This is an application by the claimant, Globalink Transportation and Logistics Worldwide LLP (“Globalink”), for summary judgment against the defendant, DHL Project & Chartering Ltd (“DHL”) pursuant to CPR Part 24. The dispute between the parties relates to the transport of large units of refinery plant between Novorossiysk in Russia and Atyrau in Kazakhstan.

DHL admits Globalink’s claim, but contends that it has a cross claim of greater value, which is at least arguable, and which, if it succeeds, will provide it with a defence by way of set-off. Globalink says in riposte that its claim is a claim for freight, and that the rule of law which says that a carrier’s claim for freight must be paid without setoff should apply to its claim, so that it is entitled to summary judgment even though there is an arguable cross claim. The parties’ submissions raise other points, but the main issue is the extent of the no set-off against freight rule.

Globalink made its application for summary judgment on 9 February 2018, following DHL’s acknowledgement of service, but before it filed a defence. On 12 March 2018 DHL served evidence in response. On 29 June 2018 Globalink served its reply evidence, which was late. The parties therefore agreed to adjourn the application hearing until 05 November 2018. On 17 October 2018 DHL sought to adduce further evidence, but Globalink objected. At a hearing on 5 November 2018, Teare J granted DHL permission to rely on the additional evidence and adjourned the hearing until today in order to allow Globalink to adduce further evidence in reply. So it is that this summary judgment application came on for hearing almost a year after it was issued.

In 2014 one of DHL’s clients, Sinopec, was engaged in a construction project at a refinery near Atyrau. Sinopec engaged DHL to arrange the transport of various units of refinery plant from China to the refinery.

All the units were carried by sea from China to Novorossiysk. DHL engaged Globalink in relation to the transport from Novorossiysk to the refinery. As eventually planned, 14 of the heaviest units were to be loaded onto two barges and towed through the Volga-Don Canal from the Black Sea to the Caspian Sea, towed across the Caspian for customs clearance in Bautino, and then to Atyrau. Finally the barges were to be towed up the Ural-Caspian Canal to Atyrau River Port, with the units then being discharged there and taken by truck to the refinery.

By a contract dated 10 September 2014 (“the Agreement”), DHL engaged Globalink to carry out or arrange forwarding services from Novorossiysk to Atyrau. The Agreement was entitled “Freight-Forwarding Services Contract” and Globalink was referred to as the “Forwarding Agent”. The Agreement provided as follows:

Appendix 1, which is also dated 10 September 2014 provides that the transport of the cargo was to be by “SEA/ROAD”. The appendix also provides:

At Novorossiysk, 10 units of cargo were discharged onto barge ARK-1. The remaining 4 units were discharged onto barge SPA-2. ARK-1 arrived at Atyrau on 29 October 2014, within the agreed voyage duration of 22 to 24 days. SPA-2 only reached Atyrau at the mouth of the Ural Canal on 15 November 2014. Critically, barge SPA-2 could not then proceed to Atyrau because the water level in the UralCaspian canal was too low for the draught of the loaded barge.

On 17 November 2014, the parties met at Atyrau to discuss the best way to proceed.

Following the meeting, on 19 November 2011 an “Appendix 3”, which was a new draft appendix to the Agreement, was sent by Globalink to DHL and signed by Mr Huang of DHL. The appendix provided that the 4 units loaded onto SPA-2 would be re-directed to Kuryk and loaded onto two barges. The appendix was not signed by Globalink.

As events transpired, on 23 November 2014 the Ural-Caspian canal closed to navigation for the winter. On 24 November 2014, SPA-2 arrived at Kuryk and the four cargo units were offloaded. The smallest of the units was arranged to be carried to Atyrau by road. The remaining three units were stored at Kuryk over winter until the canal was re-opened. DHL consented to this process, and to the storage of the units at Kuryk.

In early 2015, the parties commenced negotiations to arrange the transport of the remaining units from Kuryk to Atyrau. The parties agreed estimated costs and formalised this in an agreement signed by both parties dated 27 April 2015 (“The Supplementary Agreement”). The Supplementary Agreement provided:

Before the Supplementary Agreement was concluded, there was correspondence between the parties as to whether to include a clause to the effect that DHL would indemnify Globalink against claims arising from the force majeure circumstances that had been discussed on 17 November. DHL proposed, and Globalink accepted, that such a clause should be removed and that there would be added an express reservation of rights under the initial Agreement, as contained in clause 3 above.

