LLM Legal in Commercial Law - Research Paper Example

Introduction The world of business involves to a certain extent trust in our neighbours and the people with whom we do business. Because we cannot always be sure that we have come to a proper understanding contract law has emerged to provide necessary protections for all parties. Even though parties to a transaction might trust each other it still helps to commit their agreements to paper. After all, memories fade and what may have seemed a good idea at one point might not necessarily be so at another, leading to regret on the part of one or the other party to a transaction. Contracts, as important as they are, not without their limitations and so the courts have to balance the need to respect contracts with the consideration for what is reasonable. In effect, even if a party agrees to the terms of a contract and signs that contract to show such intent it does not mean that there is an iron clad necessity to follow the letter of the law. Sometimes, the spirit of the law, or the need for equity or fairness necessitates that judges overlook the letter of the law in order to serve the cause of justice, which in the end, is what the law aims at. Background In Overseas Medical Supplies Ltd v Orient Transport Services Ltd, the medical supplies company contracted with the transport company to ship some products to Iran for an exhibition. The products were also to be shipped back to the UK following the exhibition. The transport company involved was given this responsibility in part because they had proven in the past to live up to their responsibilities and had a great deal of experience in making such shipments overseas. Furthermore, they provided a package deal that removed much of the worry of shipping products abroad from the shoulders of companies such as Overseas Medical Supplies. In part, this was because it was not so easy for companies outside of the freight forwarding community to easily arrange for insurance. Thus, by taking advantage of the services of Orient Transport Services, the medical supplies company was ensuring that there would be a minimum of risk to itself in that even in the case of insurance coverage, they could count on the transport company to do it properly. Unfortunately, the Orient Transport did not take out the insurance that the medical supplies company had expected and so when there was damage to the products the transport company decided to abide by the terms of BIFA (The British International Freight Association) which limited the indemnity to about 600 pounds. Considering that the value of the goods was in excess of 8000 pounds, this did not seem fair to Overseas Medical Supplies Limited. The problem, however, was that in signing the agreement with Orient Transport the medical supplies company had unwittingly agreed to abide by BIFA which meant that they had essentially lost out not only on their products but also on any potential for recuperation of the amount involved, and all because Orient Transport Services had failed to take out the insurance as the medical supplies company had suggested they do. Legal issues Unfair contract It is natural for people and businesses to want to limit their exposure when engaging in transactions with others. Often, this desire means that businesses try to ensure that their contracts limit as much as possible their having to take responsibility for anything that goes wrong. The burden then is placed squarely on the shoulders of the client or consumer. As John Bridgeman, Director General of Fair Trading has noted with regards to unfair contract terms, "The use of unfair terms is rife among sellers and suppliers in every area of UK economic life. I am concerned at the continuing disregard for the Unfair Terms in Consumer Contracts Regulations, which have been in force for 2 1/2 years” (Office of Fair Trading 1997). Using small print which may clients fail to read many companies try to insulate themselves from what, in light of clear assessment, may be a one-sided contract, only favouring the company that drafted the contract. Some also use legalese that is difficult to understand for the average consumer who might have to consult with a lawyer in order to understand fully the ramifications of the law. This appears to have been the case with respect to Overseas Medical Supplies Ltd v Orient Transport Services Ltd (1999). First of all, the defendants, Orient Transport Services Limited were in breach of a contract to provide insurance. They had given the client the impression that their service involved doing everything necessary to ease any worries on the part of the client. In fact, with regards to the insurance, not only was it expected but also a representative from Overseas Medical Supplies Ltd had confirmed via fax that the insurance would be taken on behalf of her company. As part of the agreement, the judge in the case determined that through fax communications Ms Chotalia of Overseas Medical Supplies Ltd had provided instructions that the consignment, valued at 11,400 pounds be insured at a charge of 1.97% of the value. The defendants could not explain properly why despite the indications from Overseas Medical Supplies Ltd., they had not gone through with effecting the insurance on behalf of the clients. If it had been negligence or an oversight on their part, now that Overseas Medical Supplies sought to recover their loss, Orient Transport Services sought to relieve themselves of any responsibility by claiming that Overseas Medical Supplies Ltd. had accepted BIFA terms and so all they were entitled to pay, if anything, was the limit of 600 pounds. This struck the presiding judge as being patently unfair and unreasonable. In considering issues relating to the reasonableness or the lack thereof of the contract, the Unfair Contracts Act 1977 was referred to. Section 3 of this law made reference to contracts that are done between two parties that may involve relying on a standard contract of one of the parties. The onus is on the company that drafted the contract to show that the contract in question satisfies the provision of reasonableness. Nature of the limitation clause First of all, it did not seem to the presiding judge that the defendants, namely, Orient Transport Services, had satisfied Clause 13B of BIFA