions of the CMR.
(4) A false declaration would also strengthen the carrier's case that there had been a wrongful act by the consignor under article 17.2, though there would again be an issue of causation as considered in (3) above.
(5) It is true that the CMR applied only to one stage of the journey in this case and that another leg of the journey involved international carriage by air. But we have been shown nothing to suggest that compliance in this respect with the CMR regime would produce an inconsistency with other applicable rules or would otherwise be unworkable.
THE CLAIMANTS' APPEAL: WILFUL MISCONDUCT
- Having rejected UPS's arguments that it is not liable to the claimants at all for the loss of the goods, I must turn to consider the claimants' case as to the extent of UPS's liability. The sole issue on the claimants' appeal is whether the judge was correct to reject the claimants' contention that article 29 of the CMR applied to their claim and that the limit to compensation under article 23 was therefore disapplied.
- Article 29 reads:
"1. The carrier shall not be entitled to avail himself of the provisions of this chapter [which include article 23] which exclude or limit his liability … if the damage was caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court or tribunal seized of the case, is considered as equivalent to wilful misconduct.
2. The same provision shall apply if the wilful misconduct was committed by the agents or servants of the carrier or by any other persons of whose services he makes use for the performance of the carriage, when such agents, servants or other persons are acting within the scope of their employment. …"
- The claimants' case was that the packages were stolen by one or more of UPS's employees and that the loss was therefore caused, within the meaning of article 29, by wilful misconduct of UPS's servants acting within the scope of their employment. Initially the claimants appeared to single out one driver, Mr Mouloud Kadim, to whom the relevant delivery from UPS's hub to Schipol was allocated and whom UPS itself at first suspected of theft of the packages. But the case as ultimately put was on a broader basis as to employee theft as the most likely cause of the loss. (References in this judgment to "employee theft" or to theft "by" employees are intended to include the involvement of employees as accomplices to theft.)
- In order to understand that case and the criticisms made of the judge's rejection of it, it is necessary to set out a considerable amount of factual detail. For that purpose I shall gratefully adopt extensive passages from Andrew Smith J's judgment, with the addition of some points made in the course of argument before us. The judgment makes reference to the evidence of Mr Tailor, Mr Worrall and Mr Appelman, all of whom were witnesses for the claimants. It also refers to the evidence of Mr van Beusekom, a security investigator employed by UPS, whose factual evidence was largely unchallenged and was accepted by the judge. I will need to deal separately, however, with certain opinion evidence of Mr van Beusekom, as well as the evidence of the parties' respective expert witnesses, Mr Holmes and Mr Heinrich-Jones, on the possible causes of the loss.
The consignment and its progress to the hub
- The judge described the consignment as follows:
"24. The consignment that is the subject of this claim comprised three packages, weighing 25kg, 25kg, and 17kg respectively. They were brown cardboard boxes, and they bore no Datec logo or other such indication that the goods were from Datec. The boxes had a transparent pouch on one side, and in the pouch of at least one of the boxes was a shipping document produced on UPS's 'Worldship' computer system; and the other two had either a similar document or at least an address label and a UPS tracking label. …"
- In addition to the substantial weight of each package, our attention has been drawn to their substantial size. Each was made up of a number of smaller boxes the dimensions of which were 38 cm x 33 cm x 12 cm. Two of the packages comprised three such boxes, the third package comprised two such boxes.
- The documentation that accompanied each package was the subject of more detailed discussion at paras 25-26 of the judge's judgment. He found that, whatever its precise form, it contained no more specific description of the goods than "electronic components" and gave no indication of their value. It is clear from a similar form that we have seen, and from other evidence, that the documentation included the shipper's address and the delivery address, together with a barcode which could be scanned so as to enable the progress of the packages to be tracked.
- The tracking system established that the packages all reached UPS's hub. As the judge stated:
"28. The progress of the consignment to the hub is not controversial. It was carried by road to Luton airport, where it was recorded at 7.24pm on 25 July 2002. It was taken by air from Luton to Cologne, Germany, where it was recorded at 1.59 am and 2.08am on 26 July 2002. It was then transported by road from Cologne to Amsterdam, and was recorded at the hub at 7.30am on 26 July 2002. These times are known because UPS scanned the bar codes of the tracking labels and so recorded the progress of the packages on their computer system. …"
- Before continuing with the judge's account, I shall turn to his description of the hub itself and of the procedures at the hub and for delivery from the hub.
The hub and UPS's procedures
- The judge's findings were as follows:
"14. The UPS warehouse is surrounded by a wire mesh fence of some 3 metres in height, through which there are two vehicular entrances and one pedestrian entrance. There is another warehouse building within the fenced area, but it was not being used in July 2002. Staff have 'Proximity' cards, which allow them access to the premises at permitted times. Vehicles delivering packages to the hub are reversed into off-loading gates at the side of the warehouse building, and Mr van Beusekom gave unchallenged evidence that it is virtually impossible to enter or leave the warehouse between the sides of the building and vehicles as they unload. Otherwise, all receiving, sorting and loading operations are done inside the building and behind closed doors.
15. On a typical morning in 2002 UPS would receive, sort and load some 5,000 packages at the hub. Vehicles arrived there from about 4.00am to 8.00am to deliver consignments, and workers called 'pre-loaders' unloaded them. (Packages were also handled in the evening between about 5.30pm and 10.00 or 11.00pm.) There would have been up to 15 members of staff handing packages in the warehouse at this time, and in addition there were, say, six administrative staff who worked flexible hours and might come in either before or after 8.00am. The pre-loaders place the packages on to conveyor belts that extend into the back of the trailers or vans. The belts carry packages from the off-loading bays into the building to the main conveyor belt, a distance of about 1.5 metres. The main conveyor belt then takes them to the delivery or despatch area of the building. As the packages are unloaded on to the main conveyor belt, the bar codes on their labels are scanned with hand-held scanners and the packages are recorded as being 'out for delivery'.
16. There are two spurs off the main conveyor belts, and as packages come down the main belt, a sorter directs them manually to the appropriate spur. Loaders, who might also work as drivers, pull the packages for his or her area from the spur belts, and load them in delivery vehicles, which have been parked beside the spurs. UPS usually have some 40 to 50 vehicles waiting to take goods to various parts of the Netherlands and each is allocated a delivery area.
17. Generally packages are loaded directly into the back of delivery vehicles, and are stowed on racks and, as far as practicable, grouped according to their delivery address. However, for various reasons a package might be stacked on the warehouse floor before being loaded: for example, larger packages might be put there so that the loader can later place them in the vehicle where they could be conveniently handled; or the racks of the vehicle might be too full to take a package, which might then have to be delivered by another vehicle; or a package might have been mis-sorted and have to be redirected to another point on the loading spurs.
18. Mr van Beusekom's evidence was that the speed and scale of the operation is such that staff in the hub have no time to ascertain what packages contain, and certainly are not in a position to assess their value. Indeed packages, at least if they are for delivery within the European Community, are not accompanied by documentation indicating their value. I accept Mr van Beusekom's evidence about this.
19. Thus, delivery vehicles are loaded inside the warehouse. Packages are not scanned at this state of the operation, and drivers are not provided with a list of what had been loaded on their vehicles. The vehicles leave through doors on the side of the warehouse, which are automatically operated by a 'Proximity' card, and which lead into a yard, and from there they leave the hub through a gate in the perimeter fence.
20. The vans do not lock automatically when their doors were closed, only the door between the driver's cabin and the body of the van having automatic locking. Drivers are instructed to lock the vehicles themselves when they make deliveries and also to secure the back doors with a padlock.
21. When UPS drivers deliver goods, they are supposed to obtain from the recipient a signature by way of a 'Proof of Delivery'. Each driver has a 'DIAD' board, a portable machine that enables him to make a record of the packages that he is carrying and the addresses that he visits on a delivery round. The DIAD system is also used to obtain a recipient's signature when a delivery is made. One signature should be obtained for each package, and so if a consignment comprises more than one package, several signatures are required. UPS should therefore have on the DIAD system a record of the number of packages delivered, and when they were delivered.
