Warehousing – Revisiting Standard Industry Terms

Shortage of space and increased demand mean many warehouses are operating at (or indeed over) capacity. This has been fuelled by fundamental transformative shifts in consumer retail demand. Global disruption to supply chains arising from the pandemic, stubbornly high fuel and freight costs, container shortages and latterly disruption arising from the war between Russia and Ukraine have facilitated and expedited this move away from just in time solutions to more conservative just in case supply chains. This has significantly increased demand for storage and warehousing space inflating rents.

Increasing costs are invariably passed back to the customer. For many businesses increased storage costs will be a price worth paying in order to guarantee order books and existing contracts will be met. Tighter margins, steadily increasing storage charges and a shift in the commercial power balance to those providing storage space means that it is more important than ever to ensure that businesses and cargo owners are fully aware of their contractual rights and obligations. Contracts entered into previously, particularly longer term arrangements, which prove unprofitable in what is a rising market will be scrutinised carefully by storage providers with a long line of new customers at their door.

Freight forwarding and warehousing are notoriously high risk and low turnover industries. The value of goods handled by a warehouse may well habitually be significantly more than the charges for the services provided. There is consequently potential exposure to damaging high value claims. Managing that risk is essential for storage providers particularly in the current market where increased pressure on space makes it essential that warehouses are operating as efficiently as possible leaving little room for error.

Standard contractual terms for warehousing

This is achieved through application of their own contractual terms and conditions that will serve to limit and exclude liability. Many liability insurance policies will insist that recognised trading terms are used by the warehouse to reduce the number and size of potential future claims. Such terms will usually be standard industry terms issued by one of the main sector trade bodies, such as the United Kingdom Warehouse Association (“UKWA”), British International Freight Association (“BIFA”), Logistics UK or the Road Haulage Association (“RHA”). These standard terms are intended to calibrate the risks and obligations of both parties. It is important that businesses are aware of and familiar with those terms if they are applicable to ensure their position is protected if matters do not proceed as both parties hope.

Firstly, to be applicable the terms must be incorporated correctly into the contract. Incorporation into the contract may be express or may be implied. Express incorporation will be achieved where clear and unambiguous notice of the application of the standard terms is provided before the contract is finalised. Reference to the terms in a post-contractual document will not be sufficient to incorporate those terms expressly into the contract. If there is no express incorporation into the contract then for the terms to apply it will be necessary for the warehouse to rely on implied incorporation.

The most common way for terms to be implied into a contract is through a previous consistent course of dealing. The theory behind implied incorporation through a consistent course of dealing is that by continuous use of a document notice of the terms in that document or the terms referred to in the document (for instance reference to the application of the latest version of the UKWA terms on correspondence and invoices etc) is given to the other contracting party thereby implying that further contracts will be on those same terms.

If the standard terms are incorporated into the contract there are a number of provisions within each set of terms that can operate to catch out the unwary claimant.

For instance, all of the standard terms contain comparatively short time bars, that is deadlines by which formal proceedings must be commenced to ensure rights of recovery are preserved. The Limitation Act 1980 requires that claims for breach of contract be brought within 6 years of the date of the breach. A failure to commence proceedings within this time period gives the Defendant a complete defence to the claim.

However, the main standard terms applicable in the logistics sector require claims to be brought within a much reduced period, for instance this is  9 months pursuant to BIFA / UKWA terms. A failure to comply with those deadlines will mean that any potential claim is time barred and the warehouse or forwarder will be relieved of liability.

Furthermore, under BIFA, RHA and UKWA terms, not only must ‘suit be brought’ in the form of formal proceedings but ‘written notice’ of those proceedings must also be provided within the same time limit in order to protect the time position and keep rights of recovery alive, meaning in practice that proceedings must be issued and served on the warehouse within the 9 month time period.

More immediate notice provisions are also common within each set of the standard terms requiring written notice of any loss claimed to be provided within prescribed notice periods. To avoid later argument it is preferable to comply with these in a timely fashion. For instance, the latest version of the BIFA terms provides at clause 27A as follows:

“Any claim by the Customer against the Company arising in respect of any service provided for the Customer, or which the Company has undertaken to provide, shall be made in writing and notified to the Company 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 give rise to such claim, and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred, except where the Customer can show that it was impossible for him to comply with this time limit, and that he has made the claim as soon as it was reasonably possible for him to do so.”

Where loss or damage to goods does occur, all of the commonly applied standard terms include clauses which serve to significantly limit the liability of the forwarder or warehouse (for instance under UWKA terms this may result in claims being limited to no more than £100 per tonne). It is essential that consideration is given to this at the outset of the contractual relationship and if necessary specific alternative insurance obtained to protect against potential future losses.

Force majeure

In light of the extensive disruptions to supply chains encountered over recent years and a difficult wider economic picture it should also be noted that all of the commonly applied standard trading terms contain provisions in respect to force majeure (for instance, clause 24 of the BIFA terms) and prescribe the scope within which the warehouse is entitled to exercise a lien over the goods within the warehouse to ensure payment is made for their services. The exercise of a lien can cause very significant disruption to a supply chain. It is worth noting in respect to the latter that invariably the wording will allow the warehouse to exercise a lien and hold on to the goods pending payment of any and all debts owed by the customer to the warehouse whether related to the goods currently in the warehouse or to other unrelated debts.

The industry standard terms have been and will continue to be periodically challenged before the Courts in various respects (most particularly in respect to the time bar and limitation provisions). Standard terms in the logistics sector are no different to any other set of contractual terms in that they are required to comply with the provisions of the Unfair Contract Terms Act 1977. The Act stipulates that where a party contracts on its written standard terms of business, it cannot exclude or restrict its liability for breach of that contract by reference to any term of the contract, except in so far as the term in question satisfies the requirement of reasonableness provided by the Act.