Tornado Wire Limited v John Good Logistics Limited

This is the Defendant’s application for summary judgment, seeking the dismissal of the claim pursuant to CPR Part 24; alternatively for an order that the claim be struck out pursuant to CPR Part 3.4.

The claim form was issued on 18 May 2023. It was subsequently served, and Particulars of Claim filed on 13 September 2023. The claim is for damages quantified at £953,616.29 for breach of contract and/or negligence. The claim was met by this application, made by notice dated 6 October 2023 and supported by the witness statement of Kenneth Habergham, the Defendant’s solicitor. The application notice gives the essential basis of the application as follows:

The Defendant has chosen not to file a Defence, or to deal with the underlying dispute in its evidence, limiting itself to the issue of contractual limitation. The Claimant’s pleaded case is that it took the same approach in pre-action correspondence; see the Particulars of Claim at paragraph 18. The Claimant contests this application, and served a witness statement from its director Kenneth Campbell dated 2 November 2023. The Defendant served a witness statement in reply from Michael McGaughey (its EU Customs Manager) dated 9 November 2023, and a second statement from Mr Habergham dated 12 January 2024. It also relied on a number of documents referred to in Mr Steward’s skeleton argument. Mr Tabari took no point on the lateness of Mr Habergham’s 2^nd witness statement, or the use of the material referred to in Mr Steward’s skeleton argument. He also made it clear that whilst the Claimant’s evidence raised the issue of the incorporation of the terms and conditions the Defendant relies upon in support of its case that the claim is time-barred, he was not arguing that point before me.

The principles applicable to such an application are well established, and are not in dispute between the parties. Of particular note in respect of a strike out application are that (i) the general position is that the Court is bound to accept the accuracy of the facts pleaded in the Particulars of Claim unless they are contradictory or obviously wrong; and (ii) the court should only strike out a claim in a clear case.

The principles to be applied on a summary judgment application were drawn together by Lewison J (as he then was) in his judgment in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]:

For the purposes of this application, I take the background facts to be as follows. The Claimant manufactures wire fencing products. As part of that work, it imports steel products such as galvanised wire. Prior to Brexit, steel imports from non-EU countries were subject to quota. The Claimant used freight forwarders to handle these non-EU imports, one of which was the Defendant. When the UK left the EU, virtually all steel wire imports became the subject of the quota regime, including those which came into the UK from the EU. That quota system required all relevant imports to be entered onto the HMRC’s “CHIEF” system. A quota was set up on a first come first served basis. Eligible imports within quota were subject to a nil rate of duty, whereas ineligible imports or those outside of quota were subject to a 25% duty.

The Claimant did not have access to the CHIEF system, nor did it have the expertise needed to use it, so the Claimant approached the Defendant to act as its customs agent. As a result, in June 2020 the Claimant signed a customs authorisation form by which it appointed the Defendant as its direct representative. From that point, the Defendant dealt with the processing of the Claimant’s import entries. The aim of that arrangement was to enable the Claimant to make the maximum use of the nil rate quota. It had no access to CHIEF, and so no means of checking what the Defendant had done. This was specialist work and the Claimant relied on the expertise of the Defendant to do it. The Claimant’s case is that the Defendant must have been well aware of that. Given the nature of the agreement and the surrounding circumstances, that is a reasonable assumption to make.

In his witness statement, Mr Campbell makes the point that the Defendant did not handle any goods for the Claimant, or deal with the actual imports. Rather they were carrying out (what Mr Campbell refers to as) an administrative “form filling” function. The Claimant would send the Defendant the documents necessary to evidence the imports they were bringing in, and the Defendant would then input that data into the CHIEF system to allow the Claimant to take maximum advantage of the quota. That arrangement continued from June 2020 until 1 July 2021, when the steel the Claimant purchased was taken out of the quota regime. From August 2020 to June 2021 the Defendant made 327 or more Customs Import Declarations to HMRC in respect of the Claimant’s galvanised steel imports, with the Defendant being paid for its services. The Claimant’s case is that it was owed duties in contract that the work would be undertaken with reasonable care and skill, and that there was a like duty owed in negligence; see paragraphs 6-8 of the Particulars of Claim.

