Theft of valuable diamond before auction sale — Action against auctioneers claiming damages for loss — Exclusion clause in contract with auctioneers disclaiming responsibility for loss — Diamond stolen from viewing ring while attention of senior porter on duty in centre of ring was momentarily distracted by a viewer on other side of ring — Thief escaped despite presence of security guards in room — The instructions for sale on a form signed by the plaintiff excluded liability ‘for loss or damage of any kind whether caused by negligence or otherwise, the property being accepted at owner’s risk’ — The plaintiff decided not to arrange for insurance of the diamond while it was on the auctioneers’ premises — Submissions on behalf of plaintiff that the instructions for sale were not a contractual document but merely a receipt, alternatively that the defendants’ negligence had been such as to disentitle them from relying on the exclusion clause, rejected — Such a clause might be voidable in the event of misrepresentation, or perhaps when parties had unequal bargaining power, but neither circumstance obtained in the present case — The fact that the plaintiff, as he alleged, had not actually read the exclusion clause until he consulted his solicitors was immaterial — The exclusion clause was quite clear and was sufficient to exclude liability on the part of the defendants for any loss or damage whether caused by negligence or otherwise — However, in the judge’s opinion the defendants had not in fact been negligent — The combination of circumstances which defeated the defendants’ security arrangements were not such as could reasonably have been foreseen — Plaintiff’s action dismissed
The plaintiff
in this case, Mr Spriggs, a businessman, claimed damages against Sotheby’s for
the theft on the auctioneers’ premises of a 9.46 carat diamond on a viewing day
before the auction sale in which the diamond was due to be included took place.
Nigel R Baker
(instructed by Burton Yeates & Hart, agents for Horwood & Co, of
Leicester) appeared on behalf of the plaintiff; C Newman QC and J Stancombe
(instructed by Hewitt, Woollacott & Chown) represented the defendants.
Giving
judgment, SIR DOUGLAS FRANK QC said: The plaintiff’s claim is for damages for
the loss of a 9.46 carat diamond which he delivered to the defendants to be
sold by auction but which was stolen from the defendants’ premises the day
before the sale was due to take place.
The plaintiff
is a successful businessman of 40 years’ experience. He lives in Leicester. In
1962 he bought the diamond concerned for £7,800 and insured it for £10,000.
From that time until he took the diamond to the defendants he kept it in the
bank, save for one occasion when he had the diamond valued by one Tarratt, a
local jeweller, who valued the diamond for insurance purposes, that is to say,
on a replacement basis including VAT, at £22,500. Mr Tarratt in his evidence
said that in 1977, when the diamond was stolen, he would have expected it to
have realised £14,000 to £15,000 at auction.
On May 5 1977
the plaintiff called at the defendants’ premises and there met Mr P J Hinks,
who had been with the defendants for 18 years and was their director
responsible for jewellery sales. Not surprisingly, he can remember very little
of what transpired. The plaintiff says that he showed the stone to Mr Hinks,
who had it weighed. Mr Hinks advised him that as it was a valuable stone he
should put it in the next sale but one, which was to take place on July 7, when
there would also be items to be sold by Princess Margaret and Dame Edith Evans.
He said that the likely purchaser would be an American, German or Arab. The
plaintiff also said that Mr Hinks asked him what the stone was insured for and
that he replied £10,000. He had given Mr Hinks Mr Tarratt’s valuation, on which
Mr Hinks had observed that he would be lucky to buy a replacement retail at
that price. Then followed an important piece of evidence. According to the
plaintiff, Mr Hinks said ‘Do you wish me to insure it?’, to which the plaintiff
replied ‘You advise me’, whereupon Mr Hinks said they had had no robbery for 17
years and the diamond would be kept in a safe or vault and that when placed on
view their security guards would be present. The plaintiff said that he
remarked that ‘it seemed to be as safe as the Bank of England’ and accordingly
saw no point in insuring it. There was a discussion about the reserve price.
The plaintiff said, ‘You are the expert — advise me’, to which he says that Mr
Hinks replied ‘It is much better to get it on the market with a low reserve
price’ and suggested £9,000. The plaintiff says that his reaction to that was
to say that he would not sell for £9,000 and that he or a member of his family
would attend the auction and if the bidding did not reach £18,000, he or the
member of his family would bid. It is common ground that Mr Hinks then filled
in a form and, having done so, both he and the plaintiff signed it. This form
and the so-called ‘Instructions for Sale’ printed on its reverse are at the
core of this case.
