Auction — Theft of valuable diamond while on view on day before auction sale — Appeal by owner from dismissal of his action against auctioneers — Deputy judge, Sir Douglas Frank QC, had held that auctioneers were protected by exclusion clause in contract disclaiming responsibility, but he also held that in any case they had not been negligent — Diamond had been stolen from a viewing ring while the attention of a senior porter, who was on his own in the centre of the ring, was momentarily distracted by a request from a viewer on the other side of the ring — Four security guards were stationed in the room during viewing time, their duty being not only to watch persons who had items of jewellery in their possession for viewing but also to prevent persons from leaving the room with items which had not been handed back — Despite these precautions the thief escaped with the diamond — The instructions for sale signed by the appellant owner contained an exclusion clause agreeing that the auctioneers were ‘not responsible for loss or damage of any kind, whether caused by negligence or otherwise, the property being accepted at owner’s risk’ — The instructions mentioned that goods could be insured against risks while on the auction premises, if vendors so desired, at a quoted premium rate, but the appellant had given specific instructions that he did not require insurance — The Court of Appeal considered first the issue of negligence and on this issue differed from the trial judge, who decided that in all the circumstances the respondent auctioneers took reasonable care — The court were unable to accept that the system employed by the respondents in July 1977 was a reasonably safe system in the circumstances — It was inevitable that the single porter inside the viewing ring would have to turn his back on customers with valuable lots in their possession; and the fields of vision of the security guards were not likely to remain unobstructed when the room was full or even partially full — The respondents had not, therefore, shown that they had taken all reasonable care, in their capacity as bailees for reward, to keep the diamond safe — The court then considered whether the respondents were protected by the exclusion clause — They rejected various criticisms against its validity and effectiveness put forward by the appellant, such as a suggestion that it was no more than a warning and so insufficient to exclude liability and that the clause could not exempt the respondents from liability where the fundamental purpose of the sale by auction had been frustrated by a prior theft — Held that the respondents were entitled to rely on the exclusion of liability in the contract with the appellant — Appeal dismissed
This was an
appeal by the plaintiff, Mr John Gordon Spriggs, a businessman, from a decision
of Sir Douglas Frank QC, sitting as a deputy judge of the Queen’s Bench
Division, dismissing the plaintiff’s claim against the defendants, the present
respondents, Sotheby’s, for damages as a result of a theft on the respondents’
premises of a 9.46-carat diamond on a viewing day before the auction sale in
which the diamond was to have been included. The judgment of Sir Douglas Frank
was reported at (1984) 272 EG 1171, [1984] 2 EGLR 24.
Igor Judge QC
and Nigel Baker (instructed by Horwood & Co, of Leicester) appeared on
behalf of the appellant; Cyril Newman QC and B Stancombe (instructed by Hewitt,
Woolacott & Chown) represented the respondents.
Giving the
first judgment at the invitation of Fox LJ, NEILL LJ said: This is an appeal
from the judgment of Sir Douglas Frank sitting as a judge of the High Court
whereby he dismissed a claim by Mr John Gordon Spriggs against Sotheby Parke
Bernet & Co Ltd (Sotheby’s), the well-known auctioneers.
The learned
judge delivered his reserved judgment on Friday July 13 1984 following a
hearing which lasted for three days between June 11 and 13 1984.
Mr Spriggs is
a businessman. He lives in Leicester. In 1962 he bought some precious stones
from a diamond merchant. One of the stones was a large diamond weighing 9.46
carats. He paid £7,800 for this diamond which he bought as an investment. For
the next 15 years Mr Spriggs kept the diamond at the bank having insured it for
the sum of £10,000. Early in 1977 he decided to have the diamond valued with a
view to selling it. He took it with another stone to a company in Market
Street, Leicester, called Tarratt Ltd.
