Warehouse Keeper successfully invokes Force Majeure for Malfunctioning Foam Fire Extinguishing System
Warehousing. Spontaneous release of foam by fire extinguishing installation. Damage to goods stored. Applicability of general terms denied. Duty of care in maintenance of equipment. Force majeure. Warehouse keeper not liable if it is demonstrated that the technical defect is unforeseeable. There was no carelessness in purchase and maintenance and there was no question of culpability.
On 8 April 2020 the Rotterdam Court handed down a judgment in a warehousing case where goods where damaged and had to be cleaned and repacked due to the automatic fire extinguishing system releasing foam without a fire.
Ref: BROEKMAN LOGISTICS EUROPOORT B.V. v ELLIS ENTERPRISES B.V.
The facts of the case
Broekman performs work in the context of storage and forwarding of goods. On or about 19 November 2015, Broekman and Ashland Nederland B.V. (hereinafter: Ashland), among others, concluded a Warehousing & Delivery Agreement under which Broekman undertook to provide warehousing and delivery services to Ashland. The following provisions form part of the agreement, in which Broekman is referred to as Contractor:
Article 3 – General Obligations with regard to the Services
- CONTRACTOR will maintain and use adequate resources, facilities and trained, skilled and qualified staff to carry out its obligations under this Agreement and ensures that these will meet all legal (national and international) requirements. The Warehouse, trucks and equipment that CONTRACTOR uses in the performance of the Services shall be clean, in good condition and adequately maintained. CONTRACTOR shall be liable for any malfunctioning in respect thereto, including damages to ASHLAND and/or third parties in relation thereto.
Article 6 – Warehousing Services
- For the term of this Agreement, CONTRACTOR shall make available and maintain suitable storage facilities in the Warehouse, meeting all legal requirements, at CONTRACTOR’S expense for the purpose of providing the Services.
- CONTRACTOR shall provide for an adequate, safe, secure and efficient environment and related service equipment fit for the Warehousing Services and related handling of the Products.
Article 15 – General
Except for force majeure and any other provisions hereof, the CONTRACTOR shall be liable for damage caused during the Warehousing Services under this CONTRACT. CONTRACTOR shall not be liable for damage resulting from ASHLAND’S failure to meet any of its obligations under this CONTRACT.
Article 16 – Consequential Damage Indemnity
- Neither ASHLAND nor CONTRACTOR shall in no event be liable for any indirect or consequential loss or damage suffered by the other party (including but not limited to loss of profits and good will, standstill, custom penalties) arising from or in any way connected with the Warehousing and/or Delivery Services provided under the Agreement.
Article 24 – Entire Agreement
This Agreement, together with the Appendices attached hereto or incorporated therein by reference, supersedes and replaces all prior agreements between the parties relating to the subject matter hereof. This Agreement constitutes the entire agreement and understandings (oral and written) between the parties concerning the subject matter hereof, and no modification thereof shall be of any force or effect unless in writing and signed by the duly authorized representatives of both parties, and performance prior to such execution will not constitute a waiver of this requirement. No modification shall be effected by the acknowledgment or acceptance of purchase order forms, invoices, bills of lading, or shipping forms, containing different or additional conditions.
Article 25 – Appendices
In case of any conflict between the Articles of this Agreement and any provision of an Appendix, the latter will prevail.
Main Terms and conditions
- All our activities are subject to the ‘Dutch Forwarding conditions (latest version) as filed by FENEX (Federation of Dutch Forwarders).
- The FENEX ‘Dutch Warehousing Conditions’ (latest version) are applicable to all orders which exclusively concern the warehousing of property.(…)
Ellis, also trading under the name Valvoline, succeeded Ashland in general title as of 1 August 2016.
On 5 June 2018, the foam extinguishing system in a Broekman shed went off without a fire. As a result of the malfunctioning of the foam extinguishing installation, (packages of) goods including Ellis’ goods were damaged in the storage concerned. Broekman and Ellis appointed experts to investigate the (cause of the) damage. Vadesta and Dunacon were called in at Broekman’s (insurers’) side; Ellis called in Sedgwick and Gorpa. According to the experts Dunacon and Gorpa, the foam extinguishing installation most probably went off due to leakage of a solenoid valve in that installation.
After the incident, Broekman sent an invoice to Ellis for an amount of €135,733 cleaning costs ( damage caused by foam re-packing, man-hours respectively materials.) Ellis has not paid this invoice.
Broekman claims that the court should make a judgment enforceable immediately enforceable and order Ellis to pay € 135,733, to be increased by the statutory commercial interest and I addition contractual extrajudicial collection costs and costs of the proceedings.
Ellis puts forward a defence seeking to dismiss Broekman’s claims, or at least to dismiss Broekman’s claims as inadmissible, and to order Broekman to pay the costs of the proceedings
Ellis further files a counterclaim and claims that the court should declare in court that Broekman and requests an order to pay to Ellis.
Broekman puts forward a defence seeking a declaration of inadmissibility of Ellis’ claims, or at least a rejection of those claims, and an order that Ellis pay the costs of the contentious and counterclaim proceedings.
