Datec Electronics Holdings Limited and others (Respondents) v. United Parcels Services Limited (Appellants)

A carrier's condition that it does not offer carriage of packages exceeding a stated value does not prevent a contract of carriage arising when the carrier accepts the packages and performs the undertaking to any extent. The condition instead governs the carrier's rights to refuse or suspend carriage.

Where the carrier chooses a qualifying international road leg, CMR applies with its benefits and burdens. Article 41 invalidates a contractual exclusion which derogates from liability under article 17. A package's non-conformity may remain relevant under article 17(2), but only where it caused the loss. Wilful misconduct may be proved through a reasoned assessment of circumstantial evidence, but the court must not merely select the least unlikely of several improbable causes.

Datec Electronics Holdings Ltd entrusted UPS with three packages of computer processors for delivery from Milton Keynes to agents of Incoparts BV in Amsterdam. Each package exceeded the US$50,000 value restriction in UPS's standard conditions. UPS accepted the packages and transported them by road to Luton, by air to Cologne and then by road to Amsterdam. The packages reached UPS's Amsterdam hub but were not delivered.

Andrew Smith J held that CMR applied but that wilful misconduct had not been proved: [2005] 1 Lloyd's Rep 470. The Court of Appeal, in [2005] EWCA Civ 1418; [2006] 1 Lloyd's Rep 279, agreed that CMR applied but found employee theft proved on the balance of probabilities. It therefore held UPS liable without the ordinary CMR limitation.

The House considered whether acceptance of packages outside UPS's value restriction created a contract of carriage within article 1 of CMR, and whether the Court of Appeal was entitled to reverse the trial judge's inference concerning the cause of the loss.

1. Disposition. The House unanimously dismissed UPS's appeal. Lord Mance delivered the leading speech. Lord Hope expressly agreed with his reasoning, and Lord Walker expressly agreed on the contractual issue. Lord Hoffmann and Lord Neuberger agreed that the appeal should be dismissed. Lord Walker expressed real doubt about reversal of the trial judge on wilful misconduct, but did not dissent.
2. Contract of carriage. Per Lord Mance, the framework agreement and UPS's conditions created a contractual regime for non-conforming packages. The reference to packages which UPS did not offer to carry did not mean that no contract could arise after acceptance. The express rights to refuse carriage before acceptance, suspend carriage once begun, retain charges and recover specified expenses presupposed a contract governing accepted packages. Lord Hope similarly concluded that, once UPS accepted a package and performed the undertaking to any extent, a contract of carriage arose.
3. Application of CMR. UPS had contractual discretion over the route and chose an international road leg between Cologne and Amsterdam. The accepted packages were therefore carried under a contract within article 1 of CMR. The value restriction did not remove the carriage from the Convention. CMR applied with both its protections for carriers and its mandatory liabilities.
4. Effect of non-conformity. Per Lord Mance, article 41 rendered clause 3(e) null insofar as it purported to exclude liability imposed by article 17. Non-conformity could remain relevant under article 17(2) if it caused the loss. Here the excessive package value did not cause the loss, and the contents could have been sent as eight compliant packages. Lord Mance left open the possible validity of a contractual cross-claim or a claim based on misrepresentation.
5. Wilful misconduct. Lord Mance held that causation depended upon inferences from substantially undisputed primary facts, so an appellate court was well placed to reconsider the trial judge's inference while giving due weight to any trial advantage. The reasoning did not merely select the least unlikely possibility. The intact labels, scanning records, size and number of packages, secure handling systems and implausibility of accidental loss supported employee theft on a strong balance of probability. That amounted to wilful misconduct under article 29 and displaced the article 23(3) limitation. Lord Walker emphasised the caution required before an appellate court differs from a trial judge's factual findings, but joined in dismissing the appeal.

1. House of Lords: In [2007] UKHL 23, unanimously dismissed UPS's appeal and left the Court of Appeal's order undisturbed.
2. Court of Appeal: In [2005] EWCA Civ 1418; [2006] 1 Lloyd's Rep 279, affirmed that CMR applied, reversed the trial judge on wilful misconduct and held UPS liable for the full loss.
3. High Court: Andrew Smith J, in [2005] 1 Lloyd's Rep 470, held that CMR applied but found that wilful misconduct had not been proved on the balance of probabilities.