There the
stone was valued by Mr Christopher Tarratt. He valued it on a retail
replacement basis in the sum of £22,500. Mr Tarratt put his valuation in writing,
describing the stone as a single brilliant cut diamond weighing 9.46 carats and
stating that the valuation was for insurance. The written valuation was dated
January 31 1977. Following his visit to Tarratt Ltd Mr Spriggs put the diamond
back in the bank.
Three months
later, at the beginning of May 1977, Mr Spriggs decided to sell the diamond. He
told his insurance brokers, took the diamond out of the bank again and on May 5
drove to London. On reaching London he went to Sotheby’s in New Bond Street. There
he saw Mr Hinks, the director in charge of jewellery. A discussion took place
which lasted for about half an hour. At the end of the discussion, Mr Spriggs
left his diamond with Mr Hinks on the understanding that it would be put up for
sale by auction at the next important sale of jewels, which was due to take
place on Thursday July 7.
Before he left
Sotheby’s, Mr Spriggs signed a document which Mr Hinks produced during the
course of the discussion. At the trial there was an issue as to whether an oral
agreement was reached before the document was produced and signed, but it is
now accepted on behalf of Mr Spriggs that the contract between the parties was
on the terms contained in the document which Mr Hinks produced. I shall have to
refer to the terms of this document later. At this stage it is sufficient to
note that it was agreed that a reserve of £9,000 would be placed on the diamond
and that Mr Spriggs did not require Sotheby’s to insure the diamond for him.
Following the
discussion, Mr Spriggs left Sotheby’s premises and went home. In due course he
received the catalogue for the sale which included his diamond as lot 290,
describing the stone in capital letters as follows: ‘AN IMPORTANT UNMOUNTED
CIRCULAR-CUT DIAMOND WEIGHING 9.5 cts APPROXIMATELY’. The catalogue which gave
notice of the sale stated that the items would be on view at least three days
previously to the sale.
Unfortunately,
however, on the day before the diamond was to be put up for sale by auction it
was stolen. The circumstances of the theft were described in a memorandum dated
July 12 1977, which was prepared by Mr Cunningham, the chief security guard at
Sotheby’s. The relevant part of the memorandum was in these terms:
About 2.10 pm
on Wednesday 6th July 1977 Lot 290 of Sale 7.7.77, an unmounted diamond of 9.5
carats, value approximately £10,000 was stolen from view in the New Gallery
under the following circumstances:
About 2.10 pm
a man (described) came to the viewing ring at the point nearest to the door and
was served by Dan O’Connor singly with five or six lots, including Lots 157 and
290 (both unmounted diamonds) which he asked to view. Lot 290 was the second
lot which he viewed. At the end of the group he again asked to see Lot 290 and
was given it on a pad by Dan, who was then called by a viewer on the other side
of the ring. He cannot say if this man, also unknown, was an accomplice or not
but I think it unlikely. The time was then 2.10 pm. Within seconds a Frenchman
who was viewing, drew the attention of Dan O’Connor to the fact that the
diamond was missing. Due to the language barrier, it was some time before Dan
got the message.
Dan told the
guards and they made a search for a man whom they had seen leave via the
Entrance Gallery. It was later established that they saw the wrong man and that
the real thief left by the front entrance.
I was called
and saw Dan O’Connor and the four guards and obtained details.
On the
following day I traced the Frenchman, a M Castro. I spoke to him through an
interpreter and got an outline of his version. He had to leave for Madrid but
will call and see me again on July 18. It seems that the thief had an
accomplice. There were at least 20 people in the gallery at the time.
We now have a
clear message that the viewing conditions must be drastically overhauled.
When Mr
Spriggs heard of the theft he was naturally very upset. In due course he
consulted his solicitors, who wrote to Sotheby’s claiming compensation. The
solicitors’ letter dated April 6 1978 included these paragraphs:
We have had
the opportunity of investigating the circumstances in which the diamond stone
was stolen and indeed are grateful to you for the co-operation you gave our
agent in reference thereto. It is clear however from these inquiries that all
reasonable steps were not taken by you to ensure the safekeeping of the stone.
