UK: UCTA Sounds the Retreat - Further Developments on Limitation of Liability

Last Updated: 25 July 2003

By Kit Burden and Duncan Pithouse

A recent decision of the Court of Appeal has emphasised the Courts' increasing unwillingness to intervene in the deals struck between commercial entities, and is another case in a recent line supporting the reasonableness of agreed liability provisions.


In Granville Oil and Chemicals Limited v Davies Turner and Co Limited [2003] EWCA Civ 570, the Court of Appeal held that a standard term requiring a party to bring a claim under the contract within a period of nine months from the date on which the event giving rise to the cause of action occured, or otherwise lose the right to bring such a claim, was a reasonable exclusion or limitation of liability pursuant to the Unfair Contract Terms Act 1977.


The case concerned the transportation of paint from Kuwait to Rotherham pursuant to an agreement between the claimant importer and the defendant freight forwarder. The contract was made subject to the British International Freight Association Standard Trading Conditions (1989 edn) (the "BIFA Terms") which included, at clause 30, (a) a requirement on the importer to notify the freight forwarder of any claims within 14 days of the date on which it became aware or ought to have become aware of the cause of action giving rise to the claim, and (b) a requirement to bring formally any claim within nine months of the date on which the event giving rise to the cause of action occured. One of the terms imposed on the freight forwarder was an obligation to effect all risks insurance cover in respect of the consignment whilst it was in transit.

On delivery to the importer in January 2000, the consignment of paint was found to have been damaged in transit. The importer notified the freight forwarder of its claim in accordance with clause 30, but did not formally commence proceedings. The freight forwarder promptly claimed under the all risks insurance policy in respect of the damage. However, underwriters notified the freight forwarder in March 2000 that it was rejecting the claim (on the grounds that the damage was caused by an excepted peril) and subsequently re-affirmed its rejection in June 2000 (albeit on slightly different grounds than before). The freight forwarder failed to tell the importer that the insurance claim had been rejected until 2 August 2000. In November 2001, the importer started proceedings against the freight forwarder for breach of contract in respect of (a) the damage to the consignment and (b) its continuing obligation to insure.

The importer successfully claimed at first instance that the time bar in clause 30 of the BIFA Terms was unreasonable pursuant to the Unfair Contract Terms Act 1977 ("UCTA 1977")1 . The freight forwarder appealed.


The Court of Appeal considered, drawing from Schedule 2 to UCTA 1977, the following factors relating to the test for reasonableness:

  • The relative strength of the parties' bargaining positions;
  • Whether the importer knew or ought reasonably to have known of the existence and extent of the clause 30; and
  • Whether it was reasonable at the time of entering into the contract to expect that compliance with clause 30 would be practicable.

The Court of Appeal held that the parties were "obviously" of equal bargaining power, since the contract was a commercial contract between commercial parties where the importers could have contracted on terms other than the BIFA Terms. They also noted that the claimant could have effected its own insurance cover.

It was further held, as it was at first instance, that the BIFA Terms had been brought expressly to the importer's attention and, although the importer's export administration manager was unaware of the specific existence of clause 30, it was held that he ought reasonably to have been aware of it. Significantly, the Court concluded that it was for the importer to make itself aware of the terms of the contract, knowing that some terms would apply and had applied in the past to their dealings with freight forwarders.

The substantive issue was whether compliance with clause 30 was practicable given the timescales involved. The Court of Appeal held that, in the circumstances of the case, it was. A claim for damage to goods could be brought promptly because any damage would be ascertainable on delivery. In addition, the freight forwarder had only 12 months to bring a claim against the carrier so as to pass on the liability and the Court felt that, in light of this, a shorter limitation period as between the freight forwarder and its customers was justified. While the claim for breach of the obligation to maintain insurance was slightly different from the damage to goods claim, the Court held that because cargo claims against underwriters can be dealt with quickly in comparison to other insurance claims (and often within four months), the nine month period was reasonable. The Court held that the freight forwarder was under a duty to tell the importer that the underwriters had not met the insurance claim and were in breach of this duty until they did eventually inform the insurer of this on 22 August 2000. It was from this date that the cause of action in respect of the obligation to maintain insurance cover arose and from which the nine month period ran in respect of the insurance claim. However, the importers failed to bring a claim until November 2001, some 14 months after this date and, therefore, outside of the nine month limitation.

Accordingly, the Court held that the appeal was to be granted.


In allowing the appeal, Tuckey LJ said in his judgment that he was "pleased to reach this decision". He went on to say that, while he appreciated the benefits of UCTA 1977 in protecting vulnerable consumers, he was "less enthusiastic about [UCTA's] intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms". This statement reflects the growing refusal of the Courts to delve into commercial contracts between commercial parties and supports the approach taken by the Courts in recent cases such as Watford Electronics Ltd v Sanderson CFL Ltd. [2001 EWCA] Civ 317 and Motours Ltd v Eurobell (West Kent) Ltd. [2003] All ER (D) 165 (Jan) both of which dealt with the level of the liability caps.

1 See clause 13 of UCTA 1977 which states that exclusions or restrictions of any liability "making the liability or its enforcement subject to restrictive or onerous conditions" are subject to the reasonableness test.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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