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Specialists in Shipping, Marine Insurance & Transit Law, London |
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Your are here: Home >> Bulletins FREIGHT FORWARDERS: CONTRACTUAL TIME BARSUnless an international convention such as the CMR applies, there is a six year time limit for the commencement of proceedings against a freight forwarder in the United Kingdom for breach of contract and/or negligence. However, this time limit can be restricted by agreement between the freight forwarder and its customer. The efficacy of such a contractual limitation period was recently tested before the English courts in the case of Granville Oils -v- Davies Turner, in which the defendant forwarder sought to defeat claims brought against it by relying upon the time bar contained in the standard trading conditions of the British International Freight Association ("BIFA"). Since 1984 the standard trading conditions of BIFA (formerly known as the Institute of Freight Forwarders) have contained a provision that any company trading under such conditions: "shall [in any event] be discharged of all liability whatsoever howsoever arising in respect of any service provided for the Customer or which the Company has undertaken to provide 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." (The words in square brackets first appeared in the 1989 edition of the BIFA conditions and were retained in the 2000 edition.) The facts giving rise to the Granville Oils case can be summarised briefly. In the autumn of 1999 Davies Turner arranged the packing and carriage of a returned consignment of paint products belonging to Granville Oils from Kuwait to Granville Oils' premises near Rotherham. Granville Oils contended that, when the goods arrived in Rotherham, they were damaged. They argued that Davies Turner were responsible for such damage - and that Davies Turner were in further breach of contract by failing to arrange 'all risks' insurance cover for the goods. Legal proceedings were issued in November 2001. Davies Turner sought to avoid liability on various grounds. In particular, they asserted that they had contracted subject to the standard BIFA trading conditions (1989 edition) - and that the proceedings were time-barred by reason of the provision quoted above (Clause 30(B)). This gave rise to the trial of a number of preliminary issues, at which the Leeds Mercantile Court concluded both that Davies Turner had contracted for the movement of the goods as a principal (rather than as an agent of its customer) and that the 1989 edition of the BIFA terms had been incorporated into the contract in question. Having done so, it was asked to determine whether Clause 30(B) was reasonable and effective to bar Granville Oils' claims, having regard to the provisions of the Unfair Contract Terms Act 1977 ("UCTA"). (UCTA stipulates that, where a party contracts either with a consumer or on its written standard terms of business, it cannot exclude or restrict its liability for breach of that contract by reference to any term of the contract, except in so far as the term in question satisfies the requirement of reasonableness provided by the Act.) The judge, HHJ Behrens Q.C., noted that Clause 30(B) is in extremely wide terms. It is expressed to apply to "all liability whatsoever howsoever arising in respect of any service provided for the Customer" - and is not, for example, limited to liabilities for which Davies Turner might have a right to indemnity under an equivalent or similar contract. In addition, not only must suit be brought within nine months but written notice of the suit must also be given within the same nine months. Moreover, there is no power to extend the time limit in the case of fraud, latent defect or other circumstances which might result in the customer not discovering that it had a claim within the nine month period. As mentioned above, one of the claims against Davies Turner was brought on the basis that they had failed to comply with a request to effect all risks insurance. The date when such insurance should have been obtained was 4th November 1999. This was, therefore, the date upon which the nine month limitation period provided by the BIFA conditions began to run. However, on the expiration of that period (4th August 2000), Granville Oils were unaware that the necessary insurance had not been effected. Thus it was argued that the effect of Clause 30(B) was that Granville Oils could never have issued proceedings in connection with this cause of action within the nine month time limit. The judge was referred to three authorities concerning UCTA reasonableness. Two of them related to the 1989 edition of the BIFA trading conditions. In Schenkers -v- Overland Shoes [1998] 1 Lloyd's Rep. 498 the Court of Appeal upheld a decision that Clause 23(A) (which has the effect of excluding a right of set off) was fair and reasonable. In Overseas Medical -v- Orient Transport [1999] 2 Lloyd's Rep. 273 the Court of Appeal upheld a decision to the effect that Clause 13(B) (which seeks to limit liability in the event of failure to insure) was not fair and reasonable. The third case (to which further reference is made below) was an earlier decision of the same judge, in which he had held that a twelve month time bar provided by different trading conditions was unreasonable. Davies Turner argued that the judge should follow the approach of the Court of Appeal in the Schenkers case. They submitted that there was a commercial purpose to the clause. Reference was made to the 12 month time bar in the Hague and Hague-Visby rules and it was pointed out that, if Davies Turner made a contract with a third party to which those rules applied, they would have to issue their own proceedings within 12 months: they therefore needed advance notice of any proceedings which might be brought against them, in order that they might protect their own position. It was said that nine months was a reasonable time within which to issue proceedings. Whilst it was accepted that, in this particular case, the material facts did not become available to Granville Oils until after the nine month period, the case was said to be exceptional. Whilst conceding that there was some force in these arguments, the Judge was wholly unpersuaded by them. He said: "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 nine months? Similarly if a forwarding agent fails to effect insurance it is difficult to see why he should be excused after only nine months." He concluded that it was not fair and reasonable for there to be a time bar of nine months for "all liability whatsoever, howsoever arising in