The remaining three units were successfully transported from Kuryk to the refinery in Atyrau in accordance with the Supplementary Agreement.

DHL had made payments in 2014, and made two payments pursuant to the Supplementary Agreement, but has failed to pay two further sums: USD $830,000 (which fell due within 45 days of delivery) and USD $739,000 (which was the balance of the estimated costs expected to be settled “after Globalink provides DHL

As was made clear by Mr Coldrick, who appeared before me for DHL, the Defendant admits Globalink’s claim. But DHL relies on a counter-claim against Globalink for failure to perform the initial Agreement. It maintains that it is entitled to set off the counterclaim against Globalink’s claim.

The loss said to be suffered by DHL is the difference between the cost of transporting the cargo under the original Agreement (in 2014) and DHL’s actual liability to Globalink (including the services rendered under the Supplementary Agreement and the storage costs incurred at Kuryk). This amounts to USD $2,364,976.05. Allowing for set off, once Globalink’s claim has been extinguished DHL’s counterclaim is worth USD$717,196.05 net.

Therefore, whilst in form this is the Claimant’s application for summary judgment, in substance I am being asked to give reverse summary judgment against the Defendant’s counterclaim.

There are two main issues to address on this application:

The legal principles for summary judgement are well known and well established.

CPR part 24.2 provides:

Recently in European Union v The Syrian Arab Republic [2018] EWHC 1712 (Comm) at [66], Bryan J summarised the applicable principles as follows:

I was also invited by Globalink to consider making a conditional order. As explained by paragraph 5.2 of the Part 24 Practice Direction, a conditional order is an order which requires a party: (1) to pay a sum of money into court, or (2) to take a specified step in relation to his claim or defence, as the case may be, and provides that that party’s claim will be dismissed or his statement of case will be struck out if he does not comply. Paragraph 4 of Practice Direction 24 establishes the circumstances in which such an order should be made:

DHL relies on a draft defence and counterclaim which is exhibited to the witness statement of Mr Barrett, the solicitor with conduct of this matter on behalf of DHL.

In its draft defence, DHL pleads, inter alia, that there were implied terms requiring Globalink to exercise reasonable skill and care in the arrangement of the transportation of the cargo and to use all reasonable endeavours, and/or reasonable skill and care, to arrange the transportation so as to avoid and/or mitigate the effects of any circumstances that would or could adversely affect the timely delivery of the cargo.

Mr Coldrick relies on two categories of breach of the Agreement: firstly, matters relating to the slow progress of SPA-2 prior to 15 November 2014 (when it arrived, late, at Atyrau); secondly matters relating to the draught of SPA-2 and its inability to pass through the Ural-Caspian Canal on the final leg of the intended journey.

In relation to the slow progress of SPA-2 prior to 15 November 2014, DHL claims that SPA-2 took far in excess of the stipulated 22-24 days even to reach Atyrau sea

In relation to the draught of SPA-2 Mr Coldrick for DHL makes the following points:

Therefore, says DHL, it is well arguable that Globalink breached its duty to use reasonable skill and care in arranging the transportation of cargo and avoiding circumstances that could adversely affect the timely delivery of the cargo, and such a case has at least a reasonable prospect of success.

Mr Ghaffar, who appeared for Globalink, submitted that these claims have no reasonable prospect of success. Mr Ghaffar maintained there was no evidence that, absent bad weather and low water levels, the tugs employed were insufficiently powered to complete the voyage in a timely manner. He submitted that 2014 was an exceptional year so far as water levels in the Ural Canal were concerned, and that this could not have been anticipated by Globalink at the time of the initial Agreement.

Force Majeure

The argument pressed most strongly by Globalink is that the low water levels in the Ural-Caspian canal constituted a force majeure event, such that it is released from any liability for failing to fulfil and/or the delayed fulfilment of its obligations under the Agreement. On this basis, it contends that DHL’s counterclaim is bound to fail. Globalink relies on Clause 8 of the Agreement, which provides:

Globalink also relies on the terms of the 17 November 2014 “Protocol of the meeting” which I have set out above. Mr Ghaffar draws my attention to the use of the words “decided to” in the document. Firstly, Mr Ghaffar submits that the protocol amounted to a contractual agreement to treat the low water levels in the Ural Canal as a force majeure event. Alternatively, he submits (i) that DHL is estopped from resiling from the position recorded in the protocol, or has waived any rights under the Agreement to assert the events did not amount to force majeure; (ii) in any event, evidentially the protocol establishes that the low water levels in the Ural Canal were properly regarded as a force majeure event, such that it is not open to DHL to go behind this.