In these circumstances our client holds you liable in respect of his loss.
The diamond
stone in question was, as we are instructed you are aware, valued by adjusters
. . . in January 1977 at a figure of £22,500. Our client feels this to be the
minimum figure realisable on a sale of the stone. Our client has of course the
benefit of insurance up to a figure of £10,000 but undoubtedly his insurers
equally will seek reimbursement of this sum. We believe Mr Spriggs’s insurers
may have already been in touch with you direct already with regard to this.
Sotheby’s,
however, took the view that they had taken all reasonable care of the diamond
and that in addition they were entitled to rely on clause 2 of the
‘Instructions for Sale’, which were printed on the back of the document which
Mr Spriggs signed on his visit to New Bond Street on May 5 1977.
The parties
were unable to reach a compromise and in due course, on October 3 1978, a writ
was issued. Nearly six years later the action came on for trial.
It is common
ground that in order to escape liability for the loss of the diamond it was
necessary for Sotheby’s to establish how the loss occurred and also either (a)
that the loss occurred despite the exercise by them of reasonable care in
looking after the stone or (b) that despite a lack of reasonable care any
liability for negligence had been excluded by the terms of the contract between
themselves and Mr Spriggs.
Before I
examine these issues, however, I should give some further account of the
circumstances in which the theft occurred.
The viewing
took place in a room called the New Gallery on the first floor of Sotheby’s
premises in New Bond Street. The New Gallery was built for the purpose of
viewing valuable objects and is well lit. It is about 20 ft square. A sketch
plan of the New Gallery is included in the bundle of documents, and the
position of the room in relation to the rest of the premises is indicated by
the plans.
It will be
seen that the entrance to the room is by a pair of doors forming a single
opening at the top of and to the right of a flight of stairs leading from the
ground floor. It will also be seen that on the far side of the room from the
entrance a door leads into a small storage room which has no other exit.
On July 6 1977
the jewellery for viewing was placed in showcases arranged in a ring in the
centre of the room. Two of these showcases were high cases though their
position was not precisely as shown on the plan.
The exterior
diameter of the ring was about 10 ft; the interior diameter was about 6 ft.
There was an alarm button on the inside of the ring and two further alarm
buttons adjacent to and on either side of the entrance doors.
Around the
walls of the room there were other showcases containing porcelain which was to
be included in an auction sale due to take place on some later occasion.
Mr O’Connor
was on duty in the centre of the ring. His main task as a porter was to assist
persons who wished to view particular items of jewellery by handing such items
to them for inspection. In the case of persons who were known to Sotheby’s
either as dealers or as regular customers, Mr O’Connor was authorised to let
them have more than one item or a tray of items at a time. In the case of
anyone who was not known to Sotheby’s, however, Mr O’Connor was only allowed to
make one item available at a time.
In addition to
assisting customers who wished to view the jewellery, Mr O’Connor had the
further task of ensuring that the items which had been handed over for viewing
were duly returned after inspection.
The main
responsibility for security, however, was in the hands of four security guards
who were stationed in the room during the viewing period, two of these guards
being near the entrance to the room. The task of the security guards was not
only to watch persons who had items of jewellery in their possession for
viewing but also to prevent anyone leaving the room with items which had not
been handed back.
There was no
restriction on the number of persons who could be in the room and it will at
once be apparent that at any one time a number of items might have been out of
the cases for viewing by different customers at various points on the outside
of the ring. It will also be apparent that having handed an item of jewellery
to one customer, Mr O’Connor might be asked by another customer at the other
side of the ring to take some other item from a showcase to enable the second
customer to view it. In that event Mr O’Connor would have had to turn his back
on the first customer.
At the trial,
however, Mr Cunningham said in evidence that the guards had instructions to
watch a person viewing an item if the porter’s attention had been distracted by
going to serve a second customer.