22. When he completes his round, the driver returns the DIAD recorder to a rack at UPS's premises, and the information from it, including any signatures obtained by way of proof of delivery, is loaded into UPS's mainframe computer system. If for any reason a driver does not deliver a package, he should bring it back to the hub. Upon return, it should be scanned and then placed in a locked cage area in the warehouse referred to as 'overgoods'. Any packages that arrive at the hub and cannot be delivered because of inadequate labelling are also placed in 'overgoods'. If after inquiries and investigation they can be neither delivered nor returned, these package are eventually sold at auction.
23. UPS have CCTV cameras at the hub covering both the inside of the building and the receiving and despatch yards outside. Inside the building there were in July 2002 nine cameras in operation, eight recording in colour and one recording in black and white. There was a further camera which was not recording at all because UPS's system could not accommodate another operational camera, but it was thought to deter wrongdoing because only the manager and a few others knew that it was not working. Mr van Beusekom was cross-examined about the precise extent of the CCTV coverage in the building. It suffices to say that he accepted that it was not complete for two reasons: first, although the cameras covered most of the inside of the building, they missed some areas; and secondly, the view of a camera might be obstructed, in particular by delivery vehicles."
The loss of the packages after they reached the hub
- I can now return to the judge's account of the progress of the consignment, from the point when the packages were scanned into the hub at 7.30 a.m. on 26 July:
"28. … The last scanning record of the consignment shows it 'out for delivery' at the hub at 7.31am on 26 July. However, Mr van Beusekom gave evidence that the Floor Supervisor, Mr Lofti Kharbouche, reported seeing the packages stacked behind a delivery vehicle and 'checking' them: one of his responsibilities was to check the details of packages stacked behind vehicles or under the belt because packages were put there when they were to be re-directed to other areas, and Mr Kharbouche wanted to make sure that the three packages had been sorted properly. Mr van Beusekom commented that it would have been 'not unusual' for packages as large as these to be stacked behind a delivery vehicle during loading. As I have explained, they might be put aside in order to stow them in an accessible part of the vehicle, or because there was no space on the racks, or in order for them to be loaded on to another vehicle. Mr van Beusekom also stated that Mr Kharbouche was not sure which vehicle was to carry these three packages. No doubt was cast upon the evidence about what Mr Kharbouche reported, and I accept it.
29. L&A premises were in UPS's Schipol South East delivery area. On 26 July 2002 UPS allocated Schipol South East to their driver Mr Mouloud Kadim. This was not Mr Kadim's usual assignment; indeed, he did not always drive a delivery vehicle for UPS, and he did not have a fixed delivery area when he did so. When his vehicle was parked for loading one of the loading spurs in the hub, there were five or more other vehicles loading at the same time by that spur. …
30. Mr Kadim, as well as being a driver, assisted in loading packages on to vehicles on 26 July 2002. There is, however, no evidence that he sorted and loaded the packages for the particular route and vehicle that he was to drive, and such evidence as there is suggests that he did not do so: when Mr Kadim was interviewed by the Dutch police about the missing packages, he said that he had not loaded his own vehicle, not by his own decision because 'the planning department' decided who loaded vans. He said that his vehicle had been loaded by 'Sebastian' and 'Rob', presumably referring to two employees called Sebastian Roux and Rob Wiegant. When Mr van Buesekom had earlier interviewed those two workers, they had told him that they did not know whether or not they had loaded the vehicle that Mr Kadim drove. There is no direct evidence whether the three Datec packages were in fact loaded on to any vehicle and if so whether they were loaded on to the vehicle that Mr Kadim drove. As I shall explain, Mr Kadim told the police that he was not the only UPS driver to carry parcels for the Schipol South East area that day."
- In a later passage of his judgment (at para 34) the judge found that Mr Kadim did deliver one package to L&A on 26 July 2002. Datec was not the consignor and Incoparts was not the consignee, but otherwise there was no evidence about the package. The finding was based on evidence from Mr van Beusekom about information printed out from the DIAD board used by Mr Kadim on that day.
The investigation into the missing packages
- The salient parts of the judge's account of the subsequent investigation into the missing packages are as follows:
"40. At the end of his round on 26 July 2002 Mr Kadim returned to the hub at about 1.00pm (or possibly a little earlier: he told the police he finished work at around 12.15 or 12.30 pm) and handed in his DIAD board. It had apparently not yet been reported to UPS that Datec packages were not delivered, and Mr Kadim was asked nothing about them. Later that day UPS learned that the three parcels were missing. Initially, as it appears from Mr Worrall's report, Mr Tailor was told that the three packages might have been loaded in error on to another delivery vehicle, but this was uncertain because some vehicles had not returned to the hub. The source of this information is unclear. However, UPS did, as appears from the documents, contact L&A. I infer from the evidence of Mr van Beusekom and from what Mr Kadim told the Dutch police that UPS later telephoned Mr Kadim at home to ask about the packages and that he responded that other drivers had carried parcels for delivery in the Schipol South East area, and suggested that enquiries be made of them.
41. On the following Monday, 29 July 2002, Mr Kadim did not come to work and did not contact UPS to explain his absence. As a result and in view of his work record, UPS dismissed him by letter sent that day. (He had been employed by UPS since 1 March 2002 and had been away from work on a number of occasions.)
42. On 30 July 2002 Mr van Beusekom learned of the loss of the three packages from, as he believes, Datec's insurers, and he began an investigation. … Mr van Beusekom viewed the CCTV footage recorded at the hub on the morning of 26 July 2002. It showed nobody in the warehouse who should not have been there, and nothing else of significance. It showed the front of Mr Kadim's van but there was no film showing the back of the van or the area behind it because the angle of the camera was obstructed by the vehicle itself.
43. Mr van Beusekom thought on the basis of the DIAD records that Mr Kadim had been the driver who had carried the Datec packages. He was not able to interview Mr Kadim, but he spoke to other employees, including loaders who had assisted in loading the delivery vehicles on 26 July 2002. Mr Kharbouche told him about seeing the packages and checking their delivery details. On 1 August 2002 he reported to the police that the three packages were lost and that he suspected that Mr Kadim might have stolen them: in the words of the agreed translation put before me, he told the police, 'I have good reason to suspect that [Mr Kadim] embezzled the parcels'. On 6 August 2002 Mr van Beusekom learned of the loss of the Axxis package, and he reported that loss to the police.
44. In the course of his investigation Mr van Beusekom spoke to Mr Appelman about the missing Datec packages, but, as appears from Mr Appelman's evidence, he did not suggest to L&A that the consignment had been delivered to them, and so L&A did not themselves investigate whether they might have received it, for example by viewing their CCTV security films.
46. On 30 September 2002, Mr Kadim went to the Dutch police. He explained that he had been absent from work on and after 29 July 2002 because late on Friday 26 July 2002 his mother had telephoned from Morocco to tell him that his father was seriously ill, and therefore he had gone to Morocco on Sunday 28 July 2002. He said that he did not contact UPS because he thought that his employment with UPS was going to be terminated anyway. He did not return to the Netherlands until 25 September 2002, and then, on learning that the police were looking for him, he went to the police station. He was arrested and interviewed, and he denied involvement in the loss of the packages. The police released Mr Kadim without charge on 1 October 2002, concluded their investigation and apparently took no further action over the loss.
47. In his interview with the police, Mr Kadim said that on 26 July 2004 he arrived at work at 4.00am and assisted in loading vehicles, and then he worked as a driver on a delivery round. As I have mentioned, he said that he had not loaded his own van, and he also said that he had not known before 26 July 2002 which route he was to drive. He was not familiar with the route for the Schipol South East area, and three other drivers, whom he did not know by name, took packages to assist him with deliveries there. According to Mr Kadim, none of the 'customers', (meaning, I infer, consignees) complained to him that day that he had not delivered all their goods."
