Overseas Medical Supplies Ltd v Orient Transport Services Ltd
Court of Appeal
Citations:  1 All ER (Comm) 981;  2 Lloyd’s Rep 273;  CLC 1243;  CLY 866.
The defendants were freight forwarders. The claimant contracted them to transport their equipment to an exhibition to Iran and back. The contract incorporated the British International Freight Association (‘BIFA’) standard trading conditions. These provided for the defendant to insure the equipment. It also contained a limitation clause. The defendant mentioned that the claimant might be able to have the defendant waive the limitation clause for an extra fee, but this would require the defendant to speak to their insurers (involving delay). The claimant opted not to do this.
The equipment was lost, so the claimant sued the defendant for its value (£8,590). It turned out that the defendant had failed to insure the equipment. The defendant relied on the limitation clause, which would limit compensation to £600. The claimant argued that the clause was void for unreasonableness under s.3 of the Unfair Contract Terms Act 1977.
- Was the limitation clause void for unreasonableness?
The court found that the clause was unreasonable. The factors which led it to this conclusion included:
- The claimant knew of the clause, but did not fully comprehend its implications;
- The defendant was in a dominant bargaining position, since the claimant had no realistic alternative but to contract with the defendant;
- There was no evidence that the claimant could in practice pay a higher fee to have the defendant waive the limitation clause.
This Case is Authority For…
The following factors may be relevant to determining whether a clause is unreasonable:
- The way in which the relevant conditions came about;
- The factors listed Schedule 2 of UCTA (despite strictly not applying to s.3);
- The availability, convenience and practicability of using the defendant’s competitors;
- The reality of the claimant’s consent to the clause;
- The size of the limitation clause, particularly in relation to other limitation clauses widely used in the relevant industry;
- The availability of insurance;
- Whether the clause applies to one type of breach or many different types of breach;
- The claimant’s practical ability to avoid the limitation or exclusion clause (such as by paying extra money).
The reasonableness of a clause is assessed as a whole – the court will not look at parts of the clause in isolation.
Whether a clause is unreasonable under the Unfair Contract Terms Act 1977 is a question of fact. An appellate court should be reluctant to overturn the decision of the first instance court in relation to reasonableness.