It is clear
that on the occasion of the theft, Mr O’Connor’s attention was diverted from
the man who was viewing lot 290 by another customer who asked to be shown some
other item which he wished to view. In order to assist this other customer, Mr
O’Connor had to go to a showcase, abstract the item in question and then hand
it to the customer at some other point on the ring.
It seems that
if the system had been working properly one of the security guards would then
have paid particular attention to watching the man with lot 290. But, as Mr
Cunningham accepted in cross-examination, the system (if such it was) did not
work on this occasion. Furthermore there was no evidence that there was any
recognised method whereby Mr O’Connor could communicate with the guards to
alert them to the fact that his attention had been diverted from a particular
customer nor was any evidence adduced at the trial by any of the guards as to
any observations they might have made on the day in question.
The issue
of reasonable care
The learned
judge held that Sotheby’s were excused from liability for any loss or damage
whether caused by negligence or otherwise by reason of the terms of the
contract between them and Mr Spriggs. I, shall have to return to this aspect of
the case a little later. But he also held that Sotheby’s took reasonable care
‘having regard to all the circumstances’.
He explained
the basis for this conclusion in these words:*
One of their
directors had overall responsibility for security. They employed a retired
detective chief inspector as chief security officer and for supervising the
jewellery viewing room five security guards. It is true that since this theft
the defendants have made changes to increase security, but, of course, it is
always possible to make changes to increase security; but whatever improvements
are effected, there can never be a guarantee of absolute security. It is a
matter of looking at the arrangements as they were immediately before the theft
and not of being wise after the event. I accept that the duty to take
reasonable care, if there is one, applies to the defendants’ servants. It can,
of course, be said that Mr O’Connor should not have left the stone unwatched,
notwithstanding that he was called to another viewer. However, it seems to me
that that lapse, if such it be, has to be looked at in the context of his job.
It has to be borne in mind that if jewels are to be sold, then
seems to me impossible to expect any man to maintain such a vigilance as to
prevent a theft which occurred in a matter of seconds. Furthermore, it was
reasonable to expect that if such a theft occurred, the security guards would
be able to catch the culprit. All in all, I have come to the conclusion that
there was such a combination of circumstances here as could not reasonably have
been foreseen by the defendants and their servants to have occurred in such a
way as to breach their security arrangements.
*Editor’s
note: See (1984) 272 EG 1171 at p 1174, [1984] 2 EGLR 24.
Counsel for Mr
Spriggs criticised this finding by the judge. He submitted that the system in
operation at the time of viewing was inadequate or alternatively that on July 6
1977 the system broke down. He pointed out that the records of earlier thefts
which had occurred between 1961 and 1969 showed that there was a plain risk
that jewellery might be stolen during viewing and that there was an obligation
on Sotheby’s to establish and maintain an adequate system of security. The
system was defective in that there was no limit on the number of persons who
could view items at once, so that if there was only one porter in the ring he
was bound to have his attention diverted from time to time from any particular
customer and on occasion would have to turn his back on an unknown customer who
had in his possession (as in the present case) a tiny object of substantial
value.
There was no
established procedure for alerting the security guards to watch a particular
viewer from whom the porter had to turn away nor was there any sufficient
evidence that in a crowded room the security guards had a clear enough view of
what was taking place at the ring.
Furthermore,
none of the guards had been called to give evidence, so that Sotheby’s could
not discharge the burden of proving that the system was operating
satisfactorily at the relevant time: indeed Mr Cunningham admitted in
cross-examination that it had broken down.
Moreover, it
was to be remembered that this stone was one of the most valuable items in the
forthcoming sale.
Counsel for
Sotheby’s on the other hand placed great weight on the fact that some risk to
security had to be accepted if potential bidders for the jewellery were to be
given a suitable opportunity to examine the items which they might wish to
purchase. Sotheby’s had to strike a difficult balance. If the conditions of
security which were imposed were too stringent, potential bidders would be
discouraged and persons such as Mr Spriggs who wished to sell items of
jewellery would suffer as a result.
