District Court Rejected Applicalibility Of NSAB Standard Terms On a Contractual Relationship Without An Explicit Reference To Such Terms In the Parties' Agreement

The District Court of Vantaa ruled in its decision on 30 August 2010 that the NSAB standard terms¹were not applicable on a contractual relationship without an explicit reference to such terms in the parties´ written contract.

A major Russian fur auction organiser and a Finnish freight forwarder and bonded warehouse operator had concluded a tripartite written contract on warehousing of the fur company's furs. According to the contract, the bonded warehouse operator would hold the fur company's goods in its warehouse in Finland at the disposal of the fur company. The fur company would then sell the furs to a third party buyer. The contract stated that the warehouse operator was only allowed to release the goods to a buyer after having received a confirmation from the fur company's bank that the goods have been paid in full (so called release order).

In case at hand, the warehouse operator had accidentally released some furs from its warehouse to a buyer upon such buyer's request, although no release order had been given. The buyer never paid for the furs, but ended up in bankruptcy. The fur company suffered a loss in the amount of purchase price.

Subsequently, the fur company claimed damages from the warehouse operator based on a breach of contract. Warehouse operator admitted the breach, but claimed that its liability should be limited in accordance with the NSAB conditions. Such limitation would have meant that the warehouse operator only had been liable for less than 5% of the amount of damage. The warehouse operator alleged that the NSAB conditions had become part of the parties´ contractual relationship due to:

1. The NSAB conditions are so c 1. alled agreed document conditions,

2. the Russian fur company had acted in the Finnish market for a long period and must have been aware of the existence and contents of the NSAB,

3. the warehouse operator had referred to the NSAB conditions in its e-mail correspondence with the fur company (in the e-mail footnotes) as well as in its invoices to the fur company.

The fur company contested applicability of the NSAB, since the parties had annually concluded a separate warehouse contract in writing, which bears no reference to NSAB conditions. The fur company's representatives were not familiar with the NSAB conditions.

The District Court ruled that references to the standard terms and limitation of liability clauses in the footnote of e-mails or invoices are not sufficient for such terms and conditions becoming applicable to a contractual relationship between the parties. District Court also stated that even if representatives of the fur company had been aware of the existence or content of the standard terms, it does not mean that those would become part of the agreement. District Court ruled that the NSAB conditions (including its limitation of liability terms) had not become part of the parties´ contractual relationship, and, therefore the warehouse operator was fully liable for the damage incurred by the fur company.

District Court ruling should encourage corporations to assess their internal processes, compliance with such processes within the company as well as their appropriateness. If, for example, it is critical for a company to attempt to contractually limit its liability as far as possible, it certainly is important to assess, whether the current processes and practices actually support reaching such target. Assessment and re-defining of policies might prevent a company from incurring negative consequences for too much relying on the "good old" processes, which in practise might prove to be less good than thought.

Footnote

^{1 General conditions of the Nordic Association of freight forwarders}

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