The front of
the form has the defendants’ name printed on it and the plaintiff’s name
written in by Mr Hinks. The diamond is described and under a column headed
‘Reserve’ is written the figure of ‘£9,000’. Immediately above the signatures
there is printed in bold type the words, ‘I have read and agree to the
Instructions for Sale as detailed on the reverse of this form’. On the reverse
of the form under the heading ‘INSTRUCTIONS FOR SALE’ there are eight printed
paragraphs following a preamble as follows:
I request you
to offer for sale by auction as my agent the property which I have deposited
with you. I agree that the sale(s) will be conducted in accordance with your
Notices and Conditions of Sale appropriate to my property which shall be
binding on me as the seller, and to pay you commission . . . These instructions
will not be cancelled once the Catalogue has been printed.
Para 1 is
irrelevant. Para 2 reads as follows:
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 saleroom value of the
property until sold. The rate is 50p per £100 on the hammer price (minimum
premium 50p).
Transit
insurance can be arranged on receipt of instructions before despatch.
The diamond
was kept in a safe in the defendants’ strongroom until July 6, that is the day
before the sale. It was then brought up under guard, along with the other
jewellery to be sold, to a room called the
viewing by potential buyers. The New Gallery is a room approximately 6.7 metres
square, having in the middle a circular stand or table with showcases on it. It
surrounded an area having a diameter of approximately 6 ft in which stood Mr
O’Connor, the senior porter in the jewellery department. There were alarm
buttons in that area and on each side of the door. There were four security
guards present, two by the door and two in corners, two in uniform and two in
plain clothes. The circumstances of the theft of the diamond are reliably
described in the following extract from a memorandum subsequently written by Mr
Cann, the director responsible for security:
About 2.10 pm
on Wednesday July 6 1977 lot 290 of sale 7.7.77, an unmounted diamond of 9.5
cts, value approximately £10,000 was stolen from view in the New Gallery under
the following circumstances:
About 2 pm a
man (described) came to the viewing ring at a 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 via 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 twenty people in the gallery at the time.
Mr O’Connor in
his evidence said that there were 12 people actually at the ring viewing
jewellery. He was watching the thief, who was a stranger, that is to say not a
regular buyer, when he was called to the other side of the ring thereby turning
his back on the thief for a period he described as ‘a matter of seconds’,
before the Frenchman called ‘Your stone, your stone’, whereupon immediately he
alerted the guards.
The first
issue falling to be considered is whether the Instructions for Sale were a
contractual document. The plaintiff’s contention is that the agreement between
the parties had been concluded before the document was produced and that it
constituted no more than a receipt. In my judgment there is no ground for
considering the document as a receipt. It does not purport to be a receipt but
on the contrary refers to other matters of agreement, including the reserve
price and the instructions for sale. Mr Baker referred to the case of Mendelssohn
v Norman Ltd [1970] 1 QB 177, but the facts in that case are in no way
comparable. He further contended that the second part of clause 2 relating to
insurance was a quid pro quo for the exclusion of liability and that, as
no insurance was to be arranged by the defendants, the clause is meaningless in
this context and accordingly the clause has no application. I accept that the
clause is badly drafted but I find its meaning reasonably clear. The first part
is a common exclusion clause and the second part is an offer to effect
insurance, but the fact that that offer was not accepted does not, in my
judgment, invalidate the first part of the clause and I see no reason for
following Mr Baker’s contention that the two parts of the clause stand or fall
together. Accordingly, I hold that the exclusion clause was an express term of
the contract and therefore do not have to deal with the defendants’ alternative
plea that there was an implied term with similar effect.
The next
question is whether the exclusion clause is apt to exempt the defendants from
liability for the theft of the stone. It is alleged that the defendants were
guilty of such a high degree of negligence and such a breach of duty of care as
went to the core of the contract of bailment. The negligence, it is said, went
to the very root of the contract and was tantamount to such a fundamental
breach as to disentitle the defendants from relying on the exclusion clause. Mr
Baker argued that although it was held in Photo Production Ltd v Securicor
Transport Ltd [1980] AC 827 that the doctrine of fundamental breach is not
good law, the effect of that case was to transform a rule of law to a rule of
construction. Accordingly, it was still open to the court to apply the same
considerations as a matter of construction as in the case of a fundamental
breach and he referred particularly to Lord Wilberforce who, at p 845, in
reviewing his decision said that some of the cases ‘may be justified as
depending upon the construction of the contract’ and gave as an example Levison
v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69. He also referred to
Lord Wilberforce’s observation on the exclusion clause in the Photo
Production case where he said at p 846:
These words
have to be approached with the aid of the cardinal rules of construction that
they must be read contra proferentem and that in order to escape from the
consequences of one’s own wrongdoing, or that of one’s servant, clear words are
necessary.
