England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LONDON MERCANTILE COURT
His Honour Judge Mackie Q.C.
2009 Folio 52

		Royal Courts of Justice Strand, London, WC2A 2LL
		20 January 2011

Lord Justice Moore-Bick :

1. This is an appeal against the order of His Honour Judge Mackie Q.C. granting the respondent, Röhlig (UK) Ltd, ("Röhlig"), summary judgment for £100,000 against the appellant, Rock Unique Ltd ("Rock") on its claim for £134,617.96 and directing that Rock pay the sum of £24,617.96 into court as a condition of being allowed to defend the balance of the claim on the grounds that the relationship between the parties was one of principal and agent.
2. Rock runs a garden centre which supplies, among other things, sandstone paving imported from India which is bought from the suppliers, Galaxy Impex ("Galaxy"), on f.o.b. terms. The quarry from which the stone is obtained lies in Jaipur some distance from the coast and arrangements must therefore be made for the stone to be loaded into containers, carried to a convenient port, shipped by sea to a United Kingdom port and transported by lorry to Rock's premises. Röhlig carries on business as a freight forwarder and was engaged by Rock to arrange the carriage of the stone from the port of loading in India to its destination in this country. The two companies began doing business together in 2002 and apart from a short interlude between 2004 and 2005 continued to do so until about November 2008 when the present dispute erupted. Röhlig started these proceedings in January 2009 seeking to recover charges in respect of the carriage and importation of various parcels of stone between April and December 2008.
3. On 2^nd March 2009 Rock served a defence and counterclaim in which it alleged that Röhlig had provided it with freight forwarding services pursuant to a contract entered into between the parties orally in June 2005 under which Röhlig agreed to act as its agent to arrange the carriage of the goods from India to the United Kingdom, but on terms that Röhlig would be solely liable on the contracts it made with third parties for that purpose. Rock also alleged that it was agreed that Röhlig would be entitled to recover in respect of the ocean carriage only such amounts as it paid to the carrier. It said that in breach of contract and of its fiduciary duty as agent Röhlig had overcharged it in respect of the expenses of ocean carriage and other transport charges. Accordingly, Rock said that it was not liable to pay the whole of the amounts shown in the invoices on which the claim was based and, moreover, that it was entitled to recover the amounts by which it had been overcharged in the past. They are currently estimated at between £300,000 and £400,000.
4. Röhlig contended that the contract incorporated the standard trading conditions of the British International Freight Association ("BIFA"), which provided, so far as is material for present purposes, as follows:

"21(A) The Customer shall pay to the Company in cash, or as otherwise agreed, all sums when due, immediately and without reduction or deferment on account of any claim, counterclaim or set-off.

. . .

27(B) . . . the Company shall in any event be discharged of all liability whatsoever and howsoever arising in respect of any service provided for the Customer . . . unless suit be brought and written notice thereof given to the Company within nine months from the date of the event or occurrence alleged to give rise to a cause of action against the Company."