He drew attention
to the arrangements which were made for security in the New Gallery, to the
fact that after the thefts between 1961 and 1969 a number of changes had been
made and to the fact that in the period since 1969 no items of jewellery had
been stolen despite the fact that auctions had been held at monthly intervals
during the eight years or so since the last theft took place.
Furthermore,
said counsel, it was a mistake to regard the contract between Sotheby’s and Mr
Spriggs as an ordinary contract of bailment; Sotheby’s had taken possession of
the diamond as agents for sale and the bailment prior to the auction was merely
an incidental feature of the contract.
It had also to
be remembered that in the room at the time there were likely to be, and were on
the relevant occasion, a number of potential bidders in addition to the
security guards and the porter. The attention of all these people was likely to
be attracted by any attempted theft. Indeed, it was a Frenchman who had been
looking at some other item who gave the alarm in the instant case.
Finally, it
should not be overlooked, it was said, that the judge had the opportunity of
observing the witnesses called on behalf of Sotheby’s and of making his
assessment of them.
For my part I
am unable to accept the submission that the obligations of Sotheby’s in regard
to the security of the diamond were other than those of a bailee for reward,
though plainly the question whether reasonable care was taken has to be judged
in the context of the relevant circumstances. The duty of a bailee for reward
is to take reasonable care in regard to the goods entrusted to him; the steps
to be taken to fulfil that duty may vary from time to time and in the light of
the function which the bailee has to perform in relation to the goods; the
nature of the duty was put in these words by Lord Denning MR in Morris v
CW Martin & Sons Ltd [1966] 1 QB 716 at p 726:
Once a man
has taken charge of goods as a bailee for reward, it is his duty to take
reasonable care to keep them safe: and he cannot escape that duty by delegating
it to his servant. If the goods are lost or damaged, whilst they are in his
possession, he is liable unless he can show — and the burden is on him to show
— that the loss or damage occurred without any neglect or default or misconduct
of himself or of any of the servants to whom he delegated his duty . . . The
bailee, to excuse himself, must show that the loss was without any fault on his
part or on the part of his servants. If he shows that he took due care to
employ trustworthy servants, and that he and his servants exercised all
diligence, and yet the goods were stolen, he will be excused: but not
otherwise.
In some cases
the duty to take reasonable care will involve the establishment of a safe
system of security, but the establishment of a safe system is not a sufficient
discharge of the duty if the system is not followed with a proper degree of
diligence. Thus in Global Dress Co v Boase & Co Ltd [1966] 2
Lloyd’s Rep 72, the defendants’ system of security was as good as any other at
Liverpool docks, but they failed to establish that at the time of the theft the
system was being operated satisfactorily. Salmon LJ said this at p 77:
I accept the
fact that these defendants are experienced and careful master porters. No
criticism is made of their system: it is said to be as good as that of any
other master porters in the dock. It is not, however, sufficient for them to
prove that their system, as a system, was impeccable. Part of the system was to
have a watchman on duty in the shed. The defendants have to show that that
watchman, for whom they were responsible, carefully performed his duty.
I return to
the instant case. This court is reluctant to interfere with the finding of a
judge on the question whether a system of protection was adequate in all the
circumstances. But the facts in this case were not really in dispute. Moreover
we are concerned not with a question of primary fact but with the inferences to
be drawn from the evidence as admitted and found. With all due deference to the
learned judge, I am unable to accept that the system employed by Sotheby’s in
July 1977 for the viewing of jewellery was a reasonably safe system in the
circumstances.
