Overseas Medical Supplies Ltd v Orient Transport Services Ltd

Factual and Procedural Background

The appellants, a freight forwarding company, were engaged by the plaintiffs, suppliers of medical equipment, to transport goods for exhibition at an event in Teheran. The contract included an obligation on the appellants to arrange insurance for the goods on behalf of the plaintiffs. Despite instructions and communications specifying the value and insurance requirements, the appellants failed to effect insurance for reasons unexplained. The goods were lost on the return journey to England, and the plaintiffs sued for the full value of the lost goods plus interest and costs. The trial judge held the appellants liable for breach of contract, specifically their failure to arrange insurance, and rejected the appellants' reliance on contractual limitation clauses under the British International Freight Association Standard Trading Conditions (1989) ("the Conditions"). The appellants appealed the judgment of His Honour Judge Kenny given in the Kingston County Court.

Legal Issues Presented

1. Whether the appellants were liable for the loss of the goods due to their failure to effect insurance as instructed by the plaintiffs.
2. Whether Clauses 13(B) and 29(A)(ii) of the British International Freight Association Standard Trading Conditions (1989) limiting the appellants' liability were reasonable and enforceable under the Unfair Contract Terms Act 1977.
3. Whether the limitation of liability applied differently to breach of duty in arranging insurance versus loss or damage to goods.
4. The extent to which the parties' bargaining positions and knowledge of the contractual terms affected the reasonableness of the limitation clauses.

Arguments of the Parties

Appellants' Arguments

• The Conditions are widely used in the forwarding industry and generally considered reasonable.
• The parties had essentially equal bargaining power; the plaintiffs had time and opportunity to seek alternative arrangements but chose not to do so.
• The plaintiffs' representative, Ms Chotalia, was aware of and accepted the limitation clauses with full knowledge of the risks.
• It was open to the plaintiffs to pay an additional charge to waive the standard liability limit of 600, but they elected not to.
• The limit of 600 was reasonable as a general commercial and insurance practice within the industry.
• Insurance was available to the appellants on a block basis, with premiums reflecting the liability limits, and the plaintiffs could have negotiated for increased cover.
• The appellants submitted that the judge erred by disregarding the concessions made by Ms Chotalia and by doubting the existence of arrangements for increased liability on payment of extra charges.

Plaintiffs' Arguments

The opinion does not contain a detailed account of the plaintiffs' legal arguments beyond the evidence of their witness and the trial judge's findings.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the appellants' failure to effect insurance as a distinct breach from loss or damage to goods in transit, noting that loss in transport is common and often unavoidable, whereas failure to arrange insurance is a discrete and avoidable breach. The court found that the limitation clauses, while probably reasonable for direct loss or damage claims, were not shown to be reasonable in the context of failure to arrange insurance. The judge emphasized the imbalance created by Clause 13(B), which limited the appellants' liability for failing to insure despite the plaintiffs' obligation to insure through them or another broker, resulting in a risk that the plaintiffs could lose both their goods and insurance indemnity with minimal recovery.

The court gave significant weight to the plaintiffs' bargaining position, concluding there was no realistic alternative to using the appellants' comprehensive "one stop shop" services for the exhibition, including insurance. This lack of practical choice undermined the appellants' argument of equality of bargaining power.

The court also scrutinized the evidence regarding the availability of an option to pay extra charges for increased liability, finding the appellants failed to prove such arrangements were genuinely available or operated as a matter of practice.

The plaintiffs' representative's evidence was assessed critically; although she acknowledged knowledge of the limitation clauses, the court doubted she fully appreciated their implications at the time of contracting. The court found no error in the trial judge's evaluation of witness credibility and reasoning on these points.

In sum, the court upheld the trial judge's careful balancing of considerations under the Unfair Contract Terms Act 1977, concluding the limitation clauses did not satisfy the requirement of reasonableness in relation to the appellants' failure to arrange insurance.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the judgment of His Honour Judge Kenny. The appellants remain liable for the full value of the lost goods plus interest and costs, without benefit of the contractual limitation clauses in relation to their failure to arrange insurance.

The decision directly affects the parties by confirming the appellants' liability and rejecting their limitation defence in these circumstances. No broader precedent was established beyond the application of established principles concerning the reasonableness of limitation clauses under the Unfair Contract Terms Act 1977 as applied to failure to effect insurance in freight forwarding contracts.