The loss of the Axxis package
- In para 43 of his judgment, quoted above, the judge refers to "the loss of the Axxis package". The Axxis package is peripheral to the argument but is not without significance. On the same day as the Datec consignment, 26 July 2002, UPS was due to deliver to L&A a consignment of computer chips sent by Platinum Components in the United Kingdom to Axxis Hardware BV in Amsterdam. The value of that package was said to be US $141,696. UPS's records showed that it arrived at the hub in Amsterdam on 26 July and was "out for delivery" at 6.14 a.m. Axxis alleged, however, that it was not delivered to L&A; and, although UPS did not admit non-delivery, it was clear that no signature acknowledging delivery had been obtained from L&A.
- The loss of the Axxis package was the subject of proceedings by Axxis against UPS in the Netherlands. In a judgment dated 25 May 2005, UPS was held to be liable under the CMR for the full amount of Axxis's loss. The terms of that judgment do not assist. I mention it only as part of the history.
The case before the judge as to the possible causes of loss of the Datec packages
- As already stated, the claimants' case was that the probable cause of loss of the Datec packages was employee theft. Through the witness statement of Mr van Beusekom, UPS accepted that theft, whether by Mr Kadim or other employees, was a possible explanation for the loss. But Mr van Beusekom stated that on reflection it was at least as likely that Mr Kadim did not steal the packages. Only 18 packages had been lost from the hub as a result of theft (i.e. established theft) between 1998 and 2002, whereas 41 packages had been lost (i.e. without an established cause) in July 2002 alone. Mr van Beusekom put forward a number of other possible explanations for the loss of the three packages: theft by a third party from the delivery vehicle; delivery to the wrong address; delivery to L&A and theft within L&A; and placement of the packages in the "overgoods" area following a failed delivery.
- Although he expressed opinions about those possibilities and was an experienced security investigator for UPS, it is to be noted that Mr van Beusekom was strictly a witness of fact rather than an expert witness and he was not cross-examined on the opinions he expressed. In my view that was an appropriate course for the claimants' counsel to adopt, and I would attach no weight either to Mr van Beusekom's opinions as such or to the lack of cross-examination in relation to them. The possible causes identified by Mr van Beusekom did, however, provide a convenient structure for consideration of the issues, and Mr van Beusekom's factual evidence in respect of them was of course highly relevant.
- The reports, including a joint report, of the expert witnesses (Mr Holmes for the claimants and Mr Heinrich-Jones for UPS) provided a commentary on a number of possible causes of the loss. Those causes were broken down into a large number of headings: missorted, mislaid, damaged / thrown away / sold at auction, failed delivery / returned to hub, mis-delivered, delivered in error, delivered but no proof of delivery, over labelled, incorrectly labelled, incorrectly addressed, bar code problems, theft from hub by a third party, theft following forcible entry at hub, in transit theft from delivery vehicle, theft by unknown UPS employee, theft by UPS delivery driver, theft by deception. It seems to me, however, that the only substantive addition they made to the broad categories mentioned by Mr van Beusekom was that of third party theft from the hub itself. Some of the possible causes were considered by the experts to be less likely than others, but in their joint report they concluded:
"6.19 It was agreed that it was difficult to pinpoint the most likely cause of loss given the elapsed time and limited information. It was further agreed that the Court should decide the most likely cause of loss on the balance of probabilities.
6.20 It was further agreed that if the court decided that the loss was caused by theft then it would most probably be targeted theft by organised criminals."
- Both experts were cross-examined (day 3, in particular at pp. 75-101 and 104-129). In the course of cross-examination Mr Holmes accepted that he could not pinpoint as the single probable cause of the loss any one of the explanations given in the joint report (though he did appear, at the same time, to consider theft by Mr Kadim or another UPS employee to be more likely than the other possibilities). Mr Heinrich-Jones adhered to the position expressed in the joint report.
- Andrew Smith J evidently gained relatively little assistance from the evidence of either expert. At para 12 of his judgment, having said that both witnesses were qualified to give expert evidence and were seeking to assist, he continued:
"Their views were of interest, but their evidence was of limited value: inevitably they had formed their views on the basis of the material put before them and their own investigations, whereas I must assess the evidence presented at trial. Although their information apparently largely coincided with the evidence, it was not entirely the same and in these circumstances I hesitate to place great weight upon their opinions."
The finding that the Datec consignment was not delivered to L&A
- In its original pleading UPS admitted that the Datec packages were not delivered to L&A. It was only at trial that UPS amended its pleading to contend that the packages may have been duly delivered – a point that also emerged from Mr van Beusekom's reliance on delivery to L&A and theft within L&A as a possible explanation for the loss. The judge therefore had to make a finding on the issue of delivery to L&A. There was a dispute before him as to where the burden of proof lay. The judge was "inclined to think" that the burden lay on the claimants, but considered the debate to be "an arid one on the facts of this case", for these reasons:
"49. … UPS's procedures contemplate that they will obtain a proof of delivery: the Guide states (and at the relevant time stated), 'Proof of delivery is a service designed to put your mind at ease'. Furthermore, as I have found, UPS did obtain a recipient's signature for one package delivered to L&A on 26 July 2002, whereas it is common ground that UPS obtained no proof of delivery of the consignment that is the subject of this claim. This alone, in my judgment, establishes a strong prima facie case that the packages were not delivered, and on any view effectively places an evidential burden on UPS to produce evidence that the packages were delivered to L&A.
50. In saying this, I do not overlook the evidence of Mr van Beusekom about the UPS's electronic scanning procedures: he described them as 90% effective, explaining that in about 10% of cases the procedure fails for one reason or another – for example, because bar codes are damaged and illegible, or because a scanner fails to read the code, or because of human error. (Mr Delafuente had apparently found them to be more reliable than Mr van Beusekom had.) However, this is not a case about a single package. It seems to me improbable that all three labels were damaged (despite being in pouches) or that all three codes were illegible. The DIAD scanner did read the bar code of one package that Mr Kadim delivered, and it is therefore the less likely that it failed to record other packages delivered at the same time. As for human error, L&A's procedures were, as I shall explain, that their staff should provide a signature for each package that was delivered, and if Mr Kadim or another UPS driver did not ask them to acknowledge receipt, L&A would probably have reminded him.
51. I accept Mr Appelman's evidence in his second witness statement about L&A's operation in Schipol, and this too, it seems to me, makes it the less likely that the three packages were delivered to L&A and were later stolen or lost by them. L&A deal only with valuable computer parts, and their security arrangements are designed to protect such goods. Only L&A employees have access to their secure warehouse, an area of about 600 square metres, and they enter through a door controlled by a code lock. The exit door can be opened only from inside by a member of the warehouse staff. L&A have CCTV cameras covering the doors and the inside of the warehouse. When deliveries arrive from UPS or similar carriers, L&A's procedure is for the warehouse staff to meet the driver outside the warehouse, to sign for each consignment, to take the airway bill, and then, in the case of deliveries for Incoparts, to check the goods. A Mr Michaels was responsible for receiving goods for Incoparts: he was an experienced employee and, I infer, would have been familiar with these procedures. Goods are either sent out by L&A to their customer on the day that they are received, or, if the goods are held by them, checked daily. Mr Appelman considered that in view of these procedures it is inconceivable that three or four high value packages would have been delivered without being noticed, and in any case, any "loose parcels" would soon have been noticed.
52. Of course, no procedures are completely infallible, and, despite L&A's precautions, it would be unrealistic to think it impossible that the three packages were lost from their possession, either through criminal design or through accident. However, I accept Mr Appelman's evidence that L&A had proper procedures for safeguarding valuable goods, and consider that they reduce the chances that the goods were lost or stolen from them.