5. Röhlig denied that it had agreed to act as Rock's agent. It relied on the fact that it had provided a written quotation of charges for the various services it was willing to provide and maintained that the two of them had contracted as principals. It was therefore entitled to charge the rates set out in its quotation, as varied by agreement from time to time, for the various services it performed regardless of the terms it agreed with third parties, such as the ocean carriers. It also relied on the two clauses in the BIFA conditions to which I have referred and argued that clause 21(A) prevented Rock from setting off against its liability under the invoices to which the proceedings related any claims it might have in respect of earlier charges, which were in any event barred by clause 27(B). In response Rock sought to rely on the Unfair Contract Terms Act 1977, arguing that both clauses were unreasonable and therefore unenforceable.
6. That was the shape of the dispute when the matter came before the judge on Röhlig's application for summary judgment. The judge thought it unlikely that Rock would establish its case on agency, but he did not feel able to decide the matter summarily. He did hold, however, that the claim was bound to succeed insofar as it would do so if the relationship were one of agency. Next, as I have already mentioned, he held that the contract incorporated the BIFA conditions. He held that clause 21(A) meant what it said and that it prevented Rock from setting up cross-claims in answer to Röhlig's claim. He also found that it satisfied the requirement of reasonableness. He then held that clause 27(B) was wide enough to discharge any liability in restitution in respect of any previous overcharging and found that it also satisfied the requirement of reasonableness. In the light of those conclusions he made the order to which I referred earlier, having found that, even if Rock were to persuade the court that its relationship with Röhlig was one of agency, a sum of £100,000 would still be due. (The difference between the balance of £34,617.96 and the sum of £24,617.96 he ordered Rock to pay into court reflected a payment on account of £10,000 made some time earlier.)
7. It is now accepted that the BIFA conditions were incorporated into the contract, but Rock has challenged both the correctness of judge's construction of clauses 21(A) and 27(B) and his finding that both clauses satisfied the requirement of reasonableness of the Unfair Contract Terms Act. It is convenient to deal first with clause 21(A).
8. Clause 21(A) contains a prohibition against set-off of a kind commonly found in commercial contracts. Its purpose is to ensure that amounts falling due in respect of goods or services are paid promptly, thereby ensuring that cash-flow, which has been described as "the life-blood of business", is not interrupted. The meaning of clause 21(A) is clear on its face: it does not prevent the customer from pursuing claims against the supplier, but it does prevent him from withholding payment in satisfaction of a claim or (if his claim is unjustified) from withholding payment until the merits have been determined. On the other hand, the clause does not prevent the customer from withholding payment on the grounds that the sum claimed has not fallen due at all.
9. Mr. Bompas Q.C. submitted that the judge was wrong to reject the argument that at least part of the sums covered by the invoices on which Röhlig sued had not fallen due, but as I understand him he did accept that argument, which was reflected in paragraph 3 of his order. The judge dealt with this aspect of the matter very cursorily. He said:

"The position of the Defendant is, first, to say that clause 21(A) is not applicable on its construction because it only operates when sums are "due". That argument fails because of Schenkers. The Court of Appeal and the trial judge, Mr. Geoffrey Brice Q.C., had regard to, among other authorities, the Stewart Gill case. The judge endorsed the view that the clause which did not cover transactions or debts not due but did cover other claims precisely like those in this case."

10. In Schenkers Ltd v Overland Shoes Ltd [1998] EWCA Civ 234, [1998] 1 Lloyd's Rep 498 this court considered clause 23(A) of the then current BIFA conditions, which was worded in exactly the same terms as the present clause 21(A). However, the debate in that case was confined to the question whether the clause satisfied the requirement of reasonableness and sheds no light on the question now under consideration. It is true that at first instance Mr. Geoffrey Brice Q.C. accepted the proposition that if there was a defence to an individual invoice the sum claimed was not "due", but that does not seem to me to take the matter any farther. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600 was another case in which the court had to decide whether a particular term prohibiting set-off satisfied the requirement of reasonableness. Again, it does not provide any assistance on the present point.
11. Röhlig's claim was to recover the sums shown in the various invoices attached to its particulars of claim, each of which identified the various services or disbursements in respect of which payment was claimed. Rock's case, as set out in the witness statement of its director, Mr. van Halewyn, was that Röhlig had overcharged it for ocean freight and had sought to recover charges for repositioning containers and handling charges at the port of loading which were for the account of Galaxy under the contract of sale. However, an analysis of the invoices shows that the disputed amounts come to no more than £15,771.74 in all. To the extent that the amounts claimed in the invoices were not, or could not properly be, contested, they were "due" in any sense of the word. I am unable to accept the suggestion that if any part of the sum claimed in an invoice is disputed or can be shown not to be payable nothing is "due" and the provision against set-off does not apply. That is not what the clause says, nor is it consistent with the ordinary use of language. Clause 21(A) simply provides that any sums that are due must be paid without deduction. As I have pointed out, the judge accepted that the invoices were disputed in part and made allowance for Rock's arguments by limiting the amount in respect of which he gave judgment to £100,000, a sum which on the evidence was indisputably due, whatever the merits of those arguments. He refused to give credit for the much larger amounts that were the subject of the counterclaim because he held that clause 21(A) prevented Rock from setting them off against the sums due under the invoices. If the clause satisfied the requirement of reasonableness, he was quite right to do so. Mr. Bompas submitted that clause 21(A) does not exclude any obligation Röhlig may have to account to Rock, but in my view that is beside the point. The purpose of the clause is not to affect the underlying obligations, merely to ensure that sums due for services rendered are paid promptly without deduction, leaving the customer free to seek such remedies as he may be entitled to by separate action.
12. It was common ground that the Unfair Contract Terms Act 1977 applies in this case because Rock, although not a consumer within the meaning of the Act, contracted on Röhlig's standard terms of business: see section 3(1). Section 11(1) of the Act provides as follows:

"In relation to a contract term, the requirement of reasonableness for the purposes of 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 reasonably to have been, known to or in the contemplation of the parties when the contract was made."

13. The circumstances described in Schedule 2, although not directly applicable to contracts of the present kind, give some indication of the matters that are likely to be of relevance when determining whether the term in question is reasonable. They include: the relative strength of the parties' bargaining positions, whether the customer should have known of the existence and extent of the term, and whether the customer could have entered into a contract with an alternative supplier without having to accept a similar term.
14. The judge recognised that Rock is a small business, but he found that it was an experienced commercial enterprise. He was satisfied that there were many businesses offering freight forwarding services which Rock could have chosen instead of Röhlig, had it wished to do so. He could also have found that Rock had done business with Röhlig in the past, because there was evidence before him from Mr. van Halewyn to that effect, and that Rock was, or should have been, aware that Röhlig contracted on BIFA terms, because it had made that clear in all its business documents. Rock would have had no difficulty in obtaining a copy of the BIFA terms, had it wanted to do so. The judge could also have found from his own experience that clauses requiring payment of invoices without set-off are common in commercial contracts of many different kinds.
15. In my view the judge had sufficient material before him to enable him to determine whether Clause 21(A) satisfied the requirement of reasonableness in this case. In reaching that decision I have in mind not only the matters to which I have referred, which are the most important, if not the only, circumstances of any relevance in the present case, but also the observation of Lord Donaldson of Lymington M.R. in Stewart Gill Ltd v Horatio Myer & Co Ltd that where a term of this kind is concerned the decision must be made at an early stage if it is not to be deprived of all value. I also have well in mind the dictum of Lord Bridge in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803 that an 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."

