England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM JUDGE BEHRENS
LEEDS MERCANTILE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th April 2003

Lord Justice Tuckey:

1. Clause 30 of the British International Freight Association (BIFA) Standard Trading Conditions (1989 Edition) says:

(A). Any claim by the Customer against the Company arising in respect of any service provided for the Customer or which the Company has undertaken to provide should be made in writing and notified to the Company within 14 days of the date upon which the Customer became or should have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred except where the Customer can show that it was impossible for him to comply with this time limit and that he has made the claim as soon as it was reasonably possible for him to do so.

(B). Notwithstanding the provisions of subparagraph (A) above the Company shall in any event be discharged of all liability whatsoever howsoever arising in respect of any service provided to the Customer or which the Company has undertaken to provide unless suit be brought and written notice thereof given to the Company within 9 months from the date of the event or occurrence alleged to give rise to the cause of action against the Company.

The question on this appeal is whether in the circumstances of this case clause 30(B) as incorporated in the contract between the appellants and the respondents satisfied the requirement of reasonableness prescribed by the Unfair Contract Terms Act 1977. Judge Behrens in the Leeds Mercantile Court decided that it did not.

2. The appellants are large international freight forwarders. The respondents, among other activities, manufacture and export paint and regularly use the services of international freight forwarders in the course of their business. On the 27^th October 1999 the appellants agreed with the respondents to carry a return consignment of paint from Kuwait to the respondents' warehouse near Rotherham. To perform this contract the appellants had to collect and pack the paint into two shipping containers in Kuwait and, carry them by sea to Southampton and then by road to the respondents' warehouse. On the 4^th November the appellants agreed to arrange insurance of the consignment against all risks in transit under Institute Cargo Clauses (A). The contract or contracts were subject to the BIFA conditions.
3. The paint was packed and shipped from Kuwait in November 1999 and delivered to the respondents' warehouse by the 11^th January 2000. The respondents found that it had been damaged in transit and made a claim for £27,673.00 against the appellants within the time prescribed by clause 30(A). The appellants then made a claim on the insurance on the respondent's behalf. On the 21^st. January cargo surveyors inspected the damage on behalf of underwriters. Their report of 8^th February said that the damage appeared to have been caused by poor stowage and inadequate restraint within the containers, an excepted peril under the all risks insurance. Underwriters did not however reject the claim on this ground until 31^st March. The appellants disputed rejection of the claim, but by letter of 27^th June underwriters changed tack and said they were now rejecting the claim because this was a returned shipment. Under the open cover held by the appellants such risks could not be declared to the all risks cover unless the goods were inspected on behalf of underwriters before shipment and there had been no such inspection. The respondents were not told that the insurance claim had been rejected until 2^nd August or why it had been rejected until 22^nd August. The 9 month period in which to bring a claim for breach of the contract to insure expired on 3^rd August. The respondents did not start these proceedings however until 15^th November 2001.
4. The decision under appeal was made on a trial of preliminary issues. The first of these was whether the appellants had contracted as agents, as they contended, or as principals. The judge held that they contracted as principals. The next issue was whether clause 30(B) was incorporated into the contract or contracts between the parties. The judge held that it was: the appellants had discharged the duty on them to bring the existence of the clause to the notice of the respondents. There is no appeal from the judge's decisions on these two issues. The third issue was:

If clause 30(B) was incorporated into the relevant contracts… is it effective to bar [the respondents'] claims having regard to the provisions of the Unfair Contract Terms Act 1977?

5. The relevant provisions of the Act are:

3(1) This section applies as between contracting parties where one of them deals …. on the others' written standard terms of business.

(2) As against that party the other cannot by reference to any contract term –

(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; …

except insofar as … the contract term satisfies the requirement of reasonableness.

11(1) In relation to a contract term the requirement of reasonableness for the purpose this part of this Act … is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought to reasonably to have been, known to or in the contemplation of the parties when the contract was made...

