Note: the English Court of Appeal, in a decision dated 15 April 2003, has overruled the decision at first instance in this case and held that the nine-months time limit for bringing proceedings in Clause 30(B) of the British International Freight Association Standard Trading Conditions satisfied the test of reasonableness under the Unfair Contract Terms Act of 1977.
To see the a note of the Court of Appeal's judgment, click here

Davies Turner arranged insurance on the consignment on behalf of Granville. Davies Turner told Granville that the cover was on Institute Cargo Clauses – A- (‘all risks’ terms). In fact, this was a mistake; under the terms of the Davies Turner open cargo cover, against which this shipment had been declared, return cargoes were only insured under the A clauses, if they had been inspected prior to shipment. No inspection took place in this case; accordingly, the consignment was covered only on Institute Cargo Clauses – B. Under these clauses, the cargo was insured only in respect of specified (named) perils.

The paint was shipped from Kuwait in two 20 foot containers in late November/early December 1999 and arrived in Southampton, UK, early in January 2000. From there the consignment was delivered to Granville’s works in Rotherham. On arrival, the consignment was found to be damaged, the cause of the damage being, according to the cargo underwriters’ surveyor, "poor stowage and inadequate restraint within the containers". Granville held Davies Turner responsible; Davies Turner referred the claim to their cargo underwriters.

In June 2000, the cargo underwriters rejected the claim, as the cause of damage was not an insured peril under the ICC B clauses. Davies Turner did not, however, make this information available to Granville until late August, by which time nine months had passed since the causative event. On 20 September 2000, Granville commenced proceeding against Davies Turner. Davies Turner defended the claim on two principal grounds.
Firstly, they had contracted with Granville as agents, not as principals.
Secondly, the claim against them was timebarred under clause 30(B) of the BIFA Conditions, which read:
"…. The Company (Davies Turner) 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".

Judgment
In his judgment, Judge Behrens QC found that the BIFA conditions had been incorporated into the contract between the parties, by reason of the reference to them in the key quotation telexes. He also found that Davies Turner had contracted as principals, not as agents. In deciding this point, he applied the criteria set out by Mance J. (as he then was) in the case of Aqualon v. Vallana [1994] 1 Lloyd’s Rep. 669. These were:

1. the terms of the particular contract, including the nature of the instructions given;
2. any description used or adopted by the parties in relation to the contracting party’s role;
3. the course of any dealings, including the manner of performance – at least so far as it throws light on the way in which the parties understood their relationship;
4. the nature and basis of any charging (in particular, whether an all-in fee was charged, leaving the contracting party to make such profit as he could from the margin between it and the costs incurred;
5. the nature and terms of any CMR note issued (not relevant in this case).

In reaching his conclusion, the judge named the following as the most important factors:

1. the method of charging adopted by Davies Turner;
2. the lack of disclosure in relation to Davies Turner’s profit and/or commission;
3. the fact that Davies Turner accepted that they were personally responsible for the costs incurred by their Kuwait agents and the ocean carrier (who also arranged delivery in the UK).

In considering clause 30(B) of the BIFA conditions, the judge noted that it had the following features:

In the circumstances of this case, the breach giving rise to the claim was the failure of Davies to insure the cargo on All Risk terms. The breach occurred on 4 November 1999; the nine-month time limit expired accordingly on 4 August 2000. At that time Granville were still unaware that the insurance had not been effected on ICC – A terms. Granville could never, therefore, have issued proceedings within the nine months time limit under the clause.

In considering the authorities, the judge referred to the substantial expert evidence given in the case of Shenkers v. Overland Shoes Ltd. [1998 1 Lloyd’s List Rep. 498. In that case the judge had accepted evidence that the BIFA Conditions had been drafted in consultation between the forwarding industry and representatives of cargo interests and were widely accepted as a reasonable and fair allocation of risk as between the parties. He had concluded that, "in a situation in which there was no significant inequality of bargaining position, the customs of trade were an important factor". 

In the present case, the judge had no such expert evidence before him and, in the end, he favoured the approach of Judge Kenny in the Kingston County Court in the case of Overseas Medical Supplies v. Orient Transport [1999] 2 Lloyd’s Law Rep. 273, who had held unreasonable a clause in the BIFA conditions purporting to limit the forwarder’s liability for failure to insure.

He accordingly found that it was not fair and reasonable for there to be a time bar of nine months for "all liability whatsoever and howsoever arising in respect of any service provided for the Customer". It followed that clause 30(B) was void under the Unfair Contract Terms Act 1977 and Davies Turner could not therefore ely upon it.

Comment
This decision is going to cause concern at BIFA and for the many trade associations which have similar trading conditions. A nine-month limitation clause is also found in bills of lading based on the ICC/UNCTAD Rules for Multimodal Bills of Lading, 1992, such as the FIATA FBL.

By its terms, the Unfair Contract Terms Act does not apply to
a)    a  negotiable bill of lading, providing for international carriage, concluded between parties from different states, - s.26(3) and (4);
b)    a contract for the carriage of goods by ship, unless the claimant 'is dealing as a consumer' - Schedule 1, ss.2 and 3.

As regards the possibility of appeal, the judge said at the conclusion of his judgment that he is "provisionally not minded to grant permission to appeal."