John Habergham, Myton Law, Hull U.K.

In the recent case Globalink Transportation and Logistics Worldwide LLP v DHL Project & Chartering Limited [2019] the Commercial Court has further defined the limits of the common-law rule against set-off from freight.

The rule against set off from freight is a long standing and well established rule that prevents a party from withholding freight, payable in respect of a carriage contract, on the basis of counter claims. The rule means that if a party wants to claim for damage to goods, they are required first to pay the freight and then pursue their claim separately. The rule has its origins in sea carriage but has since been extended to carriage by road and, more recently (in a case where Myton Law acted for the successful claimant), air.

The requirement that one allegedly defaulting party has to be paid before a claim can be brought to recover damages due from that party is contrary to the procedure applicable in other branches of the law. In other areas of law, a claim for debt and a counterclaim for breach of contract would commonly be dealt with simultaneously; neither party paying the other until the case is concluded. The rule against set-off from freight is therefore often described as an anomaly.

In the Globalink case the Commercial Court refused to “extend” the rule to sums due under a freight forwarding contract. In his judgement, Nicholas Vinaell QC outlined the previous cases which, in his view, demonstrated that the rule was narrowly limited to freight under carriage contracts, rather than freight forwarding contracts.

The judgement made reference to a previous case involving a freight forwarding contract where the rule was applied, but distinguished it on the basis that in that case the freight was simply being passed from the carrier, through the forwarder, to the customer. In those circumstances the customer couldn’t set off against the freight.

At first glance the decision appears at odds with the earlier case of Cover Version Limited v DHL Logistics (UK) Limited [2007]. In that case a freight forwarder was able rely on the rule against set off in respect of charges described as “freight”. The cases may however be reconcilable on the basis that the decision in Cover Version turned on a contractually incorporated “anti-set off” provision, rather than the common-law rule.

The Globalink decision demonstrates the continued judicial scepticism over the rule against set-off. That scepticism is likely to ensure that the rule will, as far as possible, be narrowly construed. While Myton Law’s experience in Schenker Ltd v Negocios Europa Ltd [2018] demonstrates that extension of the rule is not impossible, the authorities on the issue make it clear that parties face an uphill struggle persuading any court that the rule should apply in any case not falling squarely within the currently demarcated rule.

The short advice to forwarders is ensure that a contractual rule against set off from freight be incorporated into the agreement with customers.