He went on to
say that the words in that case were clear. Mr Baker said that the present law
is summarised in Chitty 25th ed, para 889, which ends with these words:
However, if
the expression continues to be used at all [that expression being ‘fundamental
breach’] it should, it is submitted, be used only to describe those situations
where an exemption clause is, on its true construction, not sufficiently
precise or unambiguous in its terms to cover a serious breach; or where (as in
certain cases concerning carriage or bailment) an exemption clause is
inapplicable in its terms to a performance outside the ‘four corners’ of the
contract.
He also
referred to the case of Suisse Atlantique Societed Armement Maritime SA
v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 and particularly to
the speeches of Lord Reid at p 397, Lord Upjohn at p 427 and Lord Wilberforce
at p 432. He contended that the instant case has features in common with Levison,
which was expressly approved by Lord Wilberforce in the Photo Production
case.
I agree with
Mr Baker that the question is one of construction and it seems to me that the
proper approach is expressed succinctly by Lord Diplock (p 851 of the Photo
Production case) when he said:
In commercial
contracts negotiated between business men capable of looking after their own
interests and of deciding how risks inherent in the performance of various
kinds of contract can be most economically borne (generally by insurance), it
is, in my view, wrong to place a strained construction upon words in an
exclusion clause which are clear and fairly susceptible of one meaning only
even after due allowance has been made for the presumption in favour of the
implied primary and secondary obligations.
No doubt such
a clause is voidable where agreement to it has been obtained by
misrepresentation and perhaps where the parties have unequal bargaining power.
Misrepresentation is not pleaded in the instant case. In my judgment, where the
plaintiff is an experienced and successful businessman, well used to contract
and no doubt contracts containing exclusion clauses, he cannot be said to have
had an unequal bargaining power. 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.
The plaintiff
said that he left Mr Hinks two or three minutes after signing the document,
which he put in his wallet, and that he first became aware of the exclusion
clause when he took the document to his solicitors on July 12. However, it
seems to be well established that, in the absence of fraud or
misrepresentation, a party signing a document like this is bound by it and it
is wholly immaterial whether he has read the document or not: see L’Estrange
v F Graucob Ltd [1934] 2 KB 304. The case of Curtis v Chemical
Cleaning & Dyeing Co [1951] 1 KB 805 is distinguishable in that the
plaintiff had been induced to sign a document, which on its face was described
as a receipt, as a result of a false impression induced in her mind by the
misrepresentation of the shop assistant. In the case of The ‘Polyduke’ [1978]
1 Lloyd’s Rep 211 at p 215 Kerr J, as he then was, said:
. . . that
the answer would be precisely the same if the master had come along and sworn
that he had not noticed cl 2(d) and/or that he had only signed the document in
order to indicate that he had received it, without any intention to enter into
a contract. This is not a ‘ticket’ case where some document, such as a receipt,
is merely handed over, and the question is whether or not it was a sufficient
notice to incorporate contractual terms into the transaction. If, as here, the
document purports to have contractual effect and is signed, then, in the
absence of any suggestion of fraud or misrepresentation, the signature binds
and signifies knowledge of, and assent to, the contents of the document.
I must deal
with the opening sentence of clause 2, which reads:
I accept
that, whilst you take all reasonable care in handling the property on behalf of
clients . . . .
Such words are
common in exclusion clauses and are no more than an expression of intention.
However, in my opinion, having regard to all the circumstances, the defendants
did take reasonable care. One of their directors had overall responsibility for
security. They employed
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 reasonable facilities have to be provided for potential
bidders to view them. It 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.
It follows
from the foregoing that in my judgment this action fails. I should add for
completeness that I consider the plaintiff’s valuation of the diamond at
£22,500 to be highly inflated and that the true value was between the reserve
price at £9,000 and £11,000.
