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BIFA Terms revisited: time bar and set off

This case reinforces the market understanding that the BIFA 9 month time limitation, and prohibition of setting off against charges, are reasonable.

Rohlig (UK) Ltd v Rock Unique Ltd - Court of Appeal (Sedley, Moore-Bick and Aikens LJJ) 2011 WL 1622

The Court of Appeal has delivered judgment (20 January) in a case which will hearten logistics operators, forwarders and their insurers in reinforcing the market understanding (following Granville Oil v Davies Turner & Co [2003] EWCA Civ 570) that the BIFA 9 month time limitation, and prohibition of setting off against charges, are reasonable for the purposes of Unfair Contract Terms Act 1977 – and therefore will not be capable of challenge in usual business to business dealings.

Facts

Rock was an English garden centre business which imported sandstone paving from India. For periods between 2002 and 2008, Rock engaged Rohlig, a freight forwarder, to arrange carriage of the stone from India into the UK. Disputes arose between the parties when invoices totalling about £134,000 went unpaid relating to importation of various parcels in early 2008.

Rock’s defence to the claim was that Rohlig had overcharged, and was in breach of agreement only to invoice what Rohlig itself was charged by third parties. The argument was premised on Rohlig acting as an agent, not principal. The trial judge had felt the agency to lack merit, but even if correct, it would still mean that £100,000 was admittedly due. 

Rock’s answer was to assert entitlement to set off and counterclaim against any admitted balance the value of alleged freight overpayments it had made prior to 2008, estimated at £300-400,000. If right, that would result in a significant balance in Rock’s favour.

However, both at trial and in the Court of Appeal Rohlig’s entitlement to be paid their charges was upheld on two key points.

BIFA Clause 21(A): No right of set off

This was a common commercial provision obliging the customer to pay “all sums when due, immediately and without… any claim counterclaim or set off”. This reinforced the common law position established in The Aries [1977] 1WLR 185, that (by way of exception to general principles enabling set off in some cases) that the carrier’s right to freight is sacrosanct, to ensure that the “life blood of the business” is not interrupted. 

Further the prohibition was not unreasonable for the purposes of s.11 UCTA. Rock were a commercial enterprise, they had a choice of selection of forwarders, and were aware of Rohlig acting under BIFA. It was very common for terms and conditions in all sorts of commercial contracts to require payment of invoices without set off or deduction. Although there was dispute as to the precise amount due, once the alleged overpayment was factored in, there was still a large sum indisputably due to Rohlig.

Reinforcing this conclusion was that for the purposes of BIFA the customer, Rock, was not left without a remedy, and could bring a separate claim against the company, provided brought in time.

BIFA Clause 27 (B): Nine month limitation

Unfortunately for Rock, the counterclaim for reimbursement of overcharged sums concerned services performed by Rohlig dating back several years. The Court of Appeal reaffirmed the trial court’s conclusion that, following Granville Oil, the nine month period for bringing suit and giving notice from the date of occurrence, had long since expired.

Rock sought to argue that a claim for unjust enrichment fell outside the ambit of excluded claims, but the appeal court held (much as with the widely worded Hague Visby one year time bar) that the words “in respect of any service” should be give the broadest possible interpretation although stopping short of fraud, so as to include liability arising out of accounting errors leading to overcharging,

On the reasonableness of the clause, there were no major distinctions to be made with Granville Oil. Given the nature of the shipping/forwarding business the nine month period was reasonable, and indeed time bar clauses were widely prevalent in such contracts.

Finally, s.32 Limitation Act did not come to Rock’s rescue, since the suspension of running of time would only postpone a statutory limitation period, not a contractual limitation as under BIFA.

Conclusions

This decision reaffirms that, as long as incorporation is clear, successful challenges to the BIFA (or similar industry) contractual limitation period are (absent extreme commercial imbalance) likely to meet short shrift in the courts.

It is also a useful reminder of the exception to the rule of set off in freight cases. From the cargo owners’ perspective, its will be fatal to hold a counterclaim in reserve until the claim for freight charges arrives after nine months.

Mike Burns
Partner, Weightmans LLP
mike.burns@weightmans.com