The assessment by the court
Broekman based its claim on applicability of the Fenex conditions. According to Broelman it follows from Article 25 of the contract that in case of conflict between the contract and the Fenex conditions, the latter take precedence. On the basis of Article 16 paragraph 2 of the Fenex Terms and Conditions, Broekman has claimed extrajudicial costs of 10% of its claim. Insofar as Ellis invokes set-off, Article 15 paragraph 2 of the Fenex Terms and Conditions stands in the way of this, according to Broekman.
Ellis has argued against this, that the Fenex Terms and Conditions do not apply and that she does not owe the claim on which the invoice is based. In the alternative, Ellis contested the amount of the invoice and invoked set-off against its claim for damages. In addition, Ellis suspended its payment obligation.
Ellis argued that it follows from the difference between the mark-up version of the draft contract and the final contract that the parties intended not to apply the Fenex terms and conditions. It appears from the comments made, inter alia, by Broekman’s legal counsel on the mark-up version of the draft contract, that Broekman wished the Fenex terms to apply, whereas it follows from the final version that the applicability is not included in the contract. For instance, in the mark-up version under section H on liability, the remark was made that the text of the agreement should be replaced by the Fenex Warehousing conditions, whereas the final version of the agreement stuck to the text of the agreement and did not refer to the Fenex Warehousing conditions. According to Ellis, the applicability of general terms and conditions cannot be stipulated by means of a standard text on a price list annexed to the contract.
The court considers as follows. Whether the other party has accepted the applicability of certain general terms and conditions must be judged on the basis of the provisions on offer and acceptance and the formation of legal acts in general.
It follows from the mark-up version of the agreement that Broekman intended to declare the Fenex Warehousing terms and conditions applicable to the agreement. It also follows that the text of the agreement has been negotiated by commercial parties, whereby Broekman has had legal assistance. The signed final version of the agreement does not contain any reference to the Fenex conditions. It follows that Ellis did not accept Broekman’s offer regarding the applicability of the conditions. The fact that the applicability of general terms and conditions has not been explicitly excluded, as argued by Broekman, does not detract from that, since the non-exclusion of the applicability does not automatically make general terms and conditions applicable. Nor does the standard reference under the price list in Appendix A to the agreement affect the foregoing. It follows from the fact that Ellis, in the signed final version of the contract, did not accept the comments on the Fenex conditions, that it did not want those conditions to apply. Therefore, Broekman could not assume that Ellis nevertheless tacitly agreed to the reference to the Fenex terms in the standard text under the price list. Therefore, the Court deems the Fenex Terms and Conditions not applicable to the contract.
Liability for the foam incident
Ellis disputed to be due the invoiced amount, claiming that the invoiced costs were the result of a malfunctioning within the meaning of Article 3 of the contract, so that these costs remain at Broekman’s expense. There was in fact a technical defect in a magnetic valve in the foam extinguishing system as a result of which the foam extinguishing system was incorrectly activated. In doing so, Broekman breached its obligation to achieve a result as set out in Article 15(1). After all, the warehouse is obliged to deliver goods in the same good condition as they were put in its custody. This will only be different in case of force majeure, but this is not the case because it concerns a technical defect, which is a cause for which Broekman is responsible.
Broekman has objected that, just like Article 6 of the agreement, Article 3 also relates to general obligations, whereby it concerns the fact that Broekman’s warehouse was in good condition and has been adequately maintained. This follows from the reports and from the approvals by Bureau Veritas. In addition, Article 3 speaks of ‘malfunctioning in respect thereto’. This refers to the situation in which a defect occurred as a result of a breach of the obligation of proper maintenance. Therefore, this does not apply to the situation in question.
The District Court considers as follows. For the answer to the question as to what meaning the parties may reasonably attribute to a disputed provision in an agreement in the given circumstances and what they may reasonably expect from each other in this respect, the circumstances of the case, including the nature of the transaction, the scope and detail of the contract and the manner in which it was concluded, are important.
In the case of an agreement entered into between two equivalent professional parties and relating to a purely commercial transaction (while it is moreover certain that those parties have been assisted by expert advisers), the starting point is that decisive weight should be given to the most obvious linguistic meaning of those words, read in the light of the other provisions relevant to the interpretation.
The starting point is that, when interpreting a written contract, all the circumstances of the specific case, valued according to the standards of reasonableness and fairness, are in each case of decisive significance. This explanation should not be based solely on the linguistic meaning of the wording in which the written document is drawn up. From a practical point of view, however, the linguistic significance that these terms, read in the context of that scripture as a whole, normally have in the relevant business circles, is often of great importance in the interpretation of that scripture.
Article 3(1) of the Agreement:
“CONTRACTOR will maintain and use adequate resources, facilities and trained, skilled and qualified staff to carry out its obligations under this Agreement and ensures that these will meet all legal (national and international) requirements. The Warehouse, trucks and equipment that CONTRACTOR uses in the performance of the Services shall be clean, in good condition and adequately maintained. CONTRACTOR shall be liable for any malfunctioning in respect thereto, including damages to ASHLAND and/or third parties in relation thereto.
In view of the fact that the agreement was concluded after negotiations between commercial parties, assisted by expert counsel, as well as in view of the nature of the