which placed upon them the responsibility to use their best endeavours to make arrangements of insurance for their client. The loss of 8589.66 pounds which would have been covered by insurance had such insurance be taken, in the view of the judge, was inexcusable. “The effect of imposing a limit of recovery of two SDR`s per kilo would have been to limit the plaintiff’s recovery to 600 pounds instead of the 8500 – odd recovered. Before the judge, and indeed before this court, it has not been in issue that the provisions of Clause 13(B) were apt to impose a limitation in the circumstances of the case unless the appellants were precluded from relying on such limitation by the provisions of the 1977 Act” (Overseas Medical Supplies Ltd v Orient Transports Services Ltd 1999). The judge would not have had any problem with the defendants if they had simply obtained the insurance because insurance was for the purpose of insurance, to protect against the possibility of an adverse outcome. It seems that the defendants were merely trying to hide behind BIFA Clause 29(A)(I). Reasonableness of the contract The judge tried to make a distinction between loss or damage that might occur in the normal course of business, especially one in the area of transport and freight, and the provision of insurance. It was not a Herculean task for a company such as Orient Transport Services to obtain the kind of insurance that the plaintiffs had sought. While it would have been difficult for the plaintiffs themselves to get a good insurance the same could not be said of the defendants. The judge would have been willing to limit liability involving damage or goods but could not do so for failure to procure insurance for the clients. The point of unfairness was also touched on by the judge who noted that everything appeared stacked in favour of the freight company. As the judge noted, it seems to me Clause 13(B) tilts the balance of the contract very markedly in the defendants’ favour. The contract imposes an unqualified obligation on the plaintiffs to effect full insurance of their goods through the defendants or anther broker, but under Clause 13(B) the Defendants’ obligation to arrange that insurance is not unqualified, but subject to a drastic limitation of liability. The plaintiff’s obligation to insure balances the parties’ position if the goods should be lost, because although the defendant’s liability for the loss is limited, the plaintiffs will be indemnified by insurance…the overall effect of Clause 13(B) is that the plaintiffs are liable to lose both their goods and their insurance cover with minimal compensation. In other words, it is very one sided, in my judgment. The kind of problem faced by Overseas Medical Supplies in this case is all too common in the United Kingdom. Some companies have tried to use language that is not at all clear to obscure their meaning and to place the burden for their incompetence on the client. The Unfair Terms Act has been the saviour of many a company or individual that would have been taken advantage of in the absence of any such recourse. In the appellate court, the judges gave considerable weight to the decision that had been rendered by the judge who had heard the case in the first place. That judge would have made his decision on the basis of close observation of all the parties to the dispute, and judged to the extent possible their trustworthiness. It seems that the defendants did not come across very well considering that they were not able to give a cogent reason why they had failed to buy the insurance and had also tried to dispute aspects of the transaction that seemed in the opinion of the court simply a way to get out of their responsibilities. It would seem that judges have considerable leeway in deciding which way they will rule; in this regard it seems that the letter of the law is not enough to provide all the information necessary for judges to come to an adequate decision. For example, In the case of Ashdown v Samuel Williams & Sons Ltd [1957] 1 QB 409, the defendant had placed notices on his land which provided an exclusion for negligence for those who entered the land and got injured or died. Because sufficient steps had been taken by the defendant to ensure that people did not hurt themselves they could not be held liable (Harpwood 2005). In the case of the defendants in Overseas Medical Supplies versus Orient Transport Services Ltd., the plaintiffs had signed a contract that gave every indication that they understood what the terms of the contract were and that they were prepared to take full responsibility for neglect or breach. While under cross examination Ms Chotalia, from Overseas Medical Supplies acknowledged that she was aware of taking a risk by contracting with Orient Transport Services, the judge at the appeals court noted that the trust that had been placed in Orient Transport Services was so great that it would not have crossed the mind of Ms Chotalia or her associates to even consider that there would be a breach in such a seemingly small matter as taking insurance on behalf of a client. Considering the background of the defendants whatever risk Ms Chotalia and her associates might have entertained might have been negligible because they believed that they were in good hands with Orient Transport Services and that the company would do what it had promised to do. As the judged noted that though Ms Chotalia had said that she very well understood and accepted the limitation of liability in Clause 13(B), this did not necessarily mean that when she entered into the contract, she seriously accepted the risk that the Defendants would not try their level best to arrange the insurance that they had said they would arrange. As the judge continued, I do not suppose for a moment that she thought about Clause 19 (B) when she instructed the defendants to insure the goods and I do not believe that she gave any thought at all to the possibility that they might ignore her instructions. Even is she had, she would not have sought insurance elsewhere in the market, or attempted to avail herself of the benefits of a special arrangement under Clause 29(D). That would have been quite unnecessary in my opinion. I think she would simply have asked for an insurance certificate before the goods were shipped. To