Datec Electronics Holdings Ltd & Ors v. United Parcels Service Ltd

The House of Lords held that CMR applied to the international road leg of the movement and that a contract of carriage existed once UPS accepted the packages for onward transport, notwithstanding UPS's standard form restrictions (notably clause 3(a)(ii) limiting the value per package to US$50,000). The court construed the framework agreement as creating a contractual regime governing carriage of non-conforming packages, with UPS able to refuse or suspend carriage but not to avoid the making of a contract once it had accepted and begun performance.

Because CMR applies by operation of section 1 of the Carriage of Goods by Road Act 1965 and articles of the CMR Convention (notably article 1 and article 17(2)), contractual clauses purporting to derogate from CMR liability are null and void (article 41). The House affirmed the Court of Appeal's finding on the balance of probabilities that the most likely cause of loss was theft involving a UPS employee and that the respondents had therefore proved wilful misconduct within article 29, thereby removing the CMR liability limits in article 23(3).

Background and parties. Datec (consignors) handed three high‑value packages of computer processors to UPS for delivery from Milton Keynes to Amsterdam. The packages travelled by road to Luton, by air to Cologne, and by road from Cologne to Amsterdam. They were scanned at the Amsterdam hub but never delivered to the consignee's agent at Amsterdam. The respondents claimed under CMR for full loss, alleging wilful misconduct by UPS or its agents; UPS relied on its standard terms.

Procedural history. At first instance Andrew Smith J found CMR applied but that wilful misconduct was not proved and awarded accordingly. The Court of Appeal reversed on the factual issue, finding employee theft the probable cause and that article 29 applied to displace CMR limits. UPS appealed to the House of Lords.

Nature of the claim and relief sought. The respondents sought recovery of the full loss under CMR article 17(2) on the basis that the probable cause was wilful misconduct within article 29, which would negate the limitation of liability in article 23(3).

Issues framed by the court. (i) Whether there was a contract for the carriage of the goods by road to which article 1 of CMR applied; and (ii) whether the respondents had proved wilful misconduct on the balance of probabilities.

Court’s reasoning. On issue (i) the House construed UPS's framework terms commercially: where UPS accepts and commences carriage the parties are in a contract of carriage regulated by those terms; where UPS discovers non‑conformity at the outset it may refuse and no contract arises. The CMR Convention, given effect by section 1 of the 1965 Act, applies to contracts for international carriage by road; any contractual stipulation derogating from CMR is null and void under article 41. On issue (ii) the House reviewed the primary facts (scanning records, hub security, loading arrangements, DIAD signatures, expert evidence) and agreed with the Court of Appeal that the judge had understated the plausibility of theft by a UPS employee and overstated the plausibility of accidental explanations. The House concluded that employee theft was the probable cause and therefore wilful misconduct within article 29, disapplying CMR limits and allowing full recovery.

Subsidiary findings: the judge’s finding of non‑delivery was not disturbed; the House emphasised the commercial realism of treating UPS's clause 3 as a contractual regime and noted that consequences of non‑conformity might still enable UPS to seek contribution or indemnity from the shipper, but not to avoid CMR where it applies.

Appeal dismissed. The House held that a contract of carriage existed once UPS accepted and began performance and that CMR applied to the international road leg; clauses purporting to derogate from CMR were void to that extent. On the facts the Court of Appeal was correct to conclude on the balance of probabilities that theft involving a UPS employee was the probable cause of loss and that wilful misconduct under article 29 was established, negating CMR limits.

Trial: Andrew Smith J, reported at [2005] 1 Lloyd's Rep 470 (judge found CMR applied but no wilful misconduct). Court of Appeal: Brooke V‑P, Sedley and Richards LJJ, [2006] 1 Lloyd's Rep 279 (reversed on the factual issue and held wilful misconduct proved). House of Lords: [2007] UKHL 23 (appeal dismissed).