53. Both expert witnesses expressed the opinion that because UPS sometimes fail to record proof of delivery the packages could have been mislaid or stolen by "the consignee or their employees" (presumably referring to L&A: in view of Mr Appelman's evidence it is unrealistic to contemplate that the goods might have been received by Incoparts). However, Mr Holmes regarded this as a most unlikely possibility, and I agree with him. Wherever the legal burden of proof lies, I conclude that the three Datec packages were not delivered to L&A."
- There is no appeal against that finding.
The judge's findings on the issue of theft by UPS employees
- Having found that the three packages had not been delivered to L&A, the judge turned to consider the claimants' contention that they were stolen by Mr Kadim or some other employee or employees of UPS. He observed (at para 56) that the argument appeared to derive from the suspicion reported by Mr van Beusekom to the Dutch police that Mr Kadim had stolen the consignment; but that Mr van Beusekom had reported no more than a suspicion and his report was made before Mr Kadim had been interviewed by the police. There was no reason to suppose that Mr van Beusekom's suspicion was prompted by any evidence or consideration that had not been presented at the trial and which the judge was able to assess in the light of the rest of the evidence. The judge continued:
"57. Both expert witnesses agreed the paucity of evidence is such that it is difficult to say how the three packages came to be lost. Mr Heinrich-Jones concluded that, while it was possible that they were stolen by, or with the assistance of, an employee of UPS, it is impossible to conclude that that is the most likely cause of the loss. Mr Holmes thought it most likely that the packages were stolen by Mr Kadim or another UPS employee but his opinion was properly guarded: indeed, in cross-examination he acknowledged that he could not say that this was 'the probable cause of the loss'.
58. Mr van Beusekom gave evidence that from time to time packages do go missing otherwise, UPS believe, than through theft. In his witness statement he said that between 1998 and 2002 their Amsterdam operation had only 18 packages stolen, but 41 packages were lost for one reason or another in July 2002 alone. As I made clear during the trial and as Mr Priday readily accepted, I do not attach any importance to the precise figures that Mr van Beusekom gives, and I discouraged the parties from exploring them in detail. However, his evidence does confirm that experience shows that packages are sometimes lost inexplicably, as indeed would be expected when a large organisation like UPS is handling so many consignments.
59. The real question, it seems to me, is whether the claimants have shown that theft by a UPS employee is more likely than accidental loss. I accept if they were stolen, it is probable that an employee of UPS was responsible for the theft. It would have been difficult for an outsider to gain access to the hub without his presence being recorded by the CCTV cameras; there is no evidence of a forced entry into a UPS vehicle; and it seems to me improbable that a casual thief happened upon a delivery vehicle that Mr Kadim or another driver had accidentally left unlocked, and chanced to pick such valuable packages, choosing them rather than smaller packages that could more conveniently have been carried off.
60. Mr Reeve rightly emphasised that this is not a case of one package being lost. Three packages were, as I have found, lost from UPS's possession, and I am prepared to assume for the purposes of determining this question that the Axxis package was also lost before delivery to L&A. I accept that it is less likely that three or four packages were lost accidentally than that one was, and that therefore this consideration lends support to the claimants' case that they were stolen.
61. At least at one stage of these proceedings, it appeared to be the claimants' primary case that Mr Kadim stole the packages. Four considerations, taken together, seem to me to cast real doubt upon this contention. First, Mr Kadim went voluntarily to the Dutch police and there is no reason to doubt his account that he went to them promptly upon returning to Holland and learning that they wished to speak to him. If Mr Kadim had stolen these valuable goods, he would not have known the strength of the evidence against him, and it would have shown real bravado in these circumstances for him to have gone to the police. This at least goes a long way to answer any suggestion that in July 2002 he went to ground to avoid answering the suspicions against him.
62. Secondly, it was not obvious from the labelling of, and documents with, the packages that they were particularly valuable. They were, of course, addressed to L&A, but this would have been significant only to someone who knew that L&A handled only valuable consignments. While it is possible that Mr Kadim knew this, there is no evidence that he did so, and no reason has been suggested for me to doubt Mr Kadim's statement to the police that he was not familiar with the route that he was driving on 26 July 2002.
63. Next, Mr Kadim did make a delivery to L&A on 26 July 2002, and then returned to the hub to hand in his DIAD board. If he were intending to steal the packages, the more obvious course would have been to steal all their packages, rather than choose to deliver one package and risk L&A questioning him about other packages that they might have been expecting.
64. Fourthly, there is no convincing evidence that the missing packages were ever loaded on to Mr Kadim's vehicle. Mr van Beusekom said that Mr Kharbouche might have seen the packages behind the vehicle because they had been set aside to be delivered by another vehicle that had been allocated another delivery route. Mr Kadim told the police that he did not carry the packages in his vehicle, and this is consistent with what, as I have found, he told UPS when they telephoned him at home on 26 July 2002; and UPS did not then dismiss as improbable Mr Kadim's explanation that the packages were being carried by other drivers, but passed it on to T&B. Mr Kadim therefore denied from the start that he had had the missing packages, before he could have known that his denial would be corroborated to some extent by Mr Kharbouche's report of them being set apart for some reason from the other packages that were to be delivered in Schipol South East. I add that there is no evidence whether or not the Axxis package was loaded on Mr. Kadim's vehicle.
65. Once it is recognised that there are grounds to think that the packages might well not have been loaded in Mr Kadim's vehicle, but set aside with a view to being delivered by another driver, it seems to me that the claimants' argument that the packages were stolen by an employee of UPS loses much of its force. Of course, it is possible that they might have been stolen from the hub and never loaded on a delivery vehicle, but, although Mr Holmes described the hub as "fertile ground for potential thieves among the employees", it does not seem to me that it would have been at all easy to smuggle such large packages out of the hub building. Again, it is possible that another driver loaded the packages and stole them from his van, knowing that there would be no record that they were loaded on it, but there is no evidence indicating this. It would have been extraordinary risky for another driver to plan such a theft: to offer to carry the valuable parcels to assist Mr Kadim with a delivery in Schipol South East and then to steal them. If, on the other hand, another driver had the goods for delivery by chance and stole them opportunistically, he was remarkably lucky either to be able to infer their value from the L&A address or to happen upon such valuable goods.
66. Having considered how the goods might have disappeared as a result of theft to which an employee of UPS was party, it seems to me more likely that they were lost accidentally: that, for example, the packages were delivered to the wrong address by a driver other than Mr Kadim; or that they were put into the hub's 'overgoods' either because they were returned by a driver who had failed to deliver them and they went astray, or because they were for some reason never loaded in any delivery vehicle.
67. In summary, I conclude that it would be too speculative to hold that the goods were taken by or with the assistance of an employee of UPS. There is no sufficient evidence to support that theory. In Laceys Footwear (Wholesale) Ltd v Bowler International Freight Ltd.  2 Ll L R 369 at p.383 Brooke LJ emphasised that when applying the provisions of an international convention, the Court must not 'adopt anything other than a properly rigorous approach to such evidence as is available before it makes findings of fact on which a determination of wilful misconduct is based', and although Brooke LJ dissented from the majority of the Court on the facts of the case before them, there is, I think, no room to dispute that this is the proper approach to the evidence in such cases of this.
68. I therefore decide that the claimants have not discharged their burden of proving on the balance of probabilities (or preponderance of probability) that their loss results from theft to which an employee of UPS was party. I should add that I was properly reminded by counsel of the principle set out in such cases as In re H (minors)  AC 563, where Lord Nicholls observed that 'Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation' (at p.586F). However, Lord Nicholls explained that this simply means that the inherent probability or improbability of an event is itself to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. Although in this case the allegation is one of theft from an employer, I do not regard this possibility as so improbable that there is a particularly heavy burden upon the claimants to prove their case. I have simply concluded that there is not proper evidence to support the claimants' allegation, and I therefore reject their contention that article 29 of the CMR applies to their claim."