Some of the
items to be viewed were valuable but extremely small. Sotheby’s placed a value
of £10,000 to £12,000 on this unmounted diamond. Some of the persons viewing
the lots, including the thief, were strangers to Sotheby’s. The only person
with a clear and uninterrupted view of persons at the side of the ring was the
single porter, Mr O’Connor, but it was inevitable that from time to time he
would have to divert his attention from one customer in order to deal with a
request from one or more other customers, and that, in doing so, he would have
to turn his back on one or more customers who still had valuable lots in their
possession.
The security
guards were, it is true, an important line of defence, but I cannot see that
their fields of vision would have been unobstructed if the room were full or
even partially full. Moreover, though no doubt they could have played a useful
part in apprehending a thief if he had been detected, I do not find it in any
way surprising that the guards apparently failed to observe the initial taking
in this case. Nor do I think that Sotheby’s were entitled to place more than
slight reliance on the vigilance of other potential bidders who might be in the
room.
Accordingly I
have reached the clear conclusion that Sotheby’s have failed to discharge the
burden of proving that they had a safe system in operation in July 1977.
Furthermore, in the absence of any evidence from any of the guards who formed
the second line of defence, I am not satisfied that Sotheby’s sufficiently
demonstrated that the system was functioning properly on July 6.
For these
reasons I, for my part, would hold that Sotheby’s had not shown that they
exercised all reasonable care to keep the diamond safe. It therefore becomes
necessary to consider the second issue.
Clause 2
of the conditions
It is now no
longer in dispute that the terms of the contract between Mr Spriggs and
Sotheby’s included those set out in the document which Mr Spriggs and Mr Hinks
signed on May 5 1977. In that document the reserve price was stated to be
£9,000 and Mr Hinks recorded the fact that Mr Spriggs did not wish Sotheby’s to
arrange insurance. Immediately above the space where Mr Spriggs signed his name
on the front of the document were the printed words: ‘I have read and agree to
the Instructions for Sale as detailed on the reverse of this form.’ On the reverse of the document under the
heading ‘INSTRUCTIONS FOR SALE’ there were eight printed paragraphs following
some preliminary words. Clause 2 was in these terms:
I accept that,
whilst you take all reasonable care in handling the property on behalf of
clients, you are not responsible for loss or damage of any kind whether caused
by negligence or otherwise, the property being accepted at owner’s risk.
Nevertheless,
property accepted for sale and taken in at your premises will be insured with
underwriters at my cost against all risks of physical loss or damage and
subject to the insurance terms and conditions usual in your business, for the
amount for the time being estimated by you to be the sale
price (minimum premium 50p).
Transit
insurance can be arranged on receipt of instructions before despatch.
It will be
appreciated that the second para of this clause, which related to insurance at
Sotheby’s premises, was in effect excluded in relation to the contract between
Mr Spriggs and Sotheby’s because he had given specific instructions that he did
not want insurance to be arranged. Nevertheless I am quite satisfied that for
the purpose of construing the clause and in particular the first para it is
necessary to read and construe the clause as a whole.
The case for
Sotheby’s both before the trial judge and in this court was that even if the
loss had occurred as a result of lack of reasonable care by them they were
nevertheless entitled to avoid liability for the loss by reason of a specific
term (clause 2) in their contract with Mr Spriggs. The judge accepted this
argument. In a short passage in his judgment he said this:
In my opinion
the words in the exclusion clause here are clear and as a matter of
construction the defendants were not to be liable for any loss or damage
whether caused by negligence or otherwise.
Counsel for Mr
Spriggs on the other hand submitted that Sotheby’s could not rely on clause 2
so as to escape liability.
I shall
attempt to summarise as shortly as possible the detailed arguments which were
advanced in support of this submission. The arguments were on the following
lines:
(1) That it was necessary to give due weight to
the opening words of clause 2 ‘ . . . whilst you take all reasonable care in
handling the property on behalf of clients . . . ‘; these words either set out
the standard of care which Sotheby’s were to observe as a matter of contractual
obligation or they amounted, or could be construed as amounting, to no more
than an assertion of fact or a statement as to Sotheby’s general practice.