(5) It is for those claiming that a contract term … satisfies the requirement of reasonableness to show that it does

13(1) To the extent that this part of this Act prevents the exclusion or restriction of any liability it also prevents -

(a) making the liability or its enforcement subject to restrictive or onerous conditions

Schedule 2 which contains guidelines for application of the reasonableness test, only directly applies to contracts for the sale or hire purchase of goods. Nevertheless it is common ground that its provisions ought to be taken into account in a case such as this (see Stewart Gill Ltd. v Horatio Myer & Co. Ltd.(1992) QB 600, 608). For present purposes the relevant provisions in the schedule are (a) the strength of the parties relative bargaining positions, (c) whether the respondents knew or ought reasonably to have known of the existence and extent of the term (having regard among other things to any custom of the trade and any previous course of dealing) and (d) whether it was reasonable at the time of the contract to expect that compliance with clause 30(B) (by bringing suit within the time limit) would be practicable.

6. The argument before the judge proceeded on the basis that there had been breaches of contract by the appellants both in relation to the carriage by damaging the goods and the insurance by failing to insure against all risks. Clause 30(B) restricted their liability for such breaches by making its enforcement subject to restrictive conditions, so the Act applied to this term.
7. The judge first construed clause 30(B) which he said was "in extremely wide terms". It not only required suit to be bought but also written notice of the suit had to be given within the 9 months. There was no power to extend the time limit in the case of fraud, latent defect or other circumstances which might result in the respondents not discovering that they had a claim within the 9 month period. After referring to three cases he said

90. …The difficulty, as I see it, lies in the width of clause 30(B). Whilst it might be reasonable to have some form of time bar in relation to claims where there is a direct right of indemnity I can see no justification for it in many other claims. If a forwarding agent fraudulently conceals a claim (such as retaining a secret profit) why should he be discharged after 9 months? Similarly if a forwarding agent fails to effect insurance it is difficult to see why he should be excused after only 9 months. As the facts of this case show 9 months is not a long time. These cases involve international trade where investigations can take time. Furthermore even if insurers make their first decision within 4 weeks it can hardly be unusual for such a decision to be challenged and for further time to be expended.

91. In the end I find myself in a similar position to Judge Kenny. Whereas some form of time bar might be reasonable for some form of liability it was not fair and reasonable for there to be a time bar of 9 months for "all liability whatsoever howsoever arising in respect of any service provided for the customer".

8. The reference to Judge Kenny is to the decision in Overseas Medical Supplies v Orient Transport Services (1999) 2 Lloyds Law Rep. 273. That case also concerned a freight forwarders' failure to insure. There the defendant relied on clause 29(A) of the BIFA conditions, a clause which limits liability to a fixed rate per kilo of the weight of the goods. Judge Kenny held that such a limitation was unreasonable because it applied to any liability of the defendants. This court upheld that decision. Potter LJ at para. 21 said:

The burden of proof of reasonableness lay upon the appellants in the case. Their position was that of a trading organisation which, under a single contract had agreed to combine at least two activities or functions in respect of which the nature of the work undertaken, the incidents of risks as between the parties and the effect of the breach of duty by the appellants were all of different character, yet were treated without distinction as subject to a single limitation of liability of only £600. Whereas it may be that in relation to certain "package" services, a broad brush approach to limitation of liability would be reasonable, and indeed may largely be dictated by the type of insurance cover available in the market to the supplier, the Judge held that in this case, such an approach was unjust and inappropriate for reasons which he clearly and comprehensively stated.

9. In this case, the evidence before the judge on the issue of reasonableness was limited. The appellants' managing director, Mr Stephenson, said that a lot of freight forwarding companies were members of BIFA and often, but not always, contracted on BIFA conditions. These conditions had been negotiated between BIFA and customers of freight forwarders represented by a committee. The limitation period allowed a fair and reasonable amount of time for an aggrieved party to bring a claim. It not only allowed adequate time to investigate any potential claim but also provided the defending party with the assurance that if a claim was not brought within the limitation period that was the end of the matter. It was necessary to give time to the defending party to bring proceedings against any culpable third party because his contract with that party was likely to contain a time bar. It was reasonable to expect an insurance claim of the kind with which this case is concerned to be rejected within 4 weeks.
10. Mr Patrick, the respondents' export administration manager, said he was unaware of clause 30(B) although he used freight forwarders 30 or 40 times a month. He had used the appellants in the past for carriage of goods by air to the USA and by sea from Kuwait and Australia.
11. Mr Smith, for the appellants, also sought to rely on evidence given in Schenkers v Overland Shoes Ltd.(1998) 1 Lloyds Rep. 498, another case about the BIFA conditions – this time clause 23(A), a no set-off clause. That clause was held to be reasonable by Geofrey Brice QC whose decision was upheld by this court. In his judgment, with which the other members of the court agreed Pill LJ said at p.506:

The judge heard, and it appears accepted, the evidence of Mr Willis who has long held an office with BIFA, is a former national chairman and now an executive board director. Mr Willis described the background to the BIFA conditions. The current conditions date from 1989 when earlier conditions were revised. They now form the basis of the standard trading conditions of many associations throughout the world. The conditions represent three years of hard work between interested bodies including the British Shippers Council, which represented importers and exporters and included a wide range of UK manufacturers. They are – "the product of the combined efforts of nearly all those associated with the shipping industry and the movement of goods domestically and internationally. They seek to balance the interests of all parties and in my view, have long been accepted as reasonable and fair". 1200 British freight forwarding companies are registered trading members of BIFA though there are many freight forwarding companies which do not belong.

The judge noted the respondent's objection to reliance on this passage but does not appear to have formally ruled on it. It seems to me that it would be unrealistic not to take such background information into account, particularly as it accords with what one would expect and the tenor of Mr Stephenson's evidence.

12. Before considering the arguments on this appeal we must remind ourselves of Lord Bridge's warning in George Mitchell (Chesterfield) Ltd. v Finney Lock Seed Ltd. (1983) AC 803, 815. He said:

It may, therefore, be appropriate to consider how an original decision as to what is "fair and reasonable" made in the application of these provisions should be approached by an appellate court. It would not be accurate to describe such a decision as an exercise of discretion. But a decision under any of the provisions referred to will have this in common with the exercise of discretion, that, in having regard to the various matters to which the Act directs attention, the court must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down. There will sometimes be room for legitimate difference of judicial opinion as to what the answer should be, where it would be impossible to say that one view is demonstrably wrong and the other demonstrably right. It must follow, in my view, that when asked to review such a decision on appeal, the appellate court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong.

13. Mr Smith submits that in this case the judge proceeded on an erroneous principle because he misconstrued clause 30 (B). The clause does not have the width the judge ascribed to it because it does not discharge liability for fraud by the freight forwarder or his fraudulent concealment of a claim. Express words would be needed to have this effect and/or such a clause would be contrary to public policy. In support of these submissions he relies principally on S. Pearson & Sons v Lord Mayor of Dublin (1907) AC 351 where both these reasons appear in the speeches which rejected the contention that the plaintiff could not rely on fraudulent misrepresentations in the face of a contract term that he was to verify all representations for himself and not rely on their accuracy.
14. Mr Howd, for the respondents, told us that he had not in fact submitted to the judge that the clause was wide enough to exclude fraud or fraudulent concealment of a claim. This was therefore the judge's point and was, as he says, unfortunate. Nevertheless he submitted that the judge was really only referring to fraud in the sense that the courts interpreted the words "fraudulent concealment" in section 26 of the Limitation Act 1939 which came to mean that neither concealment nor fraud was in fact required. If the judge had meant something more however, Mr Howd submitted that he was right. The principles in Pearson and other cases to which we were referred, Canada Steamship Lines Ltd. v the King (1952) AC 192 and HIH Casualty and General Insurance Ltd. v Chase Manhattan Bank (2001) 2 Lloyds rep. 483 do not apply with the same rigour to clauses which limit rather than exclude liability.
15. I think it is an inescapable conclusion from what he said that the judge did think that the clause applied to a claim for fraud and to a claim which had been fraudulently concealed by the conduct of the freight forwarder. The judge was not asked to construe the clause so widely and I do not think such a construction was justified. The clause is obviously designed to meet ordinary contractual claims such as those made in this case which a freight forwarder would expect to have to face in the ordinary of course of his business. As Lord Justice Rix put it in HIH Casualty at p. 512:

Parties to a contract plainly look to performance rather than non performance or misperformance, but they also contemplate the latter. It seems to me however that fraud is a thing apart. Parties contract with one another in the expectation of honest dealing.

The majority decision of the House of Lords in HIH Casualty does not cast doubt on these principles.

