Granville Oil & Chemicals Ltd. v Davis Turner & Co. Ltd.

A contractual time bar must satisfy the statutory requirement of reasonableness by reference to the circumstances known or contemplated when the contract was made. In a commercial contract between parties of equal bargaining strength, a nine-month period for bringing and notifying proceedings may reasonably apply both to cargo damage and to a freight forwarder’s failure to insure. The period protects the forwarder’s ability to pursue carriers before their shorter limitation periods expire.

A broadly expressed time bar governing ordinary contractual claims does not extend to fraud or fraudulent concealment. An appellate court ordinarily respects a first-instance assessment of reasonableness, but may intervene where the judge misconstrued the term or reached a plainly wrong conclusion.

The appellant freight forwarder agreed to return damaged paint from Kuwait and to arrange all-risks transit insurance for the respondent. The contracts incorporated the 1989 British International Freight Association Standard Trading Conditions. Clause 30(B) discharged the forwarder from liability unless proceedings were brought, and written notice given, within nine months of the relevant event.

The insurers rejected the cargo claim, but the respondent was not told the position and its reasons until after the original nine-month period had expired. Proceedings were commenced substantially later.

On preliminary issues, Judge Behrens in the Leeds Mercantile Court held that the forwarder contracted as principal and that clause 30(B) was incorporated. He nevertheless held the clause unreasonable under the Unfair Contract Terms Act 1977. The central issue on appeal was whether clause 30(B), properly construed and applied to these commercial parties, satisfied the statutory requirement of reasonableness.

1. Appeal allowed unanimously. Lord Justice Tuckey delivered the judgment, with which Lord Justice Potter and Mr Justice Hart agreed. Clause 30(B) satisfied the requirement of reasonableness and was effective to bar the claims.

2. The judge had misconstrued the clause as extending to fraud and fraudulent concealment. Clause 30(B) addressed ordinary contractual claims of the kind a freight forwarder would ordinarily face. Fraud was distinct because contracting parties proceed on an expectation of honest dealing. The mistaken construction permitted appellate intervention despite the respect ordinarily owed to a first-instance assessment of reasonableness under George Mitchell (Chesterfield) Ltd v Finney Lock Seed Ltd (1983) AC 803.

3. The statutory question concerned whether the term was fair and reasonable between these parties when the contract was made. The parties were commercial organisations of equal bargaining strength. Although the respondent’s employee did not know of the time bar, the respondent ought reasonably to have known of it. The conditions had been adequately brought to its attention, and its experience and previous dealings meant that it should have informed itself of their contents.

4. A period shorter than the ordinary statutory limitation period was justified because a freight forwarder commonly needed to pursue the responsible carrier before the carrier’s own time bar expired. Nine months was ample for a cargo-damage claim because damage could be identified on delivery. It left time for a claim against a carrier subject to a twelve-month limit.

5. The same period was fair and practicable for an ordinary claim alleging failure to insure. Cargo insurers commonly dealt with such claims promptly. Once cover was disputed, the customer knew that it had to resolve the dispute or commence proceedings against the freight forwarder within the contractual period. This differed from Overseas Medical Supplies v Orient Transport Services (1999) 2 Lloyds Law Rep. 273, where a single low monetary ceiling produced manifestly inadequate compensation for failure to insure.

6. When pursuing the insurance claim as the respondent’s agent, the appellant owed a duty to communicate the rejection of cover promptly. Its continuing failure to do so lasted until the respondent was fully informed. Clause 30(B) therefore allowed nine months from that later breach, but the respondent did not commence proceedings within that period.

7. The order below was varied to declare that clause 30(B) barred the claims. The appellant received its costs of the appeal, and permission to appeal was refused.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The order below was varied to provide that clause 30(B) of the BIFA conditions was effective to bar the respondent’s claims.

2. Leeds Mercantile Court: Judge Behrens determined preliminary issues. He held that the appellant contracted as principal and that clause 30(B) was incorporated, but decided that the clause failed the reasonableness requirement of the Unfair Contract Terms Act 1977.