(2) That if the opening words imposed some
contractual obligation, then the following words ‘ . . . you are not
responsible for loss or damage of any kind whether caused by negligence or
otherwise . . .’ should be ignored on the ground of repugnancy. On this point
our attention was drawn to the principle of law recognised by the Privy Council
in Forbes v G I T [1922] 1 AC 256 at p 259:
If in a deed
an earlier clause is followed by a later clause which destroys altogether the
obligation created by the earlier clause, the later clause is to be rejected as
repugnant and the earlier clause prevails. In this case the two clauses cannot
be reconciled and the earlier provision in the deed prevails over the later.
Thus if A covenants to pay £100 and the deed subsequently provides that he
shall not be liable under his covenant, that later provision is to be rejected
as repugnant and void, for it altogether destroys the covenant.
On this aspect
of the case we were also referred to Swan Hunter and Wigham Richardson Ltd
v France Fenwick Tyne & Wear Co Ltd [1953] 1 WLR 1026 and to a
passage in the judgment of Devlin J in Firestone Tyre & Rubber Co Ltd
v Vokins & Co Ltd [1951] 1 Lloyd’s Rep 32 at p 39.
(3) That if in the alternative the opening words
amounted to no more than an assertion of fact or a statement of general
practice, then the whole clause was merely a notice or warning, or at any rate
was capable of being so construed, and accordingly was not sufficient to
exclude liability. This argument was based on the contention that sufficient
content could be given to clause 2 by construing it as a warning or notice, and
support for the argument was sought to be derived from the decisions of this
court in Olley v Marlborough Court Ltd [1949] 1 KB 532 and Hollier
v Rambler Motors (AMC) Ltd [1972] 2 QB 71.
In the former
case the defendants relied on a notice in the bedroom of a private residential
hotel: ‘Proprietors will not hold themselves responsible for articles lost or
stolen, unless handed to manageress for safe custody’; in the latter case the
defendants relied on the following words on the forms signed by the customer
when from time to time he had brought his car in for repair or servicing: ‘The
company is not responsible for damage caused by fire to customers cars on the
premises. Customers cars are driven by staff at owners’ risk’.
In both cases
the Court of Appeal held that the words relied on were no more than a warning
and that they were not sufficiently clear to exclude liability.
In Olley
v Marlborough Court Ltd Denning LJ put the matter as follows at p 550:
Ample content
can be given to the notice by construing it as a warning that the hotel company
is not liable, in the absence of negligence. As such it serves a useful
purpose. It is a warning to the guest that he must do his part to take care of
his things himself, and, if needs be, insure them. It is unnecessary to go
further and to construe the notice as a contractual exemption of the hotel
company from their common law liability for negligence.
In addition
counsel submitted that it was sufficient for his purpose that the clause was
capable of being construed as merely a notice or warning. He drew our attention
to the judgment of Stamp LJ in Hollier’s case at p 83 where he said:
. . . I would
hold that, where the words relied upon by the defendants are susceptible either
to a construction under which they become a statement of fact in the nature of
warning or to a construction which will exempt the defendant from liability or
negligence, the former construction is to be preferred.
(4) That whether or not the opening words had any
contractual effect the following words were not sufficient to exclude liability
because they were ambiguous and because they could be construed as
excluding the negligence only of persons other than Sotheby’s.
The basis for
this argument was that Sotheby’s could have excluded liability for their own
negligence by an express reference to their ‘own negligence’, but that in the
absence of such express words sufficient content could be given to the
exclusory words by restricting their meaning to the negligence of third
parties.
It was further
argued that as the exclusory words were capable of bearing either meaning they
should be construed contra proferentes in the more restrictive sense.
(5) That furthermore whether or not the opening
words had any contractual effect, Sotheby’s could not rely on the following
words to exclude liability because the reader of the clause as a whole would be
lulled into a sense of security by the assertion of reasonable care contained
in the opening words.
