Granville Oil v. Davies Turner CofA

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Granville Oil and Chemicals Ltd v. Davies Turner & Co. Ltd
English Court of Appeal: Potter and Tuckey LJJ and Hart J: 15 April 2003
Chris Smith, instructed by DLA, for Davies Turner
Stephen Howd, instructed by Wake Smith, for Granville Oil
The nine-month time limit for bringing proceedings in clause 30(B) of the British International Freight Association Standard Trading Conditions satisfied the test of reasonableness in the Unfair Contract Terms Act 1977 and barred a claim against freight forwarders for damage to goods in transit and for failure to insure against all risks.

DMC Category Rating: Reversed

This was an appeal from a decision of HH Judge John Behrens in the Leeds Mercantile Court to the effect that clause 30(B) of the British International Freight Association ('BIFA') standard trading conditions (1989 edition) as incorporated into the contract between the parties did not satisfy the test of reasonableness in the Unfair Contract Terms Act 1977. The clause in question provided that the freight forwarder (‘the Company’) "shall in any event be discharged of all liability whatsoever howsoever arising in respect of any service provided to 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 the cause of action against the Company."

Davies Turner (the appellant in these proceedings) was an international freight forwarder. Granville Oil, the respondent, manufactured and exported paint. Granville regularly used freight forwarders in the course of their business. In October 1999 Davies Turner agreed with Granville to carry a return consignment of paint from Kuwait to Granville’s warehouse near Rotherham, in the UK. The contract was subject to the BIFA conditions, which included clause 30(B) set out above. On November 4, 1999, Davies Turner agreed at the request of Granville, to arrange insurance of the consignment against all risks in transit under Institute Cargo Clauses (A).

The consignment was duly shipped in two containers from Kuwait and delivered to the Granville warehouse on 11 January 2000. Granville claimed that the consignment was damaged and promptly notified Davies Turner of their claim. Davies Turner then made a claim upon the cargo insurers, on Granville’s behalf. The cargo was surveyed on behalf of underwriters later in January and the surveyors attributed the damage to poor stowage and inadequate restraint within the containers. These perils were not insured under the A clauses. On March 31, underwriters rejected the claim on these grounds. Davies Turner disputed the rejection. In June, the underwriters took a different stance, and rejected the claim on the grounds that it was a returned shipment. Return shipments could not be covered under the open cover arrangements made by Davies Turner unless the goods were inspected on behalf of underwriters prior to shipment. That had not occurred in this case.

On August 2 Davies Turner informed Granville that the insurance claim had been rejected and on August 22, the reason why it had been rejected. The nine-month time limit in which to bring a claim for breach of the contract to insure expired on August 3. Granville did not in fact commence proceedings until November 2001, when they alleged that Davies Turner were in breach of contract by reason of the damage to the goods and their failure to insure against all risks.

On a trial of preliminary issues in the Leeds Mercantile court, the judge held that Davies Turner could not defeat the claim in reliance on the time bar in clause 30(B) of the BIFA Standard Trading Conditions, because it failed the test of reasonableness under the UK’s Unfair Contract Terms Act of 1977. Davies Turner appealed.

The judgment of the Court of Appeal was given by Lord Justice Tuckey.

The1977 Act provides in section 11(1) as follows:
"In relation to a contract term the requirement of reasonableness… 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."

Schedule 2 of the Act contains guidelines, of which the following were relevant to the present case
a) the strength of the parties’ respective bargaining positions
c) whether Granville knew or ought reasonably to have known of the existence and extent of the term 30(B), having regard, among other things, to any custom of the trade or any previous course of dealing and 
d) whether it was reasonable at the time of the contract to expect that compliance with clause 30(B) – by bringing suit within the time limit – would be practicable.

In considering the issue of reasonableness, the Court was prepared to take into consideration a passage from the judgment of Lord Justice Pill, in the case of Schenkers v. Overland Shoes Ltd [1998] 1 Lloyd’s Rep. 498, where he said:
"the judge heard, and it appears accepted, the evidence of Mr. Willis, who has long held an office with BIFA, is a former national chairman and now an executive board member. Mr Willis described the background to the BIFA Conditions. The current conditions date from 1989 when earlier conditions were revised. They now form the basis of the standard trading conditions of many associations throughout the world. The conditions represent three years of hard work between interested bodies including the British Shippers Council, which represented importers and exporters and included a wide range of UK manufacturers. They are "the product of the combined efforts of nearly all those associated with the movement of goods domestically and internationally. They seek to balance the interests of all parties and, in my view, have long been accepted as reasonable and fair." 1200 British freight forwarding companies are registered trading members of BIFA though there are many freight forwarding companies which do not belong."

