On 8 May 2009 in the London Mercantile Court, His Honour Judge Mackie QC handed down judgement in the matter of Matrix Europe Limited (in Liquidation) (Claimant) –v- Uniserve (Northern) Limited (Defendant and Part 20 Claimant) –v-Logwin Air & Ocean Limited (formerly known as Birkart Globistics Limited) (Part 20 Defendant) in which Pysdens acted for Logwin. The parties throughout are respectively referred to as Matrix, UNL and Birkart.

This was a claim by Matrix for the loss of a consignment of Bluetooth adaptors valued at £375,000 in a theft from the Defendant’s warehouse on 11 January 2003 and a claim by UNL that it was not liable or if it was, that’s its liability was limited pursuant to the BIFA Standard trading Conditions 2000 Edition, or it was entitled to be indemnified by Birkart for any liability found against UNL that was over and above the limitation of liability provided for in the BIFA Standard Trading Conditions 2000 Edition.

Matrix contended that it contracted with Birkart for the goods to go direct to Manchester Airport and that the goods should never have gone to UNL’s warehouse. Birkart accepted this contention. It had already been found in the course of a preliminary issue trial that Birkart did not intend for the goods to go to UNL. Matrix averred that UNL should not have taken in the goods without ascertaining any problem and in doing so; they assumed the duties of a bailee. Matrix further asserted that the security in place at the warehouse was inadequate and that UNL were not entitled to rely on the BIFA terms against them. Matrix contended that no contract existed between UNL and Birkart relative to the goods and if there was one, it did not contain the BIFA conditions. Finally, Matrix denied that there was a sub bailment on terms as it had not consented to this.

The Judge noted that UNL’s case had changed frequently throughout the progression of the case. UNL, at trial contended that the contract between Birkart and Matrix was not as they contended it was and that Matrix had authorised use of UNL’s warehouse having vetted it for security purposes. Therefore, if the consignment went there, even inadvertently, Matrix would not have had an issue with that. Further, UNL claimed that the self employed driver who took the consignment to UNL received instructions to that effect and admitted that it accepted the consignment as a sub bailee for Birkart but averred that Matrix consented to this so any liability would be limited by clause 27 of the BIFA terms.  UNL asserted that the terms were incorporated either expressly or by prior course of dealing or by implication and in any event, the warehouse met all the duties required of a bailee.

Birkart contended that the inadvertent delivery to UNL was not subject to any contract between them, whether express, implied or through prior course of dealing and the BIFA 2000 terms did not apply as industry standard terms.

At the outset the Judge set out the facts which were either not in dispute or should not seriously be in dispute. These included the fact that Matrix contracted Birkart to take the goods direct to Manchester Airport; that Birkart sub contracted the movement from Matrix to the Airport and more specifically the premises of Robins Transport on the airport to Cheadle Couriers and Cheadle used Mr Lancashire, a self employed driver to perform the transport; that Mr Lancashire collected the consignment from Matrix and was given a copy of the commercial invoice; that Mr Lancashire took the consignment to UNL which was unloaded by an employee of UNL who placed it in the bay for sea freight despite the fact that it was airfreight; that no documents relative to the consignment were placed in the document trays by the warehouse employee who received the goods in or anyone else and that the consignment should not have been taken in at UNL without  it knowing whom the consignment was from and without proper documentation. The Judge found that all of these facts were supported by the documents relative to the case and for the most part by the witnesses who, put together, presented an uncontradicted picture thereby absolving him from the need to evaluate the recollections of the individuals who gave evidence for the parties.