- The judge did, however, reject an alternative contention by UPS that, if the consignment was stolen by a UPS employee, the claimants had not shown that it was stolen by him when he was acting in the scope of his employment. If he had decided that the consignment was stolen by an employee of UPS, he would have concluded that the employee was acting within the scope of his employment at the relevant time. That finding is not challenged before us.
The claimants' submissions on the appeal
- Mr Reeve makes no complaint about the judge's overall approach. He accepts that the judge was correct to treat the claimants as having the burden of proof, to the balance of probabilities. In the absence of direct evidence, it was necessary to consider the relative probability of employee theft against the probability of loss through other causes. In conducting that exercise, the judge was right, as he stated at para 67, to adopt "a properly rigorous approach to such evidence as is available", in accordance with the observations of Brooke LJ in Laceys Footwear (Wholesale) Ltd. v. Bowler International Freight Ltd.  Ll L R 369. In para 68 the judge took proper account of what was said in Re H  AC 563 about the burden of proof, though he was also right to conclude that an allegation of theft is not "so improbable that there is a particularly heavy burden upon the claimants to prove their case". Indeed, Mr van Beusekom had originally suspected theft and accepted in evidence that theft was a possible explanation.
- Mr Reeve submits further that the judge applied the above approach correctly in discounting two of the four other possible causes postulated by Mr van Beusekom. First, for the reasons given at paras 49-53 and irrespective or where the burden of proof lay, the judge held that the packages were not delivered to L&A. Closely linked with that finding was his view that it was "a most unlikely possibility" that the packages were mislaid or stolen at L&A (para 53). Secondly, for the reasons given at para 59, he considered it improbable that, if the packages were stolen, they were stolen by someone other than an employee of UPS.
- Accordingly, submits Mr Reeve, the judge asked himself the right question at para 59, namely "whether the claimants have shown that theft by a UPS employee is more likely than accidental loss".
- The claimants' case, however, is that the judge went wrong in answering the question he asked himself. The primary focus of the argument is on para 66 of the judgment, where the judge stated that "[h]aving considered how the goods might have disappeared as a result of theft to which an employee of UPS was party, it seems to me more likely that they were lost accidentally: for example, the packages were delivered to the wrong address by a driver other than Mr Kadim; or that they were put into the hub's 'overgoods' …". It is said that, although the judge considered how the goods might have disappeared as a result of employee theft, he did not consider how they might have disappeared as a result of either of the two accidental causes to which he referred. He made no attempt to analyse the series of steps required for either of those causes to have operated, or how his other findings and the undisputed evidence impacted on the likelihood of those steps having occurred. In fact, the cumulative improbability is such that neither cause can be regarded as plausible. The judge failed in this respect to take into account relevant factors. In addition, the judge was wrong in his assessment of the factors relevant to employee theft: he overestimated the extent to which they made it less likely and underestimated the extent to which they made it more likely. On any reasonably complete and balanced assessment, employee theft was more likely than any other cause and was proved on the balance of probabilities. The judge was therefore wrong to conclude in para 68 that it would be too speculative to hold that the goods were taken by or with the assistance of an employee of UPS, and to state in para 69 that there was not proper evidence to support the claimants' allegation.
- As regards misdelivery, the points made in support of the implausibility of such a hypothesis are these: (1) The driver would, mistakenly, have had to have taken the packages to the wrong address despite the fact that each package bore a typed label displaying the true consignee and a unique UPS barcode: the judge found it improbable that all three labels were damaged or that the barcodes on all three were illegible (para 50). There was no separate delivery plan and the drivers had to read the labels. (2) If the label was legible, the driver would have been forced to read it when deciding where and whether to deliver it. If the labels had been illegible, the packages would have been returned to the warehouse. (3) A coincidental mistake would also have to have been made in respect of the Axxis package which was due for delivery to L&A: the judge found that the package was scanned "out for delivery" at the hub soon before its loss and it is therefore highly unlikely that the label was defective. (4) The chances of such a mistake being made in respect of four separate packages in two separate consignments are even less than in respect of the claimants' three packages. (5) The recipients would have had to make a similarly unlikely series of mistakes in accepting the packages when they were not the consignees named on them and had no reason to expect delivery. (6) The driver would have had to make further and coincidental mistakes in failing, contrary to his training, to obtain proofs of delivery for any of the packages. (7) As UPS's expert witness, Mr Heinrich-Jones, accepted in cross-examination, recipients of misdelivered goods usually re-deliver them or require them to be collected by the carrier. It is therefore a further improbability that they would have held on to them. (8) UPS called none of its drivers at the trial to say that they had carried the packages, let alone that they had misdelivered them or made such mistakes. (9) As the judge found (at para 40), UPS was put on notice on the day of loss that the claimants' three packages were missing. The claimants were told that they might have been loaded in error onto another delivery vehicle, but this was uncertain because some vehicles had not returned to the hub. Mr Kadim also suggested the same day that inquiries be made of other drivers. It is to be inferred that UPS contacted the returning drivers while their memories were still fresh and that no-one could recall these packages having been delivered or misdelivered. The fact of early inquiry and investigation makes the hypothesis of misdelivery even more remote.
- As regards the overgoods area, Mr Reeve submits that there is uncertainty about the judge's precise hypothesis but that he was probably contemplating the possibility of loss from the overgoods area. In any event the points made in support of the implausibility of a hypothesis involving the overgoods area are these: (1) On the judge's findings and the undisputed evidence, the overgoods area is a secure area - "a locked cage" (para 22). It would be a non sequitur to suggest, without further analysis of how the security might have failed, that an accidental loss from the overgoods area was plausible. (2) As the judge held (also at para 22), goods placed in the overgoods area were the subject of inquiries and investigation to see if they could be delivered or returned; and it was only if they could be neither delivered nor returned that they were eventually sold at auction. In any event, goods sold at auction would have been accounted for. (3) UPS did not suggest, or call evidence to show, that there were any weaknesses in the system in respect of the overgoods area. (4) It was improbable that the packages went into the overgoods area in the first place. If the packages had been returned undelivered by one of the drivers, they would have been scanned on their return to the warehouse before they went into overgoods. There was no evidence of any such scans. (5) Furthermore, since UPS had been alerted before the drivers returned from their rounds on the day of the loss, it is implausible in the extreme that the three packages slipped into overgoods, past the staff whose responsibility it was to ensure the proper treatment of undelivered packages and despite the inquiries being made on that day. (6) The loss of the Axxis package as well as the claimants' three packages adds to the implausibility of the hypothesis of loss from the overgoods area.
- In relation to the above points, Mr Reeve also emphasises the weight and size of the claimants' packages. These were substantial packages and it would have required a conscious decision to move them.
- Mr Reeve relies on the following additional factors as providing positive support for a finding that the disappearance was the result of employee theft: (1) Mr van Beusekom reported the matter to the police because he considered there to be "good reason to suspect" employee theft (or, in another translation, that there was a "strong suspicion" of employee theft) and he regarded accidental loss as implausible. The information that the packages might have been carried by other drivers may have justified reconsidering Mr Kadim's own position, but did not alter the conclusion that the loss was likely to be the result of employee theft. (2) Mr Kadim's explanation for his subsequent absence from work was implausible: in particular, he told the police that the reason why he did not contact UPS was that he thought that his employment with UPS was not going to be extended; yet Mr van Beusekom's evidence was that the decision to dismiss him was taken after he had failed to call the company. (3) Mr Kadim's explanation for why he did not take the goods in his own delivery vehicle was also implausible: he took one package to L&A anyway, and there was no obvious reason why the three Datec packages should be given to another driver (whom he could not identify) for delivery to the same address. (4) None of the drivers or other UPS staff were called at trial to give evidence as to their handling of the Datec packages or to support Mr Kadim's explanation.
- Against those matters, it is submitted that the matters relied on by Andrew Smith J as disprobative of theft by Mr Kadim were minor points and were at best neutral in their effect.