my mind one of the evils of Clause 13(B) in the context of this case is the risk of anything going wrong in arranging insurance would have seemed unlikely to the plaintiffs, if they had thought about it at all. (OMS Ltd v OTS 1999). Even though Ms Chotalia was aware that there was a limitation in the BIFA clause she could never have imagined that such a breach would have occurred from a company that appeared or had appeared so competent in the past. In fact, it might have been to Ms Chotalia’s credit that she did not try to impugn the integrity of the defendants. She had expected them, on the basis of their experience to make things easier for her. It must have come as a bit of a shock to Ms Chotalia and her employer that such an experienced package provider as Orient Transport had been remiss in following through with the underwriting of insurance for the trip, something that was very much in the line of routine work for transportation companies. Bargaining positions Big and powerful companies that enjoy a bit of a monopoly often like to take advantage of their position by offering terms to their clients on a take it or leave it basis, but one that often seems quite unfair when subjected to scrutiny. The unfairness may stem from the reality that even though clients are supposedly free not to enter into the particular contract in question, there might not be much of an alternative available. This appears to some extent to have been the case with Orient Transport Services. To be sure, there were other companies but Ms Chotalia and her employer did not think that it was worth it to quibble over what might be a small amount of money and to shop for another freight forwarding company. To some extent they relied too much on an assumption of competence on the part of Orient which had promoted itself successfully as a one-stop shop, one that would have relieved clients such as Overseas Medical Supplies of the necessity of having to worry about some of the more mundane details involved in their business such as taking insurance. As the judge indicated it was perhaps “almost inevitable that anyone who wised to take part in the exhibition would utilize the services which they offered, including the insurance arrangements which would have been tailored for the vent. He referred to the complexities and pitfalls which a customer would face in trying to make his own arrangements in relation to shipping, customs, import/export licensing and other issues” (OMS Ltd v OTS 1999). Of course, Orient Transport Services tried to emphasize the point that they always made it clear to clients that their operations were under BIFA terms. On the surface it appears that any parties can enter into any agreement whatsoever but the reality is that there are many duties that are fixed by law. In addition, any agreements passed between two individuals or parties may be subject to some of the laws of the land such as the Unfair Contracts Act 1977. As Harpwood writes in Modern Tort Law, “Terms of contracts are now imposed upon the parties by numerous statutes, quite independently of any ‘agreement’ and, indeed, the notion of true agreement has long been discredited in many contractual situations, since few individual consumers have real bargaining power” (Harpwood 2005). The main aim of contract is to ensure that contracts are enforced but the law is aware that those with inordinate power are not averse to taking advantage of their position. The law, therefore, stands ready to provide remedies for any who may be subject to unfair dealings where contracts are concerned. Bibliography “Office of fair trading: Small print still a big problem.” M2 Presswire (Dec 17, 1997):1. Harpwood, Vivienne. Modern Tort Law, London, UK: Cavendish Publishing, 2005. “Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] EWCA Civ 1449 (20 May 1999) http://www.baillii.org:/ew/cases/EWCA/1999/1449.html (January 31, 2007). Part B – Method of research Researchers today may appear to be in an enviable position compared to their counterparts of old. There are numerous electronic resources that make it possible to access information from the comfort of one’s home. This, however, does not preclude making use of old-fashioned systems such as doing a search within a library. This, however, was not the first step. In order to get a good grasp of this problem, this researcher proceeded from the premise that it was important to start from a broad perspective and narrow things down. The first step, therefore, was to do an Internet search from which to grasp the outlines of the case and to learn how the case could be researched in a more focused manner. The popular search engines did not yield anything concrete on Overseas Medical Supplies v Orient Transport Services Ltd [1999] for a while but there was enough information, mostly from the websites of lawyers who had been connected with the case or who wanted to explicate its finer points for the benefit of the reading public. From these sources it became clear that the case was about unreasonable limitations of liability for freight forwarding agents who might neglect their duty. BIFA, of course, being a trade organization needs to ensure that its members are protected. It would not do to have members of this organization being sued on a regular basis and forced to deplete their financial resources for the benefit of other parties. While it is understandable that some kind of limitations be placed on potential liabilities, it also became clear, by reading a few texts in the library that mentioned the case that BIFA did not give adequate consideration to the needs of others. Such a one-sided set of conditions, as the judge in OMS v OTS aptly pointed out was unfair. Though this researcher spent considerable time searching through the indices of textbooks and casebooks for the Overseas Medical Supplies Ltd. V Orient Transport Services case, it was nowhere to be found. The appeal of the case, however, emerged from persistent search through continued searches of UK based databases relating to the law. In the end, a combination of online searches and the use of textbooks, casebooks, and other materials such as journal articles provided the breadth and depth of insight that allowed this researcher to tackle the analysis with a modicum of confidence. Read More