The Judge then went on to evaluate the evidence entered by Matrix and UNL concerning security at UNL’s warehouse. In terms of the lay evidence, he found that two of the UNL staff who were key holders had not received messages sent by the alarm centre to which the intruder alarm was linked when the alarm was first activated on the day of the theft at about 14.30 as they had left their mobile phones at home and were out for the day and the third employee did get the message but did not think he needed to attend the warehouse to reset the alarm. It was contended by Matrix that the alarm, if activated and not reset, was no longer effective. That contention was supported by their expert witness, Mr. Dow whose view was that the loss was preventable and foreseeable as the thieves were probably watching the premises and had deliberately activated the alarm to see what the response to it was before going in to effect the theft knowing that the alarm was no longer operational. Both experts saw the loss as “an inside job”. The judge accepted the evidence of Mr. Dow over the evidence given by UNL’s expert commenting that “it does not really need expert testimony to demonstrate that the procedures in place at UNL were defective as the events of 11 January showed” and that the system operating at UNL was “a system with such obvious flaws”.

In considering the law, the Judge concluded that as a bailee, it was UNL’s burden of proof to show that any failure on its part to take reasonable care had not in any way caused the loss that occurred relying on the cases of Davis-v-Garrett, Lilley-v-Doubleday and more recently, Frans Maas-v-Samsung Electronics (UK) Ltd wherein it was said by Gross J. that “…it is permissible in my view to draw the inference that these failures assisted in the commission of the theft. This is especially so when regard is had to them cumulatively, to the culture (or lack of any security culture) which they exemplified…”  He rejected a contention by UNL’s counsel, relying on the case of Ballard-v-North British Railway, that if a bailee is able to demonstrate that it has good security systems in relation to the nature of its business and how the theft occurred, the burden is not solely on the bailee concluding that UNL’s counsel was confusing the legal with the evidential burden. Matrix also relied upon British Road Services-v-Arthur Crutchley in relation to the appropriate test for deciding whether the precautions in place would have a deterrent effect on the commission of the crime. The Judge concluded on the basis of the facts and law that UNL failed to show reasonable care but stated that the question of causation was more difficult. Nevertheless, he concluded that the failures which caused the warehouse to be effectively unprotected from 14.30 onwards when the first alarm activation occurred did assist in the commission of the theft as they made it much easier for the theft to be committed and more difficult for the Police or others to prevent it, interfere with it or retrieve the consignment once it had been stolen. Overall he reached the conclusion “that UNL failed to show that it performed its duties as bailee with a reasonable degree of skill and care.”

Moving on to the contention of UNL as to a sub bailment on terms, the Judge noted that “UNL’s approach to this aspect of its case has been chaotic”. He noted that UNL had taken nine attempts to set out its pleaded case against Birkart culminating in a letter from its instructed solicitors Clyde & Co dated 16 December 2008 and that UNL’s skeleton argument had failed to set out the submissions of fact and propositions of law which UNL intended to rely upon at trial. UNL presented a further supplemental skeleton which sought to introduce a case that there had been a sub bailment on terms in absence of a contract and went further than Clyde & Co’s letter in terms of the case being advanced. The Judge having considered the history of the pleadings and the position as stated in skeletons concluded that it would be wrong to allow UNL to raise further unpleaded arguments at this late stage and therefore proceeded on the basis of Clyde & Co’s letter of December 2008 which refined prior pleadings.

The judge accepted that Birkart and UNL had been involved in discussions as to their trading relationship between their respective managing directors which culminated in an agreement (“the operational agreement”) being entered into post theft between the respective office managers and that there was another agreement of which Birkart and Uniserve Ltd (as opposed to UNL) were part relating to sea freight involving two other forwarders which was formed just before the theft in early January 2003. He found that there was no evidence adduced at trial that UNL were BIFA members and that whilst UNL’s Managing Director was convinced that all forwarders know that when they trade with each other such trade will be on the basis of the terms of their professional body, Birkart’s manager was sure there had been no discussion about the incorporation of BIFA terms when working to finalise the operational agreement with UNL. The Judge also found that Birkart’s Managing Director never contemplated or discussed what terms, if any, would apply in the event that goods should be delivered inadvertently. Birkart’s Quality Manager drew a distinction between contracts with customers which would always be subject to BIFA and contracts with suppliers where such terms would not naturally apply.

