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Your are here: Home >> Bulletins Incorporation of conditions and sufficiency of noticeTwo cases have recently to come before the High Court on the issue of incorporation of standard trading conditions in transit contracts. In each case, the Court was asked to consider the adequacy of the steps taken by a transport/storage company to incorporate its standard trading conditions. Quite different results ensued. In Ofir Scheps v Fine Art Logistic Limited [2007] EWHC 541 (QB), Mr Justice Teare was faced with a claim by an art collector who had entrusted a piece called "Hole and Vessel II" to the defendant for storage. During the course of the storage, it appears that the art piece was thrown in a skip whilst some building works were taking place! Unsurprisingly, the claimant presented a claim for his loss. The Court valued this to be in the region of £350,000. However, the defendant sought to limit its liability in accordance with its standard trading conditions for a sum in the region of £580 - even though the defendant at no stage provided the claimant with a copy of its terms and conditions or even mentioned them to him. It was accepted by the Judge that transport/storage companies dealing in fine art movements typically limit their liability by reference to standard trading conditions. Furthermore, he also accepted that if the claimant had addressed his mind to the issue, he would probably have known that such companies limit their liability by reference to standard trading conditions. The defendant therefore sought to rely upon British Crane Hire v Ipswich Plant Hire [1975] QB 303. In the British Crane Hire case, both parties were of equal bargaining power and both parties were in the crane hire business. Both parties traded on very similar conditions. Those conditions were based on the industry standard and therefore well-known to both parties. In such circumstances, even though the claimant had not had an opportunity to send a copy of its hire conditions to the defendant before the crane suffered a casualty, the Court found that both parties had understood that the crane would be hired on the standard trading conditions of the claimants. The defendant in the Ofir Scheps case argued that its position was analogous to that of British Crane Hire. However, the Judge distinguished the British Crane Hire case. Whilst Mr Scheps may have been aware that standard trading conditions (imposing limits and exclusions) were the norm throughout the industry (he had managed a substantial art collection in Switzerland), he was not aware of the terms of the defendant's exclusion and limitation clauses. Unlike the plant hire industry, it could not be said that any particular terms were usually used throughout the fine art transport and storage industry. Consequently, the Judge found that the defendant's clauses had not been incorporated within the contract. The Judge also considered whether or not the conditions were reasonable. This question is related to the sufficiency of notice of the conditions for two reasons. Firstly, it is settled law that if a condition is particularly onerous, additional steps to draw the other party's attention to the clause will be needed in order to incorporate that condition into a contract. Secondly, the reasonableness of the condition can, at least in part, depend upon the steps taken by the party seeking to rely on that condition to bring it to the attention of the other side. In his judgment, Mr Justice Teare agreed that it was, in principle, quite reasonable for carriers and warehouse keepers to limit their liability by reference to volume or weight. The Judge acknowledged that it is quite open to parties to arrange insurance and that a cargo owner is usually well placed to arrange insurance for the goods whereas unlimited liability insurance (if available at all) would be expensive. However, this is on the assumption that the cargo owner receives adequate notice of the limit of liability and thus the need to arrange insurance. In this case, the Judge found that no steps were taken by the defendant to draw the limit of liability to the attention of the claimant. As such, even if the contract had been subject to the defendant's standard trading conditions, he would have held that the limit of liability was not fair and reasonable. The other case which recently dealt with this issue is the Commercial Court decision of Mr Justice Simon in Cover Version v DHL Logistics (UK) Limited [2007] EWHC 562 (Comm). Cover Version was an importer and trader in clothing. It appointed DHL to handle, pick and pack, store and transport the cargo. Cover Version made a claim against DHL for alleged failures in their contract. It made allegations of delays and errors in the picking of consignments. Cover Version further asserted that this gave rise not only to direct losses but also to approximately £690,000 in relation to alleged lost future contracts. DHL, represented by Waltons & Morse, sought to rely upon its standard trading conditions. These limited liability by reference to the weight of the goods. They also excluded liability for consequential loss and contained further limits for claims for delay. Furthermore, the conditions contained a nine month time bar. In addition, there was a counterclaim by DHL for unpaid charges - and the conditions contained a "non set-of" clause. The hearing which took place before Mr Justice Simon was an application for Summary Judgment. As such, witnesses were not heard and certain assumptions had to be made about the facts. Cover Version denied that they had ever received the standard trading conditions. However, they admitted that they had received several pieces of correspondence and a quotation, all of which referred to standard trading conditions. Moreover, they had signed a credit application form which confirmed that they had received a copy of the standard trading conditions. DHL's letter agreeing to extend credit also made reference to the standard trading conditions. DHL's letters contained a legend at the bottom which referred to the standard trading conditions and made it clear that these limited liability. DHL's quotation and the credit documents also referred to the fact that liability was limited and insurance was not provided. In addition, the documents made reference to the defendant being a member of the British International Freight Association. The claimant, however, alleged that it had never received a copy of the standard trading conditions with any of the correspondence. For the purposes of the Summary Judgment application this had to be accepted, no matter how unlikely it may seem. Against this background, the Judge considered whether sufficient steps had been taken to incorporate DHL's standard trading conditions. He also had to consider whether the standard trading conditions were unreasonable since Cover Version argued that, due to their alleged onerous nature, additional steps should have been taken to incorporate them. DHL's conditions were similar to many found within the industry. The Judge was therefore referred to the evidence given in the case of Schenkers v Overland Shoes Limited [1998] 1 Lloyds LR 498. This case considered the standard trading conditions of the British International Freight Association. Evidence was given in the Schenkers case that the conditions had been drawn up following consultation with both shippers and carriers. A wide range of interested parties had been consulted and their views incorporated into the conditions. The Court of Appeal in the Schenkers case had been reluctant to disturb such careful work. Mr Justice Simon showed an equal respect. The limited liability (in this case, £1,300 per tonne) was very similar to that of the standard trading conditions of the Road Haulage Association. The nine month time bar was very similar to that found in the standard trading conditions of The British International Freight Association and the UK Warehouse Keepers Association. The exclusion of consequential loss was standard in commercial contracts generally. The documents incorporating the standard trading conditions made it clear that they excluded and limited liability. Moreover, they recommended to the customer that it arrange its own insurance. As such, the Judge found that the reference in the correspondence and documents was sufficient to incorporate the conditions concerned, whether or not a copy had actually been sent. Moreover, the Judge found there to be no reasonable prospect of Cover Version succeeding in its argument that the conditions were unreasonable. With regard to the non set-off clause, the Judge considered Aries Tanker Corporation v Total Transport Limited [1977] 1 WLR 444 and subsequent decisions which made it clear that a claimant is not entitled to set off a claim for damage, delay or partial loss to goods against a claim for freight. Mr Justice Simon considered it reasonable to extend this reasoning to other charges which could not easily be distinguished from freight. Again, the fact that such clauses are common to almost all standard trading conditions in the trade meant that a regular importer and distributor of clothing should have been aware of such clauses. The two cases act as a useful illustration of the importance of incorporation of standard conditions. The effect of the respective clauses in question was not particularly different. Both sought to limit or exclude liability in certain circumstances. In both cases the judges recognised that it is important for carriers to be able to limit their liability. However, DHL made it clear to its customer before entering into the contract that it traded on standard trading conditions which limited and excluded liability. Fine Art Logistic failed to do so. This had an impact both on the incorporation of the conditions and the Court's consideration of their reasonableness. For further details concerning either case, please contact Christopher Chatfield. April 2007
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