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| Thursday, 25 June 2009 |
| Liability loophole in the UK exposes risk for warehouse operators |
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You may have seen the lead article in the publication 'International Freighting Weekly' (IFW) of 15 June 2009, entitled 'The liability loophole - Legal precedent means mistakes could cost operators millions'. This article ( refer copy at the foot of this message) has prompted some enquiries from members as to the ramifications for our industry as a result of the outcome of this incident and the resulting court case. The court case discussed in IFW is Matrix v Uniserve (England and Wales High Court, 8 May 2009): http://www.bailii.org/ew/cases/EWHC/Comm/2009/919.html The article quotes a Clyde & Co Partner as saying that the case had 'serious insurance implications' and that 'operators needed to radically re-think their operating procedures'. Peter Stockli of Thomas Miller and Co representing the TT Club worldwide has provided an opinion on this situation which follows below. The 'members' referred to in the opinion below are TT Club Insurance Mutual Members. We remind AFIF members to ensure that acceptance of cargo procedures are in good order and that your staff always ensure that no cargo is accepted without being sure it is intended for you. It is also vital that terms are incorporated when they can be, however there will always be the occasion when you cannot rely on them. Peter Stockli of Thomas Miller writes: Birkart agreed to carry goods (Bluetooth adapters) to Manchester airport, but erroneously delivered them instead to Uniserve, who accepted the goods into its warehouse. The goods were stolen from there in a theft that involved a Uniserve employee. Judge Mackie QC held that Uniserve was keeping the goods as a bailee, but that it failed to prove that it performed its duties as a bailee with reasonable care, skill and judgment. Fairly basic checks in the warehouse would have established what the goods were and that they were intended to be sent air freight. On the day of the theft, the warehouse was 'significantly unprotected', which 'assisted in the commission of the theft'. The judge rejected automatic application of the BIFA Conditions as industry standard or contractual incorporation based on prior course of dealing between the parties. Uniserve was also unsuccessful in arguing that its trading conditions applied against the owner of the goods based on sub-bailment on terms. Thus, the judge held Uniserve liable for the full value of the goods of £375,000. The article in IFW mentions a 'supply chain error', but fails to explain Matrix v Uniserve's specific facts of delivery to a warehouse in error (combined with the warehouse's failure to register the goods properly). What advice can be given to Club Members? As Pysdens solicitors wrote, a warehouse should be 'very sure' about what is being accepted in. There should be no basis for accepting goods that do not come in with proper paperwork and cannot be verified in terms of where they have come from. Vital are tight reception procedures for goods. Once a Member becomes aware that it has received goods in error, it should immediately inform the other parties, including the owner, and request instructions. As Martin Scales comments, if possible the Member should try to inform the other parties that it (temporarily) keeps the goods subject to its own standard trading conditions. We believe that under the circumstances of Matrix v Uniserve the Club's Third party liability clause would have responded (T3:1.1, L3:1.1 and C3:1.1), subject to the Member's causative intentional/ reckless conduct (G1:9.8). The IFW Article 15.6.09: The liability loophole 
By Gavin van Marle Freight service providers operating under limited liability terms and conditions may find themselves uninsured and with unlimited liability in the event of a supply chain error - even if it is caused by a third party or the principal. The claim follows UK freight operator Uniserve's decision not to appeal a court decision last month, which found it fully liable for the theft of a pallet of 300kg of goods that had been delivered in error by a client to its Manchester warehouse, instead of Manchester airport. Uniserve was ordered to re-pay the £375,000 claim, plus the costs of the six year court case - now totalling more than £1.4m (US$2.3m). "I've been advised that there's nothing to appeal against, " Uniserve MD Iain Liddell told IFW. "The law says you have to have two parties with intent before you can have a contract. What hadn't been established until now is that an undetectable error by one party can determine whether there was intention to make a contract." Tim Foley, partner at Uniserve's solicitor, Clyde & Co, told IFW that the case had such serious insurance implications that operators needed to radically re-think their operating procedures. "My advice to any freight operator is you cannot rely on normal limited liability covering you, even when you are dealing with a known and trusted partner. "You have to check that the intention to contract has been there at every stage of the supply chain. Of course, that's impractical, which is why I think the law needs to be more flexible. "Nobody ever anticipates the exceptions, because that is what the limited liability is supposed to cover." Liddell originally believed he was covered by Bifa's terms and conditions. "Normally we cost our risk on service as two SDRs [special drawing rights] per kilogramme - approximately 80p each. Therefore, the SDRs for this were worth £1.60 x 300kg: equalling £480. "We ended up being liable for £375,000 for 300kg, equalling £1,250 per kg - a ratio of 781 to the two SDRs. "We would have charged £3 for moving that pallet, but at that ratio we should have charged £2,343. Imagine the effect on a £1,000 transport cost. "This isn't pie in the sky. It's now case law. Unlimited liability claims can be made and insurers can revisit six years of claims to establish if an error has been made, and then demand full payment from anyone in the supply chain who can be held responsible." Peter Quantrill, Bifa director general, confirmed to IFW that Bifa's relevant advisory group will examine the implications of the case. Liddell said Uniserve had tried to address its procedures. "Even double checking with the principal that the goods are intended for us does not mean an error won't happen somewhere in the supply chain that will void the contract. "The whole process is unworkable. At best, it will cost a fortune to administer intent handover documents through all stages of the movement. At worst, we will still have unlimited liability if an error is made." Posted: 15-06-2009 Brian Lovell |