UPS's submissions on the appeal
- Mr Flaux submits that the judge was right to hold that the claimants' case was too speculative. The judge's conclusion follows properly from his reasoned findings that theft by Mr Kadim was implausible and that theft by other UPS employees was even more unlikely. Mr van Beusekom and the independent experts identified numerous possible causes of the loss and none of them considered employee theft to be the most likely cause. Unexplained loss is just that; and the figures given by Mr van Beusekom show that there are many more cases of unexplained loss than of proven theft. The court should be slow to make a finding of wilful misconduct and should adopt a rigorous approach towards the evidence, as emphasised by Brooke LJ in Lacey's Footwear (Wholesale) Ltd. (see above). In this case there was no evidence to support a finding of wilful misconduct, and to find wilful misconduct in such circumstances would be to subvert the CMR regime.
- In Mr Flaux's submission the claimants' criticisms of para 66 of Andrew Smith J's judgment are unfounded. The judge was simply alluding in that paragraph to two other examples of possible causes. He did not have to set out an exhaustive list or go through each example in detail. The exercise in which he was engaged was not to establish the cause of loss, but to determine whether the claimants had proved their case that the loss was caused by employee theft and therefore wilful misconduct. He was right to find that the claimants had failed to discharge the burden of proof.
- Mr Flaux places substantial reliance on the decision of the House of Lords in The Popi M  2 Lloyds Rep.1. In that case a ship had sunk as a result of the entry of water through a large aperture in the shell plating of its hull. The plaintiff shipowners, upon whom the burden lay to prove that the loss had been caused by a peril of the sea, put forward a number of possible causes. After others had been eliminated, the only remaining possibility they could rely on was a collision with a submerged submarine, travelling in the same direction as the ship and at about the same speed. The defendant underwriters contended that the loss was caused by prolonged wear and tear of the ship's hull over many years, resulting in the shell plating opening up under the ordinary action of wind and wave. The trial judge, Bingham J, found the shipowners' submarine theory to be extremely improbable, but also found that the underwriters' particular wear and tear explanation was effectively ruled out on the evidence. Left with a choice between the submarine theory and the possibility that the casualty occurred as a result of wear and tear but by a mechanism which remained in doubt, he preferred the submarine theory. Lord Brandon, giving the leading speech in the House of Lords, disapproved that approach, stating (at page 6):
"My Lords, the late Sir Arthur Conan Doyle in his book 'The Sign of Four', describes his hero, Mr Sherlock Holmes, as saying to the latter's friend, Dr Watson: 'how often have I said that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?' It is, no doubt, on the basis of this well-known but unjudicial dictum that Mr Justice Bingham decided to accept the shipowners' submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable.
In my view there are three reasons why it is inappropriate to apply the dictum of Mr Sherlock Holmes, to which I have just referred, to the process of fact-finding which a Judge of first instance has to perform at the conclusion of a case of the kind here concerned.
The first reason is one which I have already sought to emphasize as being of great importance, namely, that the Judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No Judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.
The second reason is that the dictum can only apply when all relevant facts are known, so that all possible explanations, except a single extremely improbable one, can properly be eliminated. That state of affairs does not exist in the present case: to take but one example, the ship sank in such deep water that a diver's examination of the nature of the aperture, which might well have thrown light on its cause, could not be carried out.
The third reason is that the legal concept of proof of a case on a balance of probabilities must be applied with common sense. It requires a Judge of first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a Judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the Judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred has therefore failed to discharge such burden.
In my opinion, Mr Justice Bingham adopted an erroneous approach to this case by regarding himself as compelled to choose between two theories, both of which he regarded as extremely improbable, or one of which he regarded as extremely improbable and the other of which he regarded as virtually impossible. He should have borne in mind, and considered carefully in his judgment, the third alternative which was open to him, namely, that the evidence left him in doubt as to the cause of the aperture in the ship's hull, and that, in these circumstances, the shipowners had failed to discharge the burden of poof which was on them."
- It is submitted that the approach adopted by Andrew Smith J in the present case was fully in line with that laid down in Lord Brandon's speech. This was a case where the judge was entitled to find that the claimants failed on the burden of proof; not all the relevant facts were known; and the judge's finding accorded with the common sense of the matter.
- In UPS's skeleton argument, stress is placed on the fact that the judge's conclusion was based on his evaluation of the evidence and the facts, which is pre-eminently a matter for the trial judge and one in relation to which the Court of Appeal should be slow to interfere. Reference is made to the principles laid down in Assicurazioni Generali SpA v. Arab Insurance Group (Practice Note)  EWCA Civ 1642,  1 WLR 577, and in the authorities there cited. It is submitted that Andrew Smith's conclusion could not possibly be said to be against the evidence or wrong, let alone plainly wrong or "exceeding the generous ambit within which reasonable disagreement about the conclusion to be drawn from the evidence is possible" (per Ward LJ in Assicurazioni Generali SpA at para 197).
Discussion and conclusions
- In my judgment the case advanced by the claimants has considerable force to it. There is sufficient evidence about the three Datec packages and the surrounding circumstances to enable the court to engage in an informed analysis of the possible causes of the loss and to reach a reasoned conclusion as to the probable cause. The fact that the experts were unable to reach a conclusion of their own does not preclude the court from reaching such a conclusion on the totality of the evidence and in the light of the findings of fact.
- I think it particularly important that the packages were recorded as reaching UPS's hub and as being "out for delivery" on 26 July, and that they were identified by the floor supervisor as being stacked behind a delivery vehicle. Those established facts greatly reduce the scope for uncertainty, and the inferences that can be drawn from them as to the condition of the packages and in particular as to their labelling assist in the assessment of the subsequent fate of the packages.
- I also think it important that there was detailed consideration at the trial of all possible explanations for the loss. It was not suggested that there might exist any realistic possibility that the experts had failed to canvass. The court was in a position to look closely at the evidence for and against each of the possible explanations. In practice that could be done largely by reference to the broad possibilities identified by UPS's Mr van Beusekom.
- In relation to those possibilities the judge gave compelling reasons for finding, first, that the packages had not been delivered to L&A (paras 49-53 of his judgment). That finding did not depend on where the burden of proof lay; and although the judge did not dismiss the possibility that the packages had been delivered to L&A and mislaid or stolen within L&A, he evidently and rightly considered it to be unlikely. His finding was firmly grounded on evidence not only about the Datec packages and UPS's delivery procedures, but also about L&A's own operation at Schipol.
- The judge also gave compelling reasons for finding that theft by a third party was improbable (para 59 of his judgment). He dealt only briefly with third party theft from the hub itself, concentrating on the difficulty of gaining access without being recorded by the CCTV cameras (as to which, see paras 23 and 42 of the judgment). I would add that the overall security arrangements at the hub, as summarised at para 14 of the judgment, also militate strongly against the possibility of a third party gaining access and removing the packages undetected. As to theft by a third party from a delivery vehicle, I agree with the judge that it is improbable - I would say highly improbable - that a casual thief would have found by chance a delivery vehicle left accidentally unlocked (there was no evidence of any vehicle being broken into), have picked out three packages of the weight and size of these packages, and have removed them without detection.
- The two examples of accidental loss mentioned by the judge at para 66 of his judgment were delivery to the wrong address (by a driver other than Mr Kadim) and placement of the packages in the overgoods area.
- In my view the hypothesis of misdelivery is highly implausible, for all the reasons given by Mr Reeve in his submissions (para 57 above). It would require a most improbable combination of events for the packages to have been lost in this way, involving multiple errors by the UPS driver, errors by the recipient and a subsequent failure by the recipient to return the packages when the mistake was detected. The fact that prompt inquiries within UPS about the whereabouts of the packages produced nothing to support this hypothesis is a further factor telling against it.
