In the recent case of Rohlig UK Limited v Rock Unique Limited1 the Court of Appeal considered and upheld the reasonableness of no set-off and time bar clauses in a commercial contract.
Rock operates a garden centre and at the material time sold sandstone paving imported from Indian suppliers. Between 2002 and 2008, Rock engaged Rohlig to provide freight forwarding services to transport the sandstone from the port of loading in India to England. The parties’ arrangement was agreed orally and they never entered into any written contract during the course of their relationship.
The dispute arose when Rock refused to pay Rohlig’s invoices for the period April to December 2008. Rohlig commenced proceedings to recover the disputed charges. Rock served a defence and counterclaim denying liability and asserting that, pursuant to an agreement purportedly entered into in June 2005, Rohlig had agreed 1) to act as Rock’s agent and 2) that it would only be entitled to charge Rock at cost in respect of transport and ocean carriage expenses. Accordingly, Rock argued that it was not liable to pay the uplift in charges that Rohlig had invoiced for and that it was entitled to set-off the sums that Rohlig had overcharged in the past against any amounts that the court held to be due.
Rohlig denied the existence of the June 2005 agreement and contended that its contract with Rock incorporated the standard trading conditions of the British Freight Association (BIFA), which include:
- A clause requiring payment of all sums due to a supplier without set-off
- A clause excluding a supplier’s liability for any claims unless they are notified within nine months of the cause of action arising.
Relying on these clauses, Rohlig applied for summary judgment arguing that Rock was prevented from settingoff the counterclaimed amounts and that the counterclaim was time barred in any event.
The High Court found in Rohlig’s favour and granted summary judgment for all but the alleged element of overcharge in invoices not yet paid.
Rock appealed the decision arguing amongst other things that the exclusion clauses failed the test of reasonableness under the Unfair Contract Terms Act 1977 (UCTA).
Court of Appeal’s decision
The Court of Appeal dismissed Rock’s appeal holding that the UCTA requirement of reasonableness was plainly satisfied in the circumstances. In reaching its decision, the Court of Appeal made the following observations, which provide useful guidance on how the court will apply UCTA in a commercial context:
- The relative size in corporate terms of parties to a commercial contract is unlikely to be a significant factor in assessing reasonableness where a small but commercially experienced enterprise contracts to obtain services of a kind that are available from a number of competing suppliers. The Court of Appeal considered the fact that Rock was a smaller business than Rohlig to be irrelevant given its commercial experience.
- Where standard terms have been negotiated between representatives of suppliers and customers, as in the case of the BIFA standard conditions, they are likely to represent a fair balance of competing interests and therefore to be reasonable.
- Where parties have done business for a considerable period, the court will expect them to know if certain terms are in use. The Court of Appeal considered that Rock should have been aware of Rohlig’s use of the BIFA conditions given that they had done business together for a number of years.
- Clauses requiring payment of invoices without set-off are common in commercial contracts of many different kinds and are based on the reasonable intention of ensuring prompt payment for cash-flow purposes.
- Whilst the reasonableness of a clause is to be judged by reference to the circumstances of each case at the time the contract is made, where the court has already ruled on the meaning of words used, as it had in respect of the time-bar clause2, that meaning must be taken to be the same in the absence of any reason to conclude otherwise.
Lord Justice Moore-Bick commented that “the court should be astute to draw fine distinctions between cases that in broad terms are very similar. 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 been commercial parties…”
The Court of Appeal’s decision demonstrates the robust approach the court will take when a party to a commercial contract seeks to complain about its terms being unfair. It also serves as a reminder to commercial clients to carefully consider and be aware of the terms, including any industry standard terms, that apply to their business arrangements, since they may be more restrictive than expected.