(6) That in any event the exclusory words in the
clause could not apply in the circumstances of the instant case because the
breach was so serious as to be fundamental.
The contract
between the parties, it was argued, was to secure the sale of the diamond by
auction and accordingly, as no sale of the diamond had taken place and
Sotheby’s themselves had delivered the diamond into the hands of the thief, an
exemption clause could not exempt Sotheby’s from so fundamental a failure to
perform the contract.
In the course
of the argument on this final point our attention was drawn to the relevant
authorities: Levison v Patent Steam Carpet Cleaning Co Ltd [1978]
QB 69; Suisse Atlantique Societe d’Armement Maritime SA v NV
Rotterdamsche Kolen Centrale [1967] 1 AC 361 and Photo Production Ltd
v Securicor Transport Ltd [1980] AC 827.
To my mind it
is possible to deal with these several arguments, attractively deployed as they
were, quite shortly. As I see it, there are two questions to be answered:
(a) What is the proper construction of clause 2?
(b) Does the clause, when properly construed,
apply to the facts of the instant case?
I turn to the
question of construction.
Looking at the
clause as a whole I am quite unable to attach to the opening words: ‘Whilst you
take all reasonable care in handling the property on behalf of clients . . .’
any obligation in the nature of a contractual warranty or promise. Counsel for
Mr Spriggs specifically disclaimed that he was putting forward any case based
on misrepresentation and accordingly I think these words can only be construed
as a statement as to general practice.
What then is
the effect of the following words?
It seems to me
that the words ‘. . . whether caused by negligence or otherwise . . .’ are
quite clear and are adequate to exclude any liability for any act of negligence
by Sotheby’s or by any person for whom Sotheby’s would be responsible. I cannot
construe these words as a mere notice or warning nor in the context do I
consider that the word ‘negligence’ can be restricted to the negligence of
third parties.
Furthermore,
in the absence of any plea of misrepresentation or estoppel, I do not consider
that Sotheby’s are debarred from relying on the exclusory words by the mere
presence of the opening words.
The ordinary
reader of the clause as a whole would not be lulled into a sense of security
but would recognise that Sotheby’s were seeking to exclude a liability which in
the absence of the exclusory words they would incur as bailees.
I turn to the
second question.
I recognise
that there is some attraction in the argument that as the
should not exempt Sotheby’s from liability if the fundamental purpose of the
contract has been wholly frustrated by a prior theft. It seems to me, however, that
this argument ignores the fact that any ‘loss’ of the object to be auctioned
will frustrate the sale. Accordingly I am satisfied that the clause when
properly construed is apt to cover a loss both before as well as after the sale
has taken place.
Furthermore,
in handing the diamond to the thief, Sotheby’s were in my view acting within
the scope of the contract with Mr Spriggs which was to effect the sale of the
diamond by auction. It was a necessary preliminary to this sale that the stone
should be available for inspection and be inspected by potential bidders. I
cannot regard any action which they took as being so wholly outside the scope
of the contract as to disentitle them from relying on the exclusion clause.
Indeed at the relevant time they were seeking, albeit negligently as I see it,
to make sure that a satisfactory sale of the diamond took place on the
following day.
Furthermore,
it is important to bear in mind that the decision of the House of Lords in the Photo
Production case ‘gave the final quietus to the doctrine that a ‘fundamental
breach’ of contract deprived the party in breach of the benefit of clauses in
the contract excluding or limiting his liability’: see George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at p 813,
per Lord Bridge.
It is
necessary to construe an exclusion clause in its context and to avoid giving
any strained interpretation to the words used. The clause when so construed
must then be applied to the facts of the particular case.
Accordingly I
consider that Sotheby’s are entitled to rely on the terms of the contract
between them and Mr Spriggs so as to exclude liability for the loss of the
diamond.
I would
dismiss the appeal.
FOX and DILLON
LJJ agreed and did not add anything.
The appeal
was dismissed with costs.