The Judge regarded UNL’s contention of an express term as “fanciful and as I read it an unpleaded claim” and that “the conceptual difficulties make the implied term case hopeless”. In terms of the submission by UNL that the BIFA terms are industry standard terms, whilst the Judge accepted that BIFA members, where possible, contract on BIFA terms with their customers, they would not necessarily do so when dealing with suppliers and others and if there was any good reason, BIFA members may deal on other terms than BIFA and this was no basis for applying such terms even in the event that one could find a contact in existence between the parties. The Judge rejected the prior course of dealing contention of UNL as there was insufficient evidence put forward to support a course of dealing. Finally he found that UNL’s contention that Birkart became contractually bound by the BIFA terms through Mr Lancashire’s collection of the goods from Matrix failed on the facts as did its contention that Matrix consented to a sub bailment on terms.  He therefore concluded that none of the ways in which UNL contended it was protected by the BIFA terms succeeded which he found unsurprising given that “neither Matrix and Birkart nor UNL ever intended to contract with each other over this consignment.” Consequently he held that UNL’s claims against both Matrix and Birkart failed and in closing referred to the case of Ashmore-v-Corporation of Lloyds [1992] 1 WLR 446 not referred to by any of the parties which he felt was apposite to the case in hand in which Lord Templeman stated that the parties were under a duty “to assist the Judge by simplification and concentration and not to advance a multitude of ingenious arguments in the hope that out of 10 bad points the judge will be capable of fashioning a winner.”

Following the handing down of the formal judgement, the Judge then went on to consider costs issues and allowed Birkart’s application for indemnity costs to run 30 days from the decision of Mr. Justice Andrew Smith handed down in the Part 20 preliminary issue hearing on the basis that the measure of any costs award had to be considered against the backdrop of his judgement in the case and by the standards of the Mercantile Court and the Admiralty & Commercial Court Guide he found this case was “something of a horror story” and whilst he stressed that he did not find or suspect that there had been any professional misconduct, he was of the view that the nature of the judgement needed to be reflected in an order for indemnity costs to some degree. He further found in Birkart’s favour in relation to its application to vary the costs order made in the Part 20 preliminary issue hearing in which Mr. Justice Andrew Smith ordered both parties to pay their own costs.  He was satisfied that there had been a change in circumstances since the preliminary issue hearing because he took the view that “in some ways, it would be an affront” to leave the costs order as it stood in the light of what was now known. He therefore held that the costs order should be disturbed to the extent that UNL should pay one third of the costs of the preliminary issue.

So, what is to be learned from this judgement? Although it was made surprisingly complicated it was really concerned with two very short points – was UNL negligent and was it able to limit its liability via a defence of sub bailment on terms or indemnity to which the answers were respectively yes and no.

What it did illustrate is that if a party is going to seek to defend itself in terms of negligence in relation to the commissioning of a theft from its warehouse, it is going to have to meet a difficult burden of proof, particularly where it appears that the theft was the result of an “inside job”. Also, if goods were to be accepted into a warehouse where they were not intended to be delivered and were not known to be coming into the warehouse by the recipient, it was unlikely that there would be a contract in place, let alone terms incorporated therein to protect the recipient.

The simple answer is to be very sure about what is being accepted into your warehouse. There should be no basis for accepting goods in (particularly given potential misuse of premises in relation to issues of terrorism) that do not come in with proper paperwork and cannot be verified in terms of where they have come from. This will avoid any issues of misdirection, loss and lack of protection as to contractual terms. If you expect goods in and can verify they are expected in, then you have the advance ability to ensure proper contractual protection. If you cannot ensure this then do not accept the goods in!

You need tight reception procedures for goods in and to know what is being accepted in and to ensure that for all goods accepted in you have adequate contractual protection duly incorporating any standard or other conditions that you may wish to rely upon.

In terms of litigation, the message is that whilst the area of preliminary issues can prove to be dangerous territory nevertheless the outcome needs to be carefully considered before pressing on to trial in order to avoid the potential for adverse costs consequences beyond those normally facing a losing party.

Disclaimer: The art work used in this report does not represent any particular person or commercial entity and any resemblance is purely coincidental.