- The judge's second example, of placement of the packages in the overgoods area, provides an even less plausible explanation for the loss. Again I agree with the reasons advanced by Mr Reeve in his submissions (para 58 above). It is difficult to see how the packages might have got to the overgoods area in the first place, given the evidence that they had labelling sufficiently intact and legible to be scanned "out for delivery" and to be identified by the floor supervisor. But if they had got to the overgoods area, the strong probability is that they would have been identified and delivered or returned or that they would have been sold and accounted for. The system does not admit of any sensible possibility of their simply disappearing accidentally and without trace.
- Although the judge referred to those two possibilities of accidental loss as examples, there does not seem to me to be any other realistic way in which packages of this size and weight might have been lost accidentally, either from the floor of the hub or from one of the delivery vehicles.
- That leaves for consideration the possibility of theft by one or more UPS employees. It should be noted at the outset that there is nothing inherently implausible about such an explanation: far from it. Although there were only 18 cases of established theft from the Amsterdam operation between 1998 and 2002, there was a large number of losses the causes of which had not been established (41 in July 2002 alone); and it would need only a relatively small proportion of such losses to be attributable to employee theft for the total losses from employee theft to run into the 100s over the same period. There was also evidence to support the view that the Datec packages might be targeted for theft or identified as containing high value items. Although there was no direct information about their value on their labelling or accompanying documentation, the contents were described as "electronic components". Moreover, L&A was known to handle high value items of this sort, so that the delivery address would have been significant to anyone "in the know". The experts acknowledged the possibility of targeted theft by organised criminals and agreed that, if the packages were stolen, it was probably a case of targeted theft.
- I am inclined to agree with Mr Reeve's submissions (para 60 above) concerning Mr Kadim's subsequent conduct and explanations to the police, and to place less weight on them than the judge did. But the explanation of employee theft does not depend for its cogency on putting the blame specifically on Mr Kadim or on other otherwise identifying the responsible employee or employees. The explanation fits well with the known facts even though the employee or employees concerned cannot be identified.
- The three packages disappeared between the point at which they were seen stacked behind a delivery vehicle and the point at which they should have been delivered. Whilst there existed an opportunity for them to be stolen by an employee from the floor of the hub, I agree with the judge's comments (at para 65 of his judgment) about the difficulty of smuggling packages of this size out of the hub. There was a better opportunity, however, for the packages to be stolen without detection by the driver of a delivery vehicle, and that opportunity was enhanced in this case by a lack of transparency as to whether they had been loaded and, if so, on which vehicle. In the circumstances an entirely plausible mechanism for the loss is that the packages were loaded onto a delivery vehicle and were stolen by the driver of that vehicle. It remains a plausible mechanism irrespective of whether the situation that arose was the result of planning (by one or more employees) or of chance. Even if it did arise by chance, it was possible for a driver to infer from the description "electronic components" and/or from the delivery address that the packages were worth stealing.
- Looking at the matter overall, it seems to me that the judge did overstate the factors telling against employee theft and understate the factors telling in favour of it. I consider employee theft to be a much more likely explanation than the judge found it to be. Perhaps more importantly, I regard as implausible and improbable the explanations of accidental loss to which the judge referred when concluding that accidental loss was more likely than employee theft.
- If conducting the exercise of evaluation for myself, I would conclude that theft by one or more UPS employees was the probable cause of the loss and that the claimants' case had therefore been proved on the balance of probabilities. That conclusion would lead in turn to a finding of wilful misconduct within article 29 of the CMR and the consequential disapplication of the limit imposed by article 23 on UPS's liability. (I should mention, for the sake of clarity, that I agree with the approach of Andrew Smith J at para 68 of his judgment towards In re H (Minors)  AC 563 and its application to the standard of proof in this case. In the circumstances the burden on the claimants to prove their case is not a particularly heavy one.)
- My conclusion does not depend on the separate loss of the Axxis package, but I accept the submissions by Mr Reeve that the loss of the Axxis package adds to the improbability of other possible causes and makes employee theft all the more probable.
- I have borne very much in mind the observations of Brooke LJ in Lacey's Footwear (Wholesale) Ltd.(see above), with which I am in respectful and total agreement, as to the need for a properly rigorous approach to the available evidence. It is the evidence, properly analysed, which in my view leads to the conclusion. That is also why I disagree with the judge's description of the claimants' case as "too speculative".
- Nor do I see any inconsistency between my approach and the observations of Lord Brandon in The Popi M. The conclusion that employee theft was the probable cause of the loss is not based on a process of elimination of the impossible, in application of the dictum of Sherlock Holmes. It does take into consideration the relative probabilities or improbabilities of various possible causes as part of the overall process of reasoning, but I do not read The Popi M as precluding such a course. Employee theft is, as I have said, a plausible explanation and is very far from being an extremely improbable event. A finding that employee theft is more likely than not to have been the cause of the loss accords perfectly well with common sense. Thus the various objections to the finding made by the trial judge in The Popi M simply do not bite on the facts of this case.
- There remains, however, the question whether it is right to interfere with the conclusion reached by the judge on this issue. An appellate court must exercise caution in such matters, for reasons discussed in Assicurazioni Generali SpA v. Arab Insurance Group (Practice Note) (see above), per Clarke LJ at paras 15-23 and Ward LJ at paras 195-197. The constraint applies with particular force where the conclusion is one of primary fact and where it depends to a significant extent on oral evidence and the view the judge formed of the witnesses. That, however, is not a material consideration in the present appeal, since there is no issue about the judge's findings of primary fact, including his acceptance of the factual evidence given by Mr van Beusekom. Moreover the judge's conclusion cannot have been significantly affected by the impression made by the expert witnesses, upon whose evidence he did not feel able to place great weight.
- The issue here depends on an evaluation of the primary facts and the inferences to be drawn from them. At para 16 of Assicuriazioni Generali SpA, Clarke LJ described such cases as closely analogous to the exercise of a discretion and expressed the view that appellate courts should approach them in a similar way. At para 197, Ward LJ stated:
"… I would pose the test for deciding whether a finding of fact was against the evidence to be whether that finding by the trial judge exceeded the generous ambit within which reasonable disagreement about the conclusion to be drawn from the evidence is possible. The difficulty or ease with which that test can be satisfied will depend on the nature of the finding under attack. If the challenge is to the finding of a primary fact, particularly if founded upon an assessment of the credibility of witnesses, then it will be a hard task to overthrow. Where the primary facts are not challenged and the judgment is made from the inferences drawn by the judge from the evidence before him, then the Court of Appeal, which has the power to draw any inference of fact it considers to be justified, may more readily interfere with an evaluation of those facts."
- In the present case, if Andrew Smith J had taken into account all relevant considerations when evaluating the facts and determining whether employee theft had been proved on the balance of probabilities, I would have been very reluctant to interfere with his conclusion and to substitute my own.
- That, however, does not seem to me to the position with which this court is faced. I regard it as highly material that the judge, in an otherwise admirable judgment, did not follow through his reference in para 66 to two examples of accidental loss and did not analyse what each would have involved and how plausible each might be. I accept Mr Reeve's submission that the judge thereby failed to take into account considerations relevant to his overall evaluation of the facts and his assessment of whether employee theft had been proved to be the probable cause of the loss. In my view that failure was sufficiently significant to entitle this court to look at the matter afresh and to form its own conclusion on the issue. For an example of a similar approach in a different context, see Chantrey Vellacott v. The Convergence Group plc  EWCA Civ 290, at paras 115-117.
- Accordingly, on this issue I would give effect to the conclusion expressed above and would find, in the claimants' favour, that the loss was caused by employee theft amounting to wilful misconduct within article 29 of the CMR.
- I would allow the claimants' appeal and dismiss UPS's cross-appeal, holding that the claimants were entitled to recover from UPS, by way of damages under article 17 of the CMR, the full value of the three packages that were lost, namely £241,241.14.