Additionally, Mr Ghaffar argues that DHL gave up any right to argue that Globalink had failed to fulfil its obligations under the Agreement when it signed the Supplementary Agreement, which superseded the original delivery obligations by providing that services under the initial Agreement would be resumed.

Lastly, Globalink rely on a document dated 30 November 2015 issued by the Kazakhstan Chamber of Commerce certifying that the events in the Ural Canal constituted force majeure. Mr Ghaffar accepted this was of evidential weight only and that the court is not bound by the findings in the certificate.

DHL makes the following points in response:

Globalink also submits that, pursuant to clause 4.2 of the Agreement, DHL’s counterclaim is limited to 5% of the total cost of the services provided under the Agreement, such that DHL’s counterclaim is limited to USD $129,000.

Clause 4.2 provides:

Mr Ghaffar sought to categorise DHL’s entire counterclaim as a claim for damages for delay, with the result that clause 4.2 takes effect. In response, Mr Coldrick argues that the counterclaim is not a claim for delayed performance, but in fact a claim for Globalink’s failure to perform contractual obligations at all. Therefore, he contends that clause 4.2 does not apply to the counterclaim.

I am satisfied that DHL’s cross claim is well arguable and has a reasonable prospect of success. Globalink expressly agreed to arrange the transportation, and Mr Ghaffar rightly accepted that it was at least arguable that Globalink was obliged to exercise reasonable care and skill in doing so. The arguments advanced by DHL as to breach by Globalink are clearly arguable: whether they will succeed will depend on what evidence is available at trial but I certainly cannot say at this stage that they have no realistic prospects of success. As to the force majeure argument advanced by Mr Ghaffar, I am satisfied that the contrary arguments made by Mr Coldrick are well arguable. It seems to me at least doubtful that force majeure can provide any answer to DHL’s claim: DHL’s criticism is that Globalink failed to plan for the contingency of a force majeure event, not a criticism that a force majeure event happened. As to the limitation of liability I am not persuaded that the claim which DHL wishes to advance is properly characterised as a claim for damages for delay. It seems to me better characterised as a claim for damages to reflect the additional transportation and storage costs which were caused by breaches of duty by DHL. If that is right the limitation of liability does not apply.

All of these points therefore seem to me to be amply arguable both ways and I am satisfied that DHL does have a real prospect of succeeding on its cross claim.

I therefore need to consider Mr Ghaffar’s submission that I should nevertheless enter judgment on the claim because the cross claim cannot operate as a defence by way of set-off.

Mr Ghaffar for Globalink advances two arguments. The first is that the cross claim is not sufficiently connected with the claim for it to operate as a set off, as matter of general principle. This submission is hopeless. The cross claim arises out of the selfsame contract as the claim and is intimately connected to it. It would not in any way be unjust to permit the cross claim to operate by way of set off, in the absence of some special rule of law preventing such a defence.

Mr Ghaffar’s second argument is that DHL’s claim is a claim for freight, and therefore the rule in The Aries [1977] 1 WLR 185 applies, so that no deduction can be made by way of set-off.

I have considered whether I need to decide anything more than that it is arguable that the rule in The Aries does not apply. I was initially attracted by this course. However I consider it better to “grasp the nettle” in the words of Bryan J given that the point was fully argued, and given that neither party suggests that there is relevant evidence which might be available at trial but is not available now. I note that merely deciding that the point is arguable would in practice give the same result as deciding that the rule does not apply. If I merely decided that it is arguable that it does not apply, then the Claimant would have to wait for its money even if the cross claim eventually fails. It would be too late then for the Claimant to get the benefit of early payment – the very thing the no set off rule is intended to achieve – if it transpired at trial that I should in fact have given effect to the no set off rule.

The basic rule and its history was described by Lord Wilberforce in The Aries [1977] 1 WLR 185 in these terms:

Lord Simon said this (at 192h):

The rule as set out and affirmed in The Aries has since both been extended in terms of the type of carriage to which it applies, and in terms of the type of cross claim which it covers. But its operation has also been limited so as to apply to only some forms of charge which are referable to the transport of goods.