On 19 August 2022, HMRC wrote to the Claimant saying that it intended to charge import duty of just over £2.6M in respect of the imports the Defendant had made declarations for. The Claimant received the letter on 30 August 2022. That liability arose because the declarations the Defendant had made did not have the appropriate information as required by the relevant regulations, did not have the appropriate quota number in box 39 of the CHIEF system, and made incorrect use of Duty Override Codes. Had the Defendants entered the correct information, there would have been no liability to pay duty. The Claimant immediately contacted the Defendant, and with its assistance, the liability has been reduced to £953,616.29, which the Claimant paid to HMRC on 4 November 2022.

Mr Campbell’s evidence is that when the issue was brought to the Defendant’s attention by the Claimant’s Finance Director, there was an acceptance that they had not applied the quota code directly. Mr McGaughey replied to that evidence. His position is that the relevant member of staff at the Defendant has left, but that there is nothing on the file to confirm the conversation Mr Campbell refers to, and no written communication from the Defendant acknowledging such an error. Mr McGaughey ends by emphasising that the declarations are ultimately the trader’s responsibility.

I also note that in the letter from HMRC to the Claimant of 19 August 2022, explaining why there was a claim for duty of £2.6M, HMRC referred to the fact that on 10 September 2021 the Government published guidance on its website, and had written to the Claimant, explaining that if the duty override facility had been used incorrectly then a retrospective claim should be made where the quota was still available. The Defendant relies on this to show that the Claimant was told of the potential for the issue, and appears to have done nothing to check the position despite the fact that it was ultimately responsible.

When the Claimant’s Finance Director signed the form of “Authorisation appointing a Customs Clearance Agent to act as a Direct Representative” on the second page of that two page document on 4 June 2020, she did so just above the following rubric:

The relevant terms are as follows:

The Defendant relies upon clause 27(B) to defeat the claim. Its case is that on a true construction, it provides a substantive time bar rather than a procedural bar, such that once nine months has elapsed from the event or occurrence alleged to have given rise to the cause of action, the Defendant is discharged. I agree that this is a substantive time bar, and that consequently the provisions of section 32 of the Limitation Act 1980 do not apply. The Defendant’s case is that, given that the relevant acts giving rise to the Claimant’s cause of action occurred between August 2020 and June 2021, the claim was time barred in March 2022, well before the issue of proceedings.

It is apparent that in pre-action correspondence the Claimant raised the issue of whether the term was reasonable within the meaning of the Unfair Contracts Terms Act 1977 (“UCTA”), and that formed the central plank of the Claimant’s resistance to this application. However, before I come to that issue, it is convenient to deal with the two other issues raised by Mr Tabari in this skeleton argument. The first was that, as a matter of construction, clause 27(B) could not apply to claims which were not known before the 9 month time bar. The second was that the nine month limitation period did not start running for a claim in negligence until the Claimant had suffered a loss, and that was when it received the letter from HMRC on 19 August 2022.

The approach to contractual interpretation is summarised by Lord Hodge in his judgment in Wood v Capita [2017] UKSC 24 at [9] to [15]. At [10] he said this:

Clause 27(B) forms part of a set of terms which are widely used in the freight forwarding industry. Mr Steward took me to the decision of Mr Geoffrey Brice QC at first instance in Schenkers v Overland Shoes [1998] I Lloyds Rep. 498 at 501 to 502, where he reviews the evidence given to him as to the commercial background and development of the BIFA terms. BIFA then represented some 1200 freight forwarders. Mr Steward suggested that the current position was little different. The terms arose out of detailed discussions between BIFA and the British Shippers Council, and were registered with the OFT. The evidence the Judge heard was to the effect that the terms represented a fair, reasonable and balanced solution to the interests of competing parties. The Court of Appeal went on to refer to that evidence; see Pill LJ at 506, and that “background information” was taken into account by the Court of Appeal in Granville Oil and Chemicals Ltd v Davies Turner and Co Ltd [2003] EWCA Civ 570; Tuckey LJ at [11]. It is apparent from the above, that the language of this clause was well considered and is to be given considerable weight.

The clause forms part of a series of terms dealing with liability and limitation, and is to be read in context. In particular, there is some assistance to be drawn from the sub-clause which immediately precedes it. Clause 27(A) requires a potential claimant to notify the other party of their claim … within 14 days of the date upon which the Customer became, or ought reasonably to have become, aware of any event or occurrence alleged to have given rise to such a claim… . The sub clause also makes provision for an exception where it is impossible for the Customer to comply with that time limit. There is a recognition of the need for the Customer to have the opportunity to learn of the event which gives rise to the claim, before giving notification of it.