16. In my view the judge's finding that clause 21(A) satisfied the requirement of reasonableness was plainly open to him on the material before the court and was fully justified. The relative sizes in corporate terms of the parties to the contract is unlikely to be a significant factor in cases of this kind where a small but commercially experienced organisation contracts to obtain services of a kind that are available from a large number of competing suppliers. Moreover, where standard terms of this kind have been negotiated between representatives of suppliers and customers (as is the case with the BIFA conditions - see Schenkers Ltd v Overland Shoes Ltd) they are likely to represent a fair balance of competing interests. Rock had done business with Röhlig over a considerable period and could be expected to be aware of its use of the BIFA conditions. In those circumstances I can see no basis on which Rock could hope to persuade the court that the requirement of reasonableness was not met in this case.
17. Clause 27(B) is of a very different nature, being a time-bar provision of a kind that is commonly found in contracts for the carriage of goods by sea and road. Its operative language (" . . . shall in any event be discharged of all liability whatsoever and howsoever arising . . . ") closely resembles that of Article III, rule 6 of the Hague-Visby Rules, which has been held to discharge the carrier from substantive liability, not merely to operate as a procedural time-bar: see Aries Tanker Corporation v Total Transport Ltd (The 'Aries') [1977] 1 W.L.R. 185. In my view clause 27(B) has the same effect. It is deliberately framed in very broad terms ("all liability whatsoever and howsoever arising") and is on its face intended to discharge the company from all liability. The effect, as Lord Wilberforce put it in the The Aries (at page 188F), is that once the prescribed time has expired any claim has "not merely become unenforceable by action, it [has] simply ceased to exist".
18. By its counterclaim Rock seeks to recover various amounts paid in respect of invoices previously rendered by Röhlig which it alleges were not properly due. However, the counterclaim was not served until 2^nd March 2009, so that insofar as it is based on liabilities arising before 2^nd June 2008 it is subject to the operation of clause 27(B). Before the judge Rock contended that the clause was not apt to cover claims in restitution, but the judge dismissed that argument on the grounds that there was no reason to construe it in a restrictive way. It appears to have been common ground that liability to make restitution arose when the overpayment was received.
19. Mr. Bompas submitted that clause 27(B) does not apply to causes of action which could not reasonably have been discovered before the time-bar expired. In support of that submission he relied on the decision of this court in Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd [2003] 2 Lloyd's Rep. 356 and section 32 of the Limitation Act 1980.
20. The effect of section 32 of the Limitation Act is to postpone the start of the statutory limitation period where the action is based on the fraud of the defendant, where material facts have been concealed by the defendant, or where the claimant seeks relief from the consequences of a mistake, until the plaintiff has discovered the fraud, concealment or mistake, as the case may be, or could with reasonable diligence have done so. However, in my view it provides no assistance to Rock in this case, being part of a statutory code which establishes limitation periods which are of a procedural rather than a substantive kind. Clause 27(B) is a contractual term, whose meaning is to be derived from the words read in their commercial context. One begins, therefore, by considering the natural and ordinary meaning of the words used. As to that, there can be little doubt that the clause is intended to discharge the company from all liability of whatever kind in respect of any service provided for the customer. When one adds to that the commercial background, namely, that much of the business of a freight forwarder involves the carriage of goods by sea and land, and the close resemblance of the language to that of Article III, rule 6 of the Hague-Visby Rules, it is clear in my view that the expiry of the time-bar was intended to provide a complete discharge from all liabilities, whether known or unknown.
21. In Granville Oil v Davis Turner this court considered clause 30(B) of the relevant edition of the BIFA conditions which corresponds to clause 27(B) of the conditions that apply in this case. In that case the customer was not made aware of the breach of contract on which it wished to sue until after the time-bar had expired, but the court held nonetheless that the clause was effective to discharge the freight forwarder's liability unless it was unreasonable and therefore void under the Unfair Contract Terms Act. Whether a term satisfies the statutory requirement of reasonableness is to be judged by reference to the circumstances of each case at the time the contract is made, but the meaning of the words used, albeit in an earlier edition of the conditions, must be taken to be the same in the absence of any reason to conclude otherwise.
22. The clause extends to "all liability . . . arising in respect of any service provided for the Customer." The expression "in respect of any service" is itself capable of being read broadly and should be so read in order to give effect to the clear purpose of the clause. Although it probably does not extend to liability arising from the company's own fraud, it is in my view capable of encompassing liability arising out of errors in accounting procedures or misunderstanding of the meaning or effect of the contract which have led to overcharging. In these circumstances I think the judge was right to hold that on its true construction clause 27(B) was effective to discharge Röhlig from liability to re-pay any amounts overpaid before 2^nd June 2008, provided it satisfied the requirement of reasonableness.