16. It follows that I accept Mr Smith's submission that the judge proceeded to consider the reasonableness of the clause on a mistaken view of its meaning. This is not therefore a case in which we are inhibited by what Lord Bridge said in George Mitchell.
17. It does not of course follow that the judge reached the wrong conclusion. Mr Howd strongly argued that he did not and that the reasoning in paras. 90 and 91 of his judgment remains sound. As in Overseas Medical Supplies there was no justification for having the same time limit for making a claim for damage to cargo as for a claim for failure to insure. Nine months was not a fair and reasonable time limit within which to bring the latter claim. Other submissions made to the judge (set out in a respondent's notice) also support his decision. The respondents were unaware of the time bar and there was no basis for saying that they ought reasonably to have been aware of it. Nine months is a very short time limit even compared with other relatively short time limits under international conventions relating to the carriage of goods. Unlike some of those provisions clause 30(B) does not allow for an extension of the time limit under any circumstances. It contains the additional requirement that written notice of the suit is required within the time limit as well. It was not practicable to expect compliance with the time limit as the facts of this case show. In claims of this kind involving cargo underwriters, the freight forwarders and possibly their public liability insurers, it takes considerable time to investigate and prepare a claim, particularly if some of the relevant events occurred abroad. The freight forwarders' position is protected by clause 30 (A) which requires early notice of a potential claim. His investigation of the claim is not therefore prejudiced.
18. The Act requires the court to determine whether the term in question is reasonable as between the parties to the contract in question at the time when that contract was made.
19. Taking the first of the schedule 2 guidelines, the parties in this case were obviously of equal bargaining strength. This was a commercial contract between commercial parties where the respondents might have been able to contract other than on BIFA conditions or to make their own insurance arrangements had they wished.
20. Although Mr Patrick was unaware of the time bar it seems to me that the respondents ought reasonably to have known of it. Indeed the judge expressly held that the conditions had been sufficiently brought to the respondents' attention. From their general business experience and of using freight forwarders in particular they must have known that the transaction would be on terms. It was up to them to inform themselves of what those terms were. The BIFA conditions were not a custom of the trade, but in their previous course of dealing with the appellants, the respondents must have dealt on those terms.
21. Most of the argument turned on whether compliance with a nine month time limit was practicable. Both sides sought support from international conventions and other standard conditions. I will simply summarize the position, because clause 30(B) is of general application and applies to all forms of carriage (by sea, air, and land) with which freight forwarders are involved, so the various time bar provisions can only be an indication of what was reasonable in this case. Under the Hague and Hague-Visby Rules the carrier and the ship are discharged from all liability in respect of the goods unless suit is brought within one year of delivery. The Hague-Visby Rules however extend the time for making a claim for indemnity against a third party by the time allowed by the law of the court seized of the case. The Warsaw Convention (air) contains a time limit of two years. The CMR Convention (road) provides for a one year limitation period with an extension to three years in the case of wilful misconduct. The limitation period is suspended until the carrier rejects the claim. The COT IF convention (rail) contains similar provisions. The ICC uniform rules (1975 No. 298) for carriage of goods by multi-modal transport contain an unqualified time bar of nine months after delivery.
22. The point which the appellants emphasise is that where, as here, they contract as principals a time limit of nine months is necessary to enable them to make a claim over against the responsible carrier before that claim becomes time barred (frequently within one year). Some time bar less than the statutory period of limitation must I think be justified for this reason. Whatever his contractual relationship with his customer, the freight forwarder is usually not the carrier. He is simply an intermediary. If he is liable to his customer for damaging his goods it is only fair and reasonable that he should be able to pass on that liability to the responsible carrier in time.
23. So is nine months a reasonable time limit? I have no doubt that it is for a claim for loss of or damage to goods in transit. The loss or damage can be ascertained on delivery. Nine months is ample time for the customer to decide whether to bring suit. This limit is necessary to enable the freight forwarder to claim within the twelve month time limit which applies to many contracts of carriage.
24. That deals with the typical claim which a freight forwarder will face but, as this case and Overseas Medical Supplies show, he may also face a claim for failure to insure. If it is not practicable to expect such a claim to be made within nine months it suggests that the clause does not pass the test of reasonableness on the same grounds as clause 29(A) failed in Overseas Medical Supplies. This is the point which obviously concerned the judge on the facts of this case and is the main reason for his decision.