In approaching the appeal, the court noted the guidance laid down by Lord Bridge in the case of George Mitchell (Chesterfield) Ltd. v. Finney Lock Seeds Ltd. [1983] AC 803, where he said that, in considering how an original decision as to what is "fair and reasonable" should be approached by an appellate court, "there will sometimes be room for legitimate difference of judicial opinion as to what the answer should be, where it would be impossible to say that one view is right and the other demonstrably wrong. It must follow, in my view, that when asked to review such a decision on appeal, the 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."

Was that the case here? The court accepted that the judge at first instance had considered the reasonableness of the clause on a mistaken view of its meaning, in that he believed the clause wide enough to apply to a claim for fraud and to a claim which had been fraudulently concealed by the conduct of the freight forwarder. Such a conclusion was not, in the court’s view justified. This in turn meant that the court was not inhibited in its approach by the guidance given by Lord Bridge, above.

That did not mean, however, that the judge was wrong. Testing the clause against the criteria in Schedule 2 of the Act, the court held that the parties in this case were "obviously of equal bargaining strength". From their general business experience and of using freight forwarders in particular, Granville must have known that the transaction would be upon terms (although their export administration manager had testified that he was not aware of the time bar clause). "It was up to them to inform themselves of what those terms were. The BIFA conditions were not a custom of the trade, but in their previous course of dealing with [Davies Turned] Granville must have dealt on those terms."

But was compliance with the nine-month time bar practical? In their submissions, Davies Turner had emphasised that where they contracted as principals, as they were found to have done in this case, they needed the time-limit of nine months to enable them to make a claim over against the responsible carrier before that claim became time-barred under the one-year time limit that would frequently be applicable. "Some time bar", the court said, "less than the statutory period of limitation [usually six years] must be justified for this reason. Whatever his contractual relationship with his customer, the freight forwarder is usually not the carrier. He is simply an intermediary. If he is liable to his customer for damaging his goods, it is only fair and reasonable that he should be able to pass on that liability to the responsible carrier in time." The court concluded that a nine-months time bar was reasonable in respect of claims for loss or damage to goods in transit.

In the case of a failure to insure, however, was it practicable to expect such a claim to be made within the nine-months period? If not, that would suggest that the clause did not pass the test of reasonableness. The facts of this case were, however, unusual. "Cargo claims against underwriters of this kind", the court said, "are commonplace and are dealt with relatively quickly…. Mr Stephenson’s evidence (for Davies Turner) was that four weeks was normal. At least one would expect the assured to know within this sort of time if underwriters were saying that there was no cover." Here the underwriters had denied cover on 31 March and again, on different grounds, on 27 June. Clearly, Davies Turner, acting as agents for Granville, should have told them of the rejection of the claim and of the grounds for that rejection. Had they done so, Granville would have had ample time to claim against Davies Turner within the nine-months time limit for failure to insure. Davies Turner were in continuing breach of their duty to inform until they finally did so on August 22, 2000. Thereafter, Granville had nine months within which to bring a claim based on breach of this duty. But they did not do so.

The court continued: "the facts of this case do not compel the conclusion that clause 30(B) is unreasonable… in the ordinary course the customer will know whether he has cover relatively soon after his goods are damaged. His loss for the failure to insure will of course be related to the amount of his claim for the damage. In these circumstances, I think it is fair and reasonable to fix the same limit for a claim based on failure to insure the goods as is fixed for the claim for damage to those goods."

Similarly, the court found it reasonable to require the customer to give notice to the Company that suit had been brought within the nine-month period. "The whole point of the time limit would be lost if [the claimant] could start proceedings and then not serve them or otherwise delay in notifying the freight forwarder of their existence."

In finding for the freight forwarder in this case, the court said that it was pleased to reach this decision. It said "The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion 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. Here the transaction includes carriage of goods by sea and insurance. These spheres of commercial activity standing on their own are excluded from the Act…. In this case, the element of road transport was sufficient to render the transaction subject to the Act, but the mixed nature of the contract of carriage emphasises the interest of the freight forwarder in having a time limitation which is applicable across the spectrum of his obligations."


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