Clause 27(B) begins by referring back to clause 27(A).

The commercial common sense of such a clause is discussed in the authorities; see for example Tuckey LJ in Granville Oil at [21]. This is an industry where goods often pass from one party to another as they are transported from the beginning of their journey to their destination, by road, rail, air and sea. There is a need for parties to know quickly whether there is a claim to be dealt with and/or passed on to someone else in the chain, and for the certainty that a limitation period brings, particularly a substantive bar. The rules of international trade (the Hague-Visby Rules being an example) provide for short limitation periods, and in the context of the transport of freight, a nine month limitation period makes commercial sense.

The application of that literal interpretation to the facts of this case creates a problem. The Claimant did not know that it was liable for import duty until well after the nine months had elapsed. But that does not mean that the term does not mean what it says. It is unnecessary to decide the point given my overall conclusions on this application, but the Defendant has the better of this argument, and I proceed on the basis that as a matter of construction, knowledge of the event or occurrence giving rise to the cause of action is not necessary to start time running.

Mr Steward was driven to congratulate Mr Tabari’s on his second argument. In short terms it was as follows:

Mr Steward submitted that there were two flaws in this argument. The first was that Clause 27(B) did not refer to a limitation period of nine months from the date of a completed cause of action (here loss), but to … nine months from the date of the event or occurrence alleged to have given rise to a cause of action against the Company. The event or occurrence must, he submitted, refer to the breach of duty which gives rise to the cause of action. That would lead to a (no doubt desirable) certainty. But the wording is not entirely clear. As Mr Tabari submitted, the law is well used to the differences in limitation periods arising from the different constituent elements for a cause of action for (i) breach of contract and (ii) negligence. I also note that there may be a conceptual difficulty in discharging a liability (here in negligence) before it has arisen.

Mr Steward’s second point is that the effect of the 2018 Act was not as Mr Tabari submitted. The Claimant still had a liability, it was just that HMRC could not enforce it. There was nothing contingent about it. There was some statutory protection given to the tax payer, but that did not remove the liability. The fact that it might subsequently be a liability that could never be enforced was not to the point. It was still a loss which completed the cause of action in negligence.

Again it is unnecessary to decide the point, but it seems to me that the liability to HMRC is probably sufficient to amount to “actual damage”. The liability itself is not contingent, and to my mind it is sufficient to constitute a loss. I also raised the question of how this liability would have to be dealt with in the Claimant’s accounts. It would have to be provided for in some way, and that would probably have the effect of reducing the value of the Claimant. If that remains relevant, it is an issue which might benefit from further consideration and evidence.

Whilst I have not finally determined either of those two issues, accepting the Defendant’s interpretation of clause 27(B) brings home the width and potentially draconian nature of the provision. It is in that context that I turn to deal with the question of whether there is a real prospect of establishing that the clause fails the reasonableness test.

The Defendant accepts for the purposes of this application, that the contract is to be treated as one where the Claimant has dealt on the Defendant’s written standard terms of business for the purposes of section 3 of UCTA. It is for the Defendant to show that clause 27(B) satisfies the requirement of reasonableness; see section 11(5).

Section 11(1) of UCTA provides that:

Schedule 2 of UCTA provides “Guidelines” for the application of the reasonableness test found in section 11(1).

The Defendant adduces no evidence as such on the issue of reasonableness, but at paragraph 13 of his first witness statement, Mr Habergham says this:

The first in time was Granville Oil. The claimant in that case contracted with the defendant freight forwarder. The agreement was to arrange insurance against all risks to goods in transit, and was subject to the BIFA terms. The goods were damaged in transit and the defendant made an insurance claim on the claimant’s behalf. The claim was rejected by the underwriters, but the defendant failed to tell the claimant about that until the day before the nine month limitation period expired. Despite the fact that the claimant then knew of the problem with the insurance, it did not issue proceedings until more than nine months after both the date of the damage being discovered and the date on which the defendant had informed the claimant that the insurance claim had been rejected. The defendant pleaded the equivalent of clause 27(B). The claimant relied on UCTA, and the matter was tried as a preliminary issue.

The Court of Appeal considered the issue of reasonableness afresh on the basis of the findings of fact made by the Judge. The consideration of the issue begins at [17] in the judgment of Tuckey LJ (with whom Hart J and Potter LJ agreed). Having reviewed the arguments, he turns to the issue of whether nine months was a reasonable time limit.

