UK: Court Of Appeal Upholds No Set-Off Clause And Time Bar Provision In BIFA Standard Trading Conditions

Last Updated: 9 February 2011
Article by Tony George and Reema Shour

Röhlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18

Time-bar provisions are commonly found in contracts for the carriage of goods by sea and road. The importance of complying with the one-year time-limit under Article III Rule 6 of the Hague-Visby Rules (HVR) is well-known to the shipping industry. Many potentially good cargo claims subject to the HVR have been known to fail because the claims were not brought within 12 months of discharge. The hard line taken by the English courts (and arbitrators) in respect of demurrage time-bar provisions contained in voyage charter parties is also well-established. In the present case, the Court of Appeal upheld the reasonableness of the nine-month time limit contained in the British International Freight Association ("BIFA") standard trading conditions 2005 and found that it operated to bar the customer's claims against the freight forwarder, even in circumstances where the customer may not have reasonably been able to discover its cause of action before the time-bar expired. The Court of Appeal also upheld the standard "no set-off clause", which protected the company's cash-flow, described as "the life-blood of the business".

Background to dispute

The dispute in this case related to unpaid invoices issued by a freight forwarder, Röhlig, to a UK importer, Rock. Rock alleged that it had been overcharged, and denied that it was liable to pay the whole of the amounts shown in the disputed invoices. Röhlig sought summary judgment in respect of the unpaid amounts and Rock counterclaimed to recover amounts by which it said it had been overcharged in the past under other invoices.

First instance decision

The first instance judge refused to decide the matter summarily. He concluded, however, that the contract between the parties incorporated the BIFA standard trading conditions, the material provisions of which were as follows:

"21(A) The Customer shall pay to the Company in cash, or as otherwise agreed, all sums when due, immediately and without reduction or deferment on account of any claim, counterclaim or set-off......

27(B) . . . the Company shall in any event be discharged of all liability whatsoever and howsoever arising in respect of any service provided for the Customer . . . 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 a cause of action against the Company."

The principal issues were (i) whether clause 21(A) prevented Rock from setting off against its liability under the disputed invoices any claims it might have in respect of earlier charges, (ii) whether those latter claims were in any event time-barred by clause 27(B) and (iii) whether either or both of these clauses were unreasonable and therefore unenforceable under the Unfair Contract Terms Act 1977 ("UCTA 1977"). Among other things, UCTA 1977 applies where one party contracts on the other party's (in this case Röhlig's) standard terms of business.

The judge held that clause 21 (A) prevented Rock from setting up cross-claims in answer to Röhlig's claim and that clause 27(B) was wide enough to discharge any liability in restitution in respect of any previous overcharging. The judge also held that both clauses satisfied the requirement of reasonableness under UCTA 1977. Rock appealed.

Court of Appeal decision

Clause 21(A)

The Court of Appeal upheld the set-off clause. Lord Justice Moore-Bick, giving the leading judgment, stated that its purpose was to ensure that any sums due be paid without deduction so that a business's cash-flow was not interrupted. The clause did not prevent the customer from pursuing its claims against the supplier by other means, but it did prevent him from withholding payment until its claims had been satisfied.

Whilst the clause did not prevent the customer from withholding payment on the grounds that the sums claimed has not fallen due at all, the amounts disputed under the present invoices were only a small proportion of the total. In the judge's view, the clause could not be interpreted to mean that if any part of the sum claimed in an invoice was disputed or could be shown not to be payable, this meant that nothing was due and the provision against set-off did not apply.

The appeal judge also found that the provision was reasonable. In particular, (i) Rock may have been a small organisation but it was commercially experienced, (ii) it could have contracted with any of a large number of competing suppliers but chose Röhlig, (iii) the BIFA standard terms had been negotiated between representatives and suppliers and were likely to represent a fair balance of competing interests and (iv) Rock had done business with Röhlig over a considerable period of time and could be expected to be aware of Röhlig's use of the BIFA conditions.

Clause 27(B)

The Court of Appeal also upheld the time-bar provision. In the view of Lord Justice Moore-Bick, clause 27(B) had a similar effect to Article III, rule 6 of the Hague-Visby Rules, which has been held to discharge the carrier from substantive liability, not merely to operate as a procedural time-bar. In the judge's view, clause 27(B) was deliberately framed in very broad terms and, on the natural and ordinary meaning of the words used, it was intended to discharge the company from all liability, once the nine months had expired.

The appeal judge also concurred with the decision in Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd [2003] 2 Lloyd's Rep. 256 that this time bar clause applied equally to causes of action which could not reasonably have been discovered before the time-bar expired: it was a complete discharge from all liabilities, whether known or unknown. Although the clause probably did not extend to liability arising from the company's own fraud, it could in the judge's view encompass liability arising out of accounting errors or misunderstanding of the meaning or effect of the contract which led to overcharging, as happened in the present case.

Relying again on Granville Oil, the judge added that the time-bar provision was reasonable, having regard to the nature of the business that freight forwarders undertake and the prevalence of time-bar clauses in contracts of carriage of all kinds. He considered that the circumstances in which the present contract was entered into did not differ in any significant respect from those in Granville Oil and he did not believe that the court should draw fine distinctions between cases that were in broad terms very similar.


This judgment reflects Lord Justice Moore-Bick's view that "it is important for those engaged in any commercial activity, whether as providers of goods or services or as customers, to know whether a particular clause will generally be regarded as reasonable in the context of contracts of a routine kind made between commercial parties."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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