Frans Maas (UK) v. Samsung Electronics (UK)
In this case, the court had to consider the circumstances in which a party is vicariously liable for the dishonesty of its employees and, if so, whether it is entitled to limit its liability for such dishonesty. Under consideration were the limitation of liability clauses in the British International Freight Association ("BIFA") standard terms and the question whether they satisfied the test of reasonableness under the UK Unfair Contract Terms Act 1977.
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This case note is based on an Article in the July 2004 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website
The warehouse was an Enhanced Remote Transit Shed approved by HM Customs & Excise. An ERTS is not a true storage warehouse, as goods are normally there for only a matter of days until customs formalities are dealt with and the goods despatched.
The parties had done business with each other for some 14 years. On a number of occasions, Frans Maas had sent documents that reminded Samsung that all transactions were handled in accordance with BIFA terms. Not only that, but all its invoices referred to BIFA terms. Whilst there was no document from Samsung formally accepting the terms applied, there was also nothing that directly challenged their application. In August and September 2001, there had been some correspondence suggesting the UKWA terms would apply to warehousing operations, but this was followed by a further letter from Frans Maas confirming BIFA terms applied. Again, Samsung did not respond formally accepting BIFA terms, but nor did it challenge them.
Clauses 24, 25 and 27 of the BIFA terms provide:
The question, therefore, was whether Frans Maas was vicariously liable for the wilful default of its employee(s). If so, then it was clearly in breach of clause 24 of the BIFA terms and would not be released from liability by clause 25.
The crucial clause was 27(A). Samsung argued that 27(A) applied to negligence but could not apply to limit liability for employees' deliberate, criminal wrongdoing. The words had to be construed contra proferentem - against the party that sought to rely on them. Frans Maas, however, argued that this was a limitation clause, not a clause exempting it from liability, so the strict rules regarding interpretation of exemption clauses did not apply. There was no rule of law to say that liability could not be limited and the wording of the clause was clearly wide enough to cover its liability for its employees' wrongdoing. Had Samsung wanted to, it could have agreed a higher limit of liability under 27(D).
Unfair Contract Terms Act
The application of the Act in a commercial context was looked at by the Court of Appeal in Granville Oil v Davis Turner  EWCA Civ 570, which concerned the application of the time bar for claims under the BIFA terms. In that case, it was held that the time limits were not unreasonable, Lord Justice Tuckey observing that, although the 1977 Act played an important role in protecting vulnerable consumers, he was "less enthusiastic about its inclusion 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".
The court concluded that the relationship between the parties either involved an over-arching general agreement for Frans Maas to act as Samsung's agent, under which Frans Maas became bailee of Samsung's goods from time to time or, alternatively, separate individual contracts on each occasion Frans Maas handled a consignment of goods. Because of the nature of the ERTS, the bailment on this occasion was more of a transit operation than a true storage, which made the BIFA terms more appropriate. But, if that was wrong, then the UKWA terms applied.
Having heard evidence from both sides, the judge was also satisfied that there had not been any collateral agreement to provide on-site security guards as alleged. Even if there had been, it would not necessarily have ousted BIFA or other standard terms.
In the judge's view, the custody of the premises could not be divorced from the custody of the goods. Almost all Frans Maas employees, whether warehouse staff or secretaries, were entrusted as part of their employment with the security of the premises (and hence the goods) by virtue of having the front door keys and knowledge of the alarm code. This went beyond mere opportunity. Frans Maas was, therefore, vicariously liable for the wilful default of the employee(s) in question.
Even if this was not the case, the judge was satisfied that Frans Maas had been negligent and that its negligence caused the loss. It was bad practice to let all members of staff have the key and the security code (which had only been changed once in two or three years) and there were no proper records of who had keys or who knew the code. It could be inferred that these factors materially assisted in the commission of the theft.
Limitation of Liability
In this case, the commercial context of section 27(A) was relevant. A corporate bailee performs its duties vicariously and so will inevitably be exposed to the risk of vicarious liability, particularly where, as here, the nature of the goods makes them attractive to thieves. Against the background of such an apparent and obvious risk, the wording of the clause ("howsoever arising") was certainly wide enough to include deliberate wrongdoing for which Frans Maas was vicariously liable. In practical terms, one or other party would be well advised to insure against the risk of employee wilful default and, in this case, SamsungFrans Maas had done just that
Unfair Contract Terms Act
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