Overland Shoes Ltd v Schenkers Ltd ; Same v Schenkers International Deutschland GmbH
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PILL,LORD JUSTICE THORPE,LORD JUSTICE NOURSE |
| Judgment Date | 12 February 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0212-28 |
| Docket Number | QBENF 97/1329 CMSI |
| Court | Court of Appeal (Civil Division) |
| Date | 12 February 1998 |
[1998] EWCA Civ J0212-28
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION
(Mr G Brice QC)
Royal Courts of Justice
Strand, London WC2
Lord Justice Nourse
Lord Justice Pill and
Lord Justice Thorpe
QBENF 97/1329 CMSI
QBENF 97/1330 CMSI
and
SIR NICHOLAS LYELL QC and MR P IRVIN (instructed by Messrs Streathers, London W1) appeared on behalf of the Appellant Defendant.
MR R TAGER QC and MR P KREMEN (instructed by Messrs Hughmans, London EC1) appeared on behalf of the Respondent Plaintiff.
Thursday, 12th February 1998
These are appeals by Overland Shoes Ltd ("the defendants") against orders of Mr G Brice QC, sitting as a deputy high court judge, whereby he determined a preliminary point against the defendants and gave money judgments in favour of Schenkers Ltd and Schenkers International Deutschland GmbH ("the plaintiffs"). The issue was whether the "no set off" clause (Clause 23(A)) in the plaintiffs' standard trading conditions satisfied the requirement of reasonableness in s 3 of the Unfair Contract Terms Act 1977 ("the 1977 Act"). The clause read:
"The customer shall pay to the company in cash or as otherwise agreed all sums immediately when due, without reduction or deferment on account of any claim, counterclaim or set off".
The plaintiffs are each members of the Schenker group of companies and for present purposes nothing turns upon the difference in identity. Reference to the facts can be confined to the much larger claim of the English company it being common ground that the outcome of the preliminary issue upon the claim of the German company will follow that of the English company.
The plaintiffs are the English members of a world-wide network of freight forwarding companies with a German parent company. They are members of the British International Freight Association ("BIFA"). Starting in a small way in 1989, the defendants became substantial operators in the shoe trade. By 1995 their annual turnover was £52m. They imported shoes from the Far East into the European Community. For several years up to and including 1995, the plaintiffs acted as their freight forwarders. Over a two year period, the average number of consignments was 30 a week. There was a separate contract between the parties for each consignment and all contracts were upon the BIFA standard trading conditions (1989 Edition), including clause 23(A), which the plaintiffs adopted. The defendants had a running credit which by 1994 had become £325,000. In their evidence, the plaintiffs accepted that queries frequently arose. Mr A Hunter, formerly of the plaintiffs, now of DFDS, said that when they did: "payment is withheld by the defendants on these until the query is sorted, or a credit note is issued. These issues are always resolved amicably as with any normal ongoing business relationship".
The plaintiffs' claim was expressed to be in respect of the cost of freight and ancillary charges in relation to the importation of goods in 1995 from China to the United Kingdom. Because of the operation of community quotas, some consignments came through European countries, including Portugal. VAT and duty had to be paid on entry to Portugal and that VAT was recoverable upon the onward transmission to the United Kingdom. Another company was involved but for present purposes it can be assumed that the entire operation was conducted by the plaintiffs. In their defence and counterclaim, the defendants state that the plaintiffs were to reclaim the VAT from the Portuguese authorities and repay it to the defendants. It is alleged that they have failed to do so and that the sum due can be set off against the charges for freight and ancillary services so as to extinguish the plaintiffs' claim. In their evidence upon the Order 14 application, the defendants also mention the possibility of fraud.
It is common ground that the plaintiffs were required to provide not only for the transportation of the shoes by purchasing and selling spaces on ships and aircraft but comprehensive services which included the payment of import duties and VAT and the recovery of VAT. Very substantial amounts of VAT were involved and these were paid in advance to the plaintiffs by the defendants on the basis that the sums would be paid to the authorities and, where appropriate, recovered.
The plaintiffs earned substantial sums for performing ancillary services. Analysis of the invoices demonstrates the range of services provided though some other disbursements were involved. Items included port charges, customs clearance, demurrage, delivery, warehouse costs, handling fees and UK terminal charges. In his written statement, Mr J W Coltart, manager of the plaintiffs' Felixstowe branch, claimed that "about 85 to 90% of an average total invoice raised by a forwarding agent on its customer will represent disbursements laid out in advance on behalf of the customer". It is not disputed that such disbursements could be a substantial proportion of the sums passing between defendants and plaintiffs. The defendants contend, with respect to the relevant contracts, that their "up-front" payments to the plaintiffs "in respect of VAT and duty constituted some 80% of their payments".
The plaintiffs ceased to act for the defendants in September 1995, concern having been expressed by the defendants about the Portuguese operation in a memorandum of 6 April 1995. In that month, the defendants issued to freight forwarding companies a comprehensive Invitation to Tender. Six companies tendered, including the plaintiffs. They were unsuccessful. The successful tenderer was DFDS who now act for the defendants. DFDS contracts with the defendants include a no set off clause.
The right of equitable set off is long established and is recognised by statute (now s 49 of the Supreme Court Act 1981). S 49(2) provides inter alia that every court "shall so exercise its jurisdiction in every cause or matter before it as to secure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect of any of those matters is avoided". On behalf of the defendants, Sir Nicholas Lyell QC acknowledges that freight charges in the true sense have been regarded as an exception to the rule ( The Aries [1977] 1 WLR 185, 190 per Lord Wilberforce) but submits that the exception is anomalous and in any event has no justification in the context of contracts made by modern international freight forwarders who provide a comprehensive range of services as described above. Mr Tager QC, for the plaintiffs, does not seek to place reliance upon the long established exemption as such.
S 3 of the 1977 Act, insofar as is material, provides:
"(1) This section applies as between contracting parties where one of them deals as consumer or on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term —
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b)
except insofar as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness."
S 11(1) provides:
"In relation to a contract term, the requirement of reasonableness for the purposes of this part of this Act 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."
S 11(5) provides that "It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does". S 11(2) provides that for the purposes of deciding whether a contract term satisfies the requirement of reasonableness in contracts covered by other sections of the Act (sections 6 and 7), regard shall be had in particular to the matters specified in Schedule 2 to the Act. Contracts such as the present are not included but the "guidelines" in Schedule 2 are usually regarded as of general application to the question of reasonableness ( Stewart Gill Ltd v Horatio Meyer and Co Ltd [1992] 1 QB 600 at 608 per Stuart-Smith LJ). Those which may be relevant in this case are:
(a) The strength of the bargaining positions of the parties relative to each other, taking into account (amongst other things) alternative means by which the customer's requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known the existence and extent of the term (having regard, amongst other things, to any custom of the trade and any previous course of dealing between...
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