respect of any service provided for the Customer". It followed that, in his opinion, Davies Turner could not rely on Clause 30(B). Davies Freight appealed against this finding. (There was no appeal from the judge's decisions that Davies Freight contracted as principals and that the limitation clause in question had been incorporated into the contract between the parties.) The matter came before the Court of Appeal last month. The Court of Appeal considered that the judge was wrong to construe clause 30(B) as applying to a claim for fraud or to a claim which had been fraudulently concealed by the conduct of a freight forwarder. In its view, the clause was obviously designed to meet ordinary contractual claims such as those made in this case. However, it did not necessarily follow that the judge reached the wrong conclusion about the reasonableness of the clause. The parties in this case were of equal bargaining strength. The dispute concerned a commercial contract between commercial parties where the claimants might have been able to contract other than on BIFA conditions or to make their own insurance arrangements. Moreover, the claimants ought reasonably to have known of the time bar contained in the BIFA conditions. Most of the argument before the Court of Appeal therefore turned on whether compliance with a nine month time limit was practicable. The point re-emphasized by Davies Freight was that where, as here, freight forwarders contract as principals, a time limit of nine months for the commencement and notification of proceedings against them is necessary to enable them to make their own claim over against a responsible carrier before that claim becomes time barred. The Court of Appeal took the view that, whatever its contractual relationship with its customer, a freight forwarder is usually an intermediary rather than a carrier. If it is liable to its customer for damage to the latter's goods, it is only fair and reasonable that it should be able to pass on that liability to the responsible carrier in time. Having regard to the limited time for so doing provided by international conventions such as the Hague and Hague Visby rules (carriage by sea), the CMR (road), the Warsaw Convention (air) and the COTIF Convention (rail), the Court of Appeal had no doubt that a time bar less than the statutory six year period of limitation was justified. It also had no doubt that nine months was a reasonable time limit for a claim for loss of or damage to goods in transit (which could be ascertained on delivery). Moreover, since one would normally expect a claim against cargo insurers to be dealt with relatively quickly (or at least that an assured would become aware reasonably soon that underwriters were disputing that claim), the Court of Appeal concluded that it was fair and reasonable to fix the same time limit for a claim based on a failure to insure. (The problem in the Granville Oils case was that the freight forwarders did not tell their customer that there was no cover until some time after underwriters had initially rejected the insurance claim. Rather, they disputed that rejection. They were, therefore, in breach of their duty to their customer to tell them that they had no cover as soon as underwriters rejected the claim. The nine month time limit provided by Clause 30(B) in respect of this breach of duty did not begin to run until notice of insurers' rejection of the claim was actually given to the customer. Unfortunately, the proceedings against the freight forwarders were not commenced by the customer until nearly 15 months after they were told that there was no cover.) The Court of Appeal was not persuaded that the fact that clause 30(B) does not permit any extension of time made any difference. It also considered that it was reasonable to require the customer to give notice that suit has been brought within the nine month period. (As was said, the whole point of the time limit would be lost were a customer able to commence proceedings and then either not serve them immediately or otherwise delay in notifying the freight forwarder of their existence.) The Court of Appeal therefore decided that the judge had reached the wrong conclusion. In its view, clause 30(B) of the BIFA trading conditions was effective to bar the customer's claims. The previous decision of HHJ Behrens, referred to above, was the (unreported) case of Northern Electric -v- Econofreight Heavy Transport. In that case the trial of a number of preliminary issues had come before him in the Newcastle upon Tyne Mercantile Court in December 2000. The claim concerned substantial damage to a 90 tonne transformer which the defendant was attempting to move within the United Kingdom. Econofreight sought to defeat it by reliance upon clause 14.3 of their standard terms. This provided: "The Company shall in any event be discharged from all liability whatsoever in respect of the goods unless suit is brought within one year of the delivery date when they should have been delivered." (This wording is almost identical to that to be found in condition 13(2) of the 1998 edition of the RHA Conditions of Carriage - save that, in the RHA Conditions, reference is made to "all liability whatsoever and howsoever arising" and the twelve month time limit begins to run from the date on which the transit commenced.) The judge had no doubt that the clause in question applied to claims relating to damage to goods (in addition to claims concerned with the loss or misdelivery of the whole or part of the consignment). He was also satisfied that the wording was wide enough to cover liability for negligence. However, he was not persuaded that Econofreight had discharged the burden of establishing that the term was reasonable under UCTA - particularly since it made no provision for latent damage (which might not materialize for more than a year) or any form of extension. In such circumstances, the judge concluded that the clause was void under UCTA and could not be relied upon by Econofreight to defeat the claim. In the light of the decision of the Court of Appeal in the Granville Oils case, it would be unwise to assume that the judgment in the Northern Electric case represents good law. Rather, doubtless to the relief of both freight forwarders/carriers and their liability insurers, it would seem likely that the limitation periods provided by both the BIFA and RHA standard conditions will generally be respected by the courts. If you have any queries concerning the above, please do not hesitate to contact Christopher Dunn, Mark Lloyd or Christopher Chatfield. May 2003 Return to Bulletins |
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