The judgment then turns to the facts of the case. Nine months would have been sufficient to make a claim for the failure to insure if the customer had been told of the problem. There had been a delay in telling the customer that the underwriters had rejected the insurance claim, but the customer had still waited more than nine months from the date when they had been told there was no cover.

That is not the position here. There is no evidence that nine months would be sufficient to bring a claim such as the one the Claimant brings in this case. It may be that HMRC could be expected to notify an importer of issues such as those which arose in this case within that time, but it may not; particularly in the context of the changes to the regime brought about by Brexit. On the face of it, there is reason to believe that the delays in notification by HMRC (and thus the ability of the Claimant to bring this claim within the nine months provided for) would potentially be significantly longer than nine months. The work of a direct representative in dealing with customs duties is ancillary to the work of a freight forwarder, and contemplated by the BIFA terms, but this is (at least arguably) not the typical case a freight forwarder will face.

The leading judgment in Rohlig was given by Moore-Bick LJ. The customer in that case alleged that the freight forwarder had overcharged it in respect of transport charges. I note the following:

Mr Steward relies on the passage from Rohlig at paragraph [23] in particular to show that the BIFA terms are not applicable just to the carriage of goods, but have application to ancillary services such as those provided here, and that clause 27(B) applies whether or not a party knows or can ascertain that is has a claim. He also submits that other standard terms used in the industry, such as the terms and conditions of the Institute of Chartered Shipbrokers (a copy of which he attaches to his skeleton argument) include a nine month time-bar, and that there is no reason to conclude that the parties’ bargaining strengths are significantly unequal. Apparently the Claimant describes itself on its website as “widely recognised as the industry-leading fencing manufacturer” (again material which derives from his skeleton argument).

Mr Tabari’s submissions may be summarised in this way:

Mr Tabari also referred me to the recent decision of the Court of Appeal in Last Bus v Dawsongroup Bus and Coach Limited [2023] EWCA Civ 1297. The leading judgment was given by Phillips LJ, with whom Singh and Bean LJJ agreed. It is a case in which the application of UCTA to standard terms of business governing commercial contracts is considered. It is not a case in which the BIFA terms were under consideration, although the decision in Granville Oil is reviewed. The discussion from [45] to [51] is of relevance.

The following points arise from a consideration of that discussion when set alongside the facts of this case:

Mr Steward is right to emphasise that the BIFA terms are widely used, drafted with a view to achieving a fair balance between the legitimate interests of the parties, and should have been known to the Claimant. I acknowledge the guidance given by Moore-Bick LJ in Rohlig at [23], but this is not a case where I should import the finding of reasonableness from a consideration of other cases. Last Bus makes it plain that there should be a consideration of the question of reasonableness on the particular facts of this case. The Claimant could have done more in terms of the evidence it adduced, to highlight the areas where further evidence is needed, but there is more than enough in the simple facts of the case to demonstrate that there is a real prospect of success on the issue.

Standing back, this contract was entered into with a view to the Claimant maximising the use of the available quota, so that it did not have to pay import duty. Given the extent of the business involved, the parties would probably have contemplated the potential for significant loss if there were some error on the part of the Defendant. It may well have been that they would also have understood that HMRC’s response time would have been unpredictable, or subject to significant delay given the issues which arose on Brexit.

Would they have regarded it as fair and reasonable to include a clause which barred a claim which went to a failure on the part of the Defendant to take reasonable care to meet the central purpose of the contract, potentially costing the Claimant a lot of money, in circumstances where the Claimant could well have had no knowledge of the basis of such a claim until after the limitation period ran out? That might put the question from the Claimant’s point of view, but it illustrates the potential unreasonableness of clause 27(B) on the facts of this case. There is a real prospect that the answer to that question would be no.

The application is dismissed. The parties are to agree directions for the service of a Defence and a Reply, and identify dates for a CCMC in April-June 2024. It may be that this is a case which is suitable for the Shorter Trials Scheme. That will depend on the nature of the Defence, but no doubt the parties will keep that in mind. I have not heard submissions on costs, but my provisional view is that the Claimant is the successful party and should have its costs of the application. I can summarily assess those on the basis of written representations or at the CCMC if that assists. If a minute of order can be agreed, I will dispense with attendance on handing down. May I thank Counsel on both sides for their assistance.