Lord Justice Sedley :
- This is what Lord Brandon said in The Popi M  2 Ll.R.1 about the inferential explanation of events:
"My Lords, the late Sir Arthur Conan Doyle in his book 'The Sign of Four', describes his hero, Mr. Sherlock Holmes, as saying to the latter's friend, Dr. Watson: "how often have I said to you that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?" It is, no doubt, on the basis of this well known but unjudicial dictum that Mr. Justice Bingham decided to accept the shipowners' submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable.
In my view there are three reasons why it is inappropriate to apply the dictum of Mr. Sherlock Holmes, to which I have just referred, to the process of fact-finding which a judge of first instance has to perform at the conclusion of a case of the kind here concerned.
The first reason is one which I have already sought to emphasize as being of great importance, namely, that the judge is not bound always to make a finding one way of the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.
The second reason is that the dictum can only apply when all relevant facts are known, so that all possible explanations, except a single extremely improbable one, can properly be eliminated. That state of affairs does not exists in the present case: to take but one example, the ship that sank in such deep water that a diver's examination of the nature of the aperture, which might well have thrown light on its cause, could not be carried out.
The third reason is that the legal concept of proof of a case on balance of probabilities must be applied with common sense. It requires a judge of first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a Judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such burden."
- The speech of Lord Brandon is not a mandate to judges who are called upon to choose between two more intrinsically improbable accounts to reject them all. It reflects, and was clearly designed to reflect, the fact that whichever account is the least improbable still has to be evaluated against the surrounding realities.
- Lord Brandon's first proposition draws attention to one such reality: the shipowners had failed to show that the vessel, which had sunk because of an aperture in her hull, had been seaworthy. In the result, as he pointed out, "all possible explanations of the ship's loss have to be approached on the basis that it is as likely that she was unseaworthy as that she was seaworthy". With this question (and possibly others as well) unresolved, Sherlock Holmes' theory of proof by elimination had no purchase, since one could not evaluate the possibility that, for example, the vessel had foundered because of neglect (or conceivably, I suppose, been scuttled). Hence Lord Brandon's second proposition – that the dictum, as he called it, could only apply when all relevant facts were known.
- That was not the case in The Popi M; but in my judgment it is the present case. This is not to say, of course, that it is ever possible to know all there is to know about an event, and Lord Brandon cannot have imagined that it was. What a court can often be confident of, and what I have no doubt Lord Brandon meant when he spoke of "all relevant facts", is that it has been able to make findings on all matters of fact which call for inquiry in resolving the issue before it.
- Andrew Smith J was, as Richards LJ has demonstrated, in this position. He had a comprehensive set of possible explanations of the loss of the goods. Nobody in this court has suggested any others. In this forensic – not empirical – sense he knew all the facts relevant to the choice he had to make. Lord Brandon's approach cannot demand more – for instance, that the precise mechanism of loss be known, for where that is the case, decision by choice of causes becomes otiose. Even if theft were highly improbable, which it was not, Lord Brandon's second proposition recognises that it was legitimate in the present case to proceed upon it as the least improbable cause of the loss.
- What remains puzzling, if I may say so with the utmost respect, is Lord Brandon's third proposition, upon which Mr Flaux has understandably fastened. On its face it is – if I may paraphrase it – that as a matter of common sense a high degree of improbability that an event will occur defeats an assertion that it has occurred. I cannot believe that Lord Brandon meant that judges either could or should disbelieve evidence that an event has occurred simply because its occurrence was highly improbable. The law, like life, is littered with highly improbable events, many of them defying common sense, which have nevertheless indubitably happened. What Lord Brandon was, in my respectful view, considering here was an occurrence which, albeit the least improbable of those canvassed, made little or no intrinsic sense. Such cases may fail for want of sufficient proof. To elevate the third of his propositions to anything higher than this would in my respectful view put it in conflict with his second proposition.
- In sum, The Popi M does not come to Mr Flaux's rescue. This is a case in which fully enough was known to entitle the court to identify and base its conclusions on the least improbable cause of the loss. For the reasons given in detail by Richards LJ, the least improbable cause, by quite a clear margin, was employee theft. I agree that, in an otherwise impeccable judgment, the judge erred in not so finding.
- I too would therefore allow the appeal. For the reasons given by Richards LJ I would dismiss the cross-appeal.
Lord Justice Brooke:
- I agree that this appeal should be allowed and the cross-appeal dismissed, for the reasons given by Richards LJ. So far as the cross-appeal is concerned I have no doubt that with the benefit of skilled advice the defendants could prepare contractual documents that could give them better protection in future, if prudently implemented, than the contractual documents that were before the court in this case. That is to say, I understand their anxieties about the consequences of inadvertently accepting high value packages, as expressed to us by leading counsel on their behalf, but I do not consider that the existence of those anxieties should deter us from holding that the judge was correct as a matter of law to rule as he did.
- So far as the appeal is concerned, I agree that it should be allowed, but I do so with a good deal of reluctance because the judge has marshalled the facts with conspicuous clarity and was very much closer to the evidence in the case than an appellate court could ever be. Paradoxically, however, it is the clarity of his exposition that makes it easier for us to reverse his conclusion.
- The leading decisions that relate to the ability of an appellate court to reverse a judgment at first instance when the sole question relates to the proper inference that can be drawn from specific facts are conveniently brought together in the Manual of Civil Appeals, Second Edition (2004), at paras 2.47 – 2.54. They are Montgomerie & Co v Wallace-James  AC 73, 75; Benmax v Austin Motor Co Ltd  AC 370, 373 and 376; In re Grayan Building Services Ltd  Ch 241, 254; Biogen Inc v Medeva plc  RPC 1, 45; Southern Cone Inc v Besant (t/a Reef)  EWCA Civ 763;  RPC 1; Assicurazioni-Generali SpA v Arab Insurance Group (BSC)  EWCA Civ 1642 at ;  1 WLR 577; and E I Du Pont de Nemours & Co v S T Dupont  EWCA Civ 1368 at .
- More recently, in giving the judgment of this court in Subesh v Secretary of State for the Home Department  EWCA Civ 56;  INLR 417, Laws LJ questioned what was meant by the word "error" (such as would entitle an appeal court to interfere), and furnished the following answer (at para 44):
"The answer is, we think, ultimately to be found in the reason why (as we have put it) the appeal process is not merely a re-run second time around of the first instance trial. It is because of the law's acknowledgement of an important public interest, namely that of finality in litigation. The would-be appellant does not approach the appeal court as if there had been no first decision, as if, so to speak, he and his opponent were to meet on virgin territory. The first instance decision is taken to be correct until the contrary is shown. As Lord Davey put it in Montgomerie [ AC 73, 82-3] … "[i]n every case the appellant assumes the burden of shewing that the judgment appealed from is wrong" (our emphasis). The burden so assumed is not the burden of proof normally carried by a claimant in first instance proceedings where there are factual disputes. An appellant, if he is to succeed, must persuade the appeal court or tribunal not merely that a different view of the facts from that taken below is reasonable and possible, but that there are objective grounds upon which the court ought to conclude that a different view is the right one. The divide between these positions is not caught by the supposed difference between a perceived error and a disagreement. In either case the appeal court disagrees with the court below, and, indeed, may express itself in such terms. The true distinction is between the case where the appeal court might prefer a different view (perhaps on marginal grounds) and one where it concludes that the process of reasoning, and the application of the relevant law, require it to adopt a different view. The burden which an appellant assumes is to show that the case falls within this latter category."
- In the present case the respondents chose not to appeal against the judge's finding that the consignment was not in fact delivered to L & A.
- As to the remaining ways in which the consignment went astray, the judge found all the witnesses of fact to be truthful, so that we are in as good a position as he was to evaluate the facts they described. For the reasons given by Richards LJ I am satisfied that we are required to adopt a different view from the judge and to conclude that the probabilities pointed to employee theft being the cause of the loss.
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