In relation to voyage charters it is now clear that the rule is not confined to cases where the charterer’s claim is in respect of loss of or damage to cargo but extends also, for example, to cross claims for damages for failure to prosecute the voyage with utmost despatch (A/S Gunnstein v Jensen (“The Alfa Nord”), 1977 2 Lloyds Rep 425) and failure to prepare the vessel’s holds (Elena Shipping v Aidenfield (“The Elena”)) 1986 1 Lloyd’s Rep 425), and the editors of Voyage Charters 4ed 2014 opine that it is difficult to envisage any unliquidated claims by the charterer which would affect the owner’s right to full freight, other than claims going to the validity of the contract itself.

The rule applies also to international carriage by road: RH&D International Ltd v IAS Animal Air Services Ltd [1984] 1 WLR 573 (Neill J). In United Carriers v Heritage Food Group (UK) Ltd [1996] 1 WLR 371 May J unenthusiastically decided that it extended also to carriage of goods by road domestically. Most recently, in Schenker Ltd v Negocios Europa Ltd [2018] 1 WLR 718 Moulder J decided, as a preliminary issue, that the rule extended to air freight. She said this:

The rule does not, however, apply to all costs incurred in achieving the carriage of goods from one place to another. In The Nanfri [1978] QB 927 the Court of Appeal by a majority (Lord Denning MR and Goff LJ as he then was, Cumming-Bruce LJ dissenting) had to resolve conflicting lines of first instance authority as to whether or not the no set off rule extended to hire payable under a time charter. They decided that it did not. In the course of his judgment Lord Denning said this:

Freight is payable for carrying a quantity of cargo from one place to another.

“Hire” is payable for the right to use a vessel for a specified period of time, irrespective of whether the charterer uses it for cargo or lays it up, out of use... So different are the two concepts that I do not think the law as to “freight” can be applied indiscriminately to time charter “hire”.

The Nanfri went on to the House of Lords, but this point was not reconsidered.

As to the application of the no set off rule, Mr Ghaffar for Globalink says that the total sum that Globalink charged to DHL was charged in consideration for transporting the equipment from one place to another, that it is therefore properly described as freight, and that the rule in The Aries should therefore apply.

Mr Ghaffar did not advance a case that all freight forwarders, and their customers, always contract on the assumed basis that the rule in The Aries applies to them.

Mr Coldrick for DHL says that the rule in The Aries applies only to contracts of carriage, and that the contract between DHL and Globalink is not a contract of carriage. In any event, he says, the rule should not be extended to freight forwarding contracts, and he relies on observations made by Hirst LJ in an unreported Court of Appeal case, Shaftesbury International Freight v Bkr Gesellshcaft fur Export und Import MbH.

However, Mr Coldrick does concede, on the authority of Britannia Distribution v Factor Pace [1998] 2 Lloyds Rep 420, that, if and to the extent that a freight forwarder has acted as agent in entering into contract of carriage with a carrier, and the carrier charges freight (in the narrow sense as used in The Nanfri), then the forwarder is entitled to claim the sums due for that freight from his principal, and the principal must pay without deduction. But, says Mr Coldrick, DHL has not established that any part of the sums it claims are freight within this extension to the rule in The Aries.

In my view the starting point is to consider the nature of the contract between Globalink and DHL.

The contract describes itself as a freight forwarding agreement, not as a contract of carriage. By clause 2.1.1 the Forwarding Agent is obliged to arrange the transportation of its client’s cargo, so as to achieve the promised delivery. The essential nature of the obligation is not an obligation to carry, but an obligation to procure that carriage is achieved by others. The fact that Globalink can, under clause 4.2, incur a liability for delayed delivery of the cargo does not mean that Globalink is a carrier, nor even that Globalink accepts an obligation on it to deliver on a particular date, it just means that if Globalink does not successfully arrange for others to achieve delivery on that date, Globalink will incur a penalty to DHL.

There is no doubt that a freight forwarder may on occasion be a carrier, and, having taken on an obligation to arrange carriage, it is open to it to fulfil the carriage obligation itself. But even that would not, in my view, convert the contract to arrange into a contract of carriage.