23. I have already alluded to the factors which are of particular relevance when considering whether the requirement of reasonableness is satisfied in this case. The judge dealt with the question very briefly and appears to have accepted Röhlig's submission that the matter had been authoritatively decided in its favour in Granville Oil v Davis Turner. In principle the question must be considered separately in each case because the circumstances surrounding the contract may differ from case to case, but where a standard condition of this kind is involved I do not think that the court should be astute to draw fine distinctions between cases that in broad terms are very similar. It is important for those engaged in any commercial activity, whether as providers of goods or services or as customers, to know whether a particular clause will generally be regarded as reasonable in the context of contracts of a routine kind made between commercial parties. In Granville Oil v Davis Turner the parties to the contract were a large international freight forwarder and a manufacturer and exporter of paint which regularly used the services of international freight forwarders in the course of its business. Tuckey L.J., with whom the other members of the court agreed, explained why, in his view, clause 30(B) was reasonable having regard to the nature of the business that freight forwarders undertake and the prevalence of time-bar clauses in contracts of carriage of all kinds. The circumstances in which the present contract was entered into do not seem to me to differ in any significant respect. The circumstances giving rise to the claim itself undoubtedly differ, but honest accounting errors resulting in overpayments by the customer are not intrinsically different from any other basis of liability short of fraud; and despite some rather speculative allegations on the part of Mr. van Halewyn, there is no evidence of fraud in this case and fraud has not been alleged.
24. Mr. Bompas submitted that when making his findings about the requirement of reasonableness the judge should have had regard to the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 ("the 1999 Regulations") in order to ensure harmony between the two sets of legislative requirements. For that purpose he sought to place particular reliance on paragraphs (b) and (q) of Schedule 2 to the Regulations, which identify as terms that may be considered unreasonable clauses that inappropriately exclude or limit the customer's legal rights (including rights of set-off) or which exclude the right to take legal action or exercise other legal remedies.
25. The 1999 Regulations were made to implement Directive 93/13/EEC, which is concerned with unfair terms in consumer contracts. A "consumer" is defined for these purposes as a natural person acting for purposes outside his trade, business or profession. The scope of the 1999 Regulations is therefore narrower in some respects than that of the Unfair Contract Terms Act, which in many cases applies to business contracts as well as consumer contracts, but the principles that are to be applied are broadly the same: in each case it is necessary to judge the reasonableness of the term in question at the time the contract is made by reference to all the surrounding circumstances. I doubt very much whether the extended list of terms that may be regarded as unfair which is set out in schedule 2 to the Regulations adds much of substance to schedule 2 to the 1977 Act. Indeed, as one can see from Granville Oil v Davis Turner, in a case such as the present the court will consider the effect on the parties' interests of terms such as clauses 21(A) and 27(B) when deciding whether they satisfy the requirement of reasonableness. In my view no assistance is to be gained in the present case from the 1999 Regulations.
26. Next Mr. Bompas submitted that the judge was wrong to make an order that allowed Rock to defend the claim only to the extent that it might succeed in showing that Röhlig acted as its agent rather than as a principal. He pointed out that Rock's case was that, even if the parties had contracted as principals, Röhlig was not entitled to recover more than the actual cost it had incurred in obtaining the various services which it had provided.
27. This argument ultimately turns on what was agreed between the parties in relation to Röhlig's remuneration. If the relationship was one of principal and agent, it is possible, if perhaps unlikely, that Röhlig agreed to charge Rock no fees or commission, but the proposition that Röhlig contracted as a principal to provide services on terms that it would charge Rock no more for doing so than it cost Röhlig itself to provide them strikes me as fanciful. It is true that the judge did not expressly reject that argument, but he clearly did not consider that Rock had any prospect of successfully defending the claim, even in part, unless it could succeed in establishing that Röhlig had acted as its agent. In my view he was right so to hold and therefore I would not disturb paragraph 3 of the order, which gives effect to that conclusion.
28. Finally, Mr. Bompas submitted that the judge failed to have sufficient regard to the possibility that further documents might emerge on disclosure that would show that some of the sums referred to in the invoices were not in fact due. The difficulty with this argument, in my view, is that the court cannot act on speculation. On an application under Part 24 the defendant must bring forward sufficient evidence to satisfy the court that he has a real prospect of successfully defending the claim at trial. If he wishes to rely on the existence of documents or other evidence that is not currently available, he must satisfy the court that such evidence is likely to become available by the time of the trial. In the present case there was no evidence before the judge that might have led him to think that further documents would come to light of a kind that would undermine the invoices on which the claim was based and in those circumstances it would have been wrong for him to proceed on the basis that the chance of that happening was sufficient to give Rock a real prospect of succeeding at trial.
29. For all these reasons I have reached the conclusion that the appeal must be dismissed.

Lord Justice Aikens:

30. I agree.

Lord Justice Sedley:

31. I also agree.