Road freight claims are insulated from set off

One of the most complex and uncertain areas of law which invoice discounters and their lawyers regularly have to deal with is transaction set off, namely the extent to which the customer’s claim arising from defective or late performance of the contract on which the relevant invoice is based can be set off against the value of the invoice.

This is a difficult area of law, upon which there have been very few reported cases in recent years, but it is worth remembering that there is one type of claim which is effectively insulated from transaction set off: claims for freight or the transport of goods.

The rule arose in claims for sea freight and is known as the “Aries Tanker rule”, and was developed several centuries ago to protect shipowners for practical and commercial reasons. The effect of the rule is that any complaint by the customer arising out of the transport, whether it be for short delivery or late delivery, must be raised separately and cannot be used as a defence to invoices based on the transport, and nor can any such claim be used to justify a stay of execution of any judgment based on the transport invoices.

Of course not many invoice financiers are involved in the sea freight market, but many do have clients heavily involved in road freight, and not all invoice financiers are always readily aware of the strength of their position in this type of claim.

Indeed there was once considerable doubt about whether the sea freight rule would apply to road freight, and even today many lawyers are unaware of the position, but the law was settled almost 30 years ago in the High Court case of United Carriers Ltd. v Heritage Food Group (U.K.) Ltd. [1996] 1 W.L.R. 371 in which Mr Justice May rather reluctantly held that road freight should be treated the same as sea freight:

“The Aries Tanker rule, which denies defences otherwise generally available, has little if any intrinsic justification but applies to carriage of goods by sea because it is a rule of considerable antiquity which has been applied consistently and on the basis of which owners, charterers and insurers may be taken to have contracted. It is very difficult, in my view, to apply this latter justification to carriage of goods by land where there is only one reported case (in 1984) and where discussions to be found in textbooks are equivocal. I have no evidence, as Nolan J. did not, to justify any finding of pure fact whether there is any commonly understood basis on which domestic carriers habitually contract — except that the plaintiffs in this case themselves have had the benefit of decision in their favour by Judge Kellock Q.C. in the Alfreton County Court. But it would in my view be difficult to justify the assertion of a commonly understood basis confidently held when neither counsel in the case before me was aware of the only High Court case which addresses domestic road haulage until after the conclusion of the oral hearing.

Forbes J. in the M. & S. Shipping case appears to have been worried about the small local carrier. I can see no intrinsic justification why the motor cycle messenger taking a small package across London should be accorded the benefit of the Aries Tanker rule, when the equivalent commercial benefit is not available to manufacturers, shopkeepers, builders, architects, dentists, farmers, solicitors, accountants, etc. I see no distinction between the motor cycle messenger and a van driver delivering stationery to an office or potatoes to market for a farmer. I see no distinction between any of these and the plaintiffs in this case delivering Christmas hampers for the defendants. Left to myself, I would decide that the Aries Tanker rule did not apply to such contracts. I would draw a line between carriage by sea and international carriage by land (and also, I think, carriage by air) to which the rule did apply (subject to particular contract terms) and domestic carriage by land to which it did not. That would not be a line drawn by logic, but it would be a pragmatic division between cases to which the rule was to be applied from antiquity and cases where I conceived that it would be quite anomalous and without the only modern justification which supports the rule for carriage by sea.

I do not however feel able to reach that conclusion. I am not, I think, literally bound by authority to reject it, since Nolan J.’s decision in the A.S. Jones case was a first instance decision not binding on me and Lord Wilberforce’s sentence in the Aries Tanker case [1977] 1 W.L.R. 185 and what was said in the seven C.M.R. cases are all, I think, technically dicta. But Nolan J.’s case is indistinguishable from this one and the cumulative weight of that authority and the other dicta is such that I do not consider it would be right for a judge at first instance, however bold, to decide otherwise. I hold therefore (but with unconcealed reluctance) that the law at first instance has to be that the Aries Tanker rule applies generally to domestic carriage of goods by land and, subject to special arguments, to the claim in this case. The rule not only means that the plaintiff is entitled to judgment without deduction, but also that the defendant is not entitled to a stay of execution of that judgment.

The special arguments are these… The defendants submit that this was not a simple carriage contract for a single journey, but a composite contract for many journeys under which the plaintiffs had other obligations than that of carriage. I am not persuaded that these are points of effective distinction. The existence of such ancillary obligations does not, in my view, alter the fact that this was in substance a contract which should be characterised as one of carriage. Further, although most of the shipping and C.M.R. cases concerned single voyages or journeys, A.S. Jones was a claim upon 21 invoices. If the Aries Tanker rule applies to a single carriage, I see no reason why it should not apply to a series of carriages.”

Comment

It is worth invoice financiers reminding themselves of this special rule which will normally justify an application for summary judgment for road freight claims irrespective of any complaints by the customer relating to short or late delivery etc.

Such invoices are good candidates for approval and high initial payments and it should be no surprise that customers’ lawyers often start off aggressively defending such claims until they are referred to the United Carriers decision.

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