TT Talk - Liability for theft by employees
Is a forwarder liable for thefts from its warehouse committed by an employee?
At the end of June, the High Court in London gave another example of the effectiveness of the incorporation of trading conditions in its decision in Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd. FM had been handling consignments for Samsung for around fourteen years when, in February 2002, nearly 26,000 mobile phones, worth about USD 2 million, were stolen from their warehouse near Heathrow airport, London. There were no signs of forcible entry and police concluded that the theft had been facilitated by one or more of FM's employees. FM sued Samsung for unpaid freight and storage charges; Samsung then counter-claimed for the value of the phones.
Samsung contended that there had been an oral agreement under which FM was to provide security guards on site and that this agreement displaced any other standard terms. As there had been no guards on duty at the time of the theft, Samsung claimed that FM could not limit its liability. The judge held that, in fact, FM had validly incorporated its BIFA (British International Freight Association) standard trading conditions in its agreements with Samsung. FM had reminded Samsung on a number of occasions that it traded under BIFA conditions, and the same information was printed on every invoice it sent to Samsung. Samsung had not formally accepted the conditions, but, more importantly, they had done nothing that directly challenged their application either.
The court accepted that the robbery was most probably an "inside job", and it was severely critical of serious shortcomings in FM's security arrangements (see next item).
But did this mean that FM was vicariously liable for the willful default of its employee(s)? The court held that an employer could be vicariously liable for an employee's deliberate wrongdoing, but liability was not established merely because the employee had the opportunity - by virtue of his employment - to commit the wrongful act. However, the judge could not make a distinction between the security of the goods and that of the premises: by giving them the keys and access to the alarm system, FM had effectively entrusted each of its employees with the security of the premises. Because of this, the unknown employee(s) had been given more than just an opportunity to commit the theft: FM was therefore vicariously liable for their willful default.
Nevertheless, FM could still rely on clause 27A of the BIFA standard conditions to limit liability. The use of the words "howsoever arising" in that clause ("the company's liability howsoever arising and notwithstanding that the cause of the loss or damage is unexplained shall not exceed..") made it wide enough to include deliberate wrongdoing by FM's employees.
Finally the court was asked to decide that the BIFA conditions were unreasonable under the Unfair Contract Terms Act 1977, the main UK consumer protection legislation. The court referred to a 2003 decision of the Appeal Court in which Lord Justice Tuckey commented that he was not enthusiastic about incorporating the provisions of the act to "contracts between commercial parties of equal bargaining strength, who should generally be considered capable of [making] contracts of their own choosing and expect to be bound by their terms". It therefore concluded that the BIFA conditions were reasonable.
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Incorporation of Standard Trading Conditions is an 'old chestnut', but remains critically important in supply chain operations. Don't let the 'big picture' deal blind you to such protective 'detail'.