25. The facts of this case are I think unusual. Cargo claims against underwriters of this kind are commonplace and are usually dealt with relatively quickly, unlike some other types of insurance claim. Mr Stephenson's evidence was that four weeks was normal. At least one would expect the assured to know within this sort of time if underwriters were saying that there was no cover. It is no answer to this to say, as the judge did, that one could expect such a decision to be challenged. Once the assured knows the cover is disputed, he will know that he has nine months from the date of the contract to sort it out or he must sue the freight forwarder if the lack of cover is his fault.
26. Here, underwriters said that there was no cover on 31^st March and again, for a different reason, on 27^th June 2000. If the respondents had been told this soon after either of these dates they would have had ample time to claim against the appellants within the nine months time limit for failure to insure. The problem was that the respondents were not told by the appellants that there was no cover and why until 22nd August. They obviously should have been told earlier. I add that there is no question of this information being deliberately withheld. The judge made no such finding and he described Mr Stephenson (and Mr Patrick) as patently honest witnesses.
27. In pursuing the insurance claim on behalf of the respondents, the appellants were acting as their agents. Whether or not one characterises their role as equivalent to that of an insurance broker, they must in the circumstances have owed a duty to the respondents to tell them that they had no cover as soon as underwriters rejected the claim. They were in continuing breach of this duty until 22^nd August. This means that under clause 30(B) the respondents would have had nine months from the latter date to make a claim based on this breach of duty. Unfortunately they did not do so.
28. On this analysis, the facts of this case do not compel the conclusion that clause 30(B) is unreasonable. As I have said, in the ordinary case the customer will know whether he has cover relatively soon after his goods are damaged. His loss for the failure to insure will of course be related to the amount of his claim for the damage. In these circumstances I think it is fair and reasonable to fix the same time limit for a claim based on failure to insure the goods as is fixed for the claim for damage to those goods.
29. So I conclude that the judge was wrong to say that this case was comparable to Overseas Medical Supplies. Quite apart from the fact that the judge found in that case that there was no real equality of bargaining position, the failure to insure had caused the customer a loss of over £8,500. Her claim would have been limited to £600 if the limitation of liability clause could be relied on. Such a limit might have been justified for a claim against the freight forwarders for damage to the goods, but was obviously unfair as the measure of compensation for failure to effect an insurance which would have covered the customer's actual loss. Here the contrast to be made is between a practicable time limit to claim for damage and one to claim for failure to insure. As I have said, given the period of nine months allowed, I think it is fair and reasonable that they should be the same. I do not think there is any good reason why they should not be.
30. I do not think Mr Howd's other points advance his case. Clause 30(B) does not permit any extension of time but nor do many time bar provisions. It is worth noting, however, that clause 30(A) does allow for late notification in certain circumstances, so it can be said that those who drafted these conditions must have considered whether similar provisions were required in clause 30(B). It is reasonable to require the customer to give notice that suit has been brought within the nine month period. The whole point of the time limit would be lost if he could start proceedings and then not serve them or otherwise delay in notifying the freight forwarder of their existence. Under the CPR a claimant has up to four months in which to serve his claim form. The fact that damage to the goods may have occurred abroad has not obviously inhibited those who framed the international conventions. Anyway, so far as insurance is concerned, the relevant events are likely to have taken place here.
31. For these reasons I think the judge reached the wrong conclusion in this case. If necessary I would say he was plainly wrong. I am pleased to reach this decision. The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms. Here the transaction includes carriage of goods by sea and insurance. These spheres of commercial activity standing on their own are excluded from the Act (see Schedule 1 paras. 1a (insurance) and 2c and 3 (carriage of goods by ship). In this case the element of road transport was sufficient to render the transaction subject to the Act, but the mixed nature of the contract of carriage emphasises the interest of the freight forwarder in having a time limitation which is applicable across the spectrum of his obligations.
32. I would allow this appeal and vary para. 1.3 of the judge's order to read:

Clause 30(B) of the BIFA terms is effective to bar the claimant's claims.

Mr. Justice Hart: I agree.

Lord Justice Potter: I also agree.

Order: Appeal allowed, the appellant to have the costs of the appeal. As per costs below, the defendant to pay the claimants one third of their costs and the claimants to pay the defendant two thirds. With mutual set off. Leave to appeal refused. (Order does not form part of the approved judgment)