It follows that if the no set off against freight rule were to be applied to DHL in this case, that would represent an extension of the existing law, extending the ambit of the rule beyond contracts of carriage and beyond freight in the narrow sense established by the authorities.

The same issue arose, though it appears it was not fully argued, in the case of Shaftesbury International Freight v Bkr Gesellshcaft fur Export und Import MbH 1992 WL 12678899. The Claimant was a freight forwarder and had obtained summary judgment against its customer the Defendant. The Defendant appealed. The main point was whether the Defendant had any arguable cross claim. Having decided that point in favour of the Defendant, Lord Justice Hirst (with whom Lord Justice Balcombe agreed) dealt with the question of whether the rule in the Aries precluded reliance on the cross claim by way of defence. He said this

In my view the rule in The Aries does not extend, and should not be extended, to cover the services provided by a freight forwarding agent, when those services are to arrange the carriage of goods. It is not suggested that parties to freight forwarding contracts invariably contract on the assumed basis that no set off is available, and I see no justification for extending the ambit of a rule which is, in Lord Simon’s phrase, a pre-Cambrian outcrop, beyond contracts of carriage and into a new – albeit adjacent - area. To do so would run counter to the general principle of the law which is that a cross claim can in principle operate as a defence by way of set off. I see no basis upon which it could properly be open to me to extend the rule in The Aries into a new area. It is of course open to freight forwarders to seek to contract on the express basis that there may be no set off against the sums they charge. But that is a choice for the parties to make, not something which the law imposes.

That leaves only the point arising from the decision of Judge Hegarty QC in Britannia Distribution v Factor Pace 1998 2 Lloyds Rep 420. That too was a freight forwarding case. The claimant freight forwarders sought summary judgment for the sums which they had paid to carriers in respect of various consignments of goods.

Judge Hegarty held firstly that the no set off rule applied to any claim by a carrier for freight. He held that if the Claimant freight forwarder had itself contracted as a carrier, it would be entitled to judgment for freight without any set off being available. He then said this:

In the present case, Mr Ghaffar contended that the freight forwarders were not contracting with the carriers as agents for DHL. Nevertheless Mr Coldrick accepted that the Britannia case meant that, if and insofar as Globalink could show that it had paid freight to a carrier, and that that was a payment falling within The Aries rule, then DHL was obliged to reimburse Globalink for that freight, with no set off being available by way of defence.

I shall proceed on the basis of Mr Coldrick’s concession.

Mr Coldrick identified two GenCon voyage charters, under which Globalink was named as charterer, and in relation to which freight of $49,500 and $63,500 was payable. Mr Coldrick accepted that if that freight had been paid Globalink would be obliged to pay that sum to DHL without deduction. But, he said, there was no evidence as to what, if any, sum had in fact been paid: no invoices nor proof payment had been disclosed.

Mr Coldrick also identified two road haulage contracts, under which Globalink was customer, but he pointed out that the fees charged were expressed as daily rates for provision of the vehicles that were to be used to transport the equipment, so that these were closer to the land equivalent of a time charter than to the land equivalent of a voyage charter.

Mr Ghaffar’s submission was that it was inconceivable that none of the sums incurred by Globalink and for which it wished to charge were freight, and in fact it was likely that much of the outstanding balance of $1.7m or so was freight properly so called. However, he was unable to show me documentary evidence of payment of the sums due under the GenCon charters, and he was unable to point to documents showing clearly that sums due in relation to other aspects of the carriage were freight in the narrow sense required to engage the rule in The Aries.

Where does that leave matters? It seems to me that in relation to sums due under the GenCon charters, the only answer that DHL can produce is that it is possible that the sums due under those charters was not paid – even though the charters were in fact performed. Balanced against that is the fact that it is odd that, despite all the time available to produce evidence, Globalink has not simply produced proof of payment. I am left feeling that DHL’s point is distinctly shadowy and I will make a conditional order requiring Globalink to bring into court the sum of $113,000 as a condition of being able to defend the claim as to that sum. The condition will not extend to defending the balance of the claim.

As for the balance I am not persuaded that the sums claimed by Globalink are freight properly so called and therefore not satisfied that they fall within the narrow confines of Judge Hegarty’s modest extension of the rule in The Aries, and accordingly I decline to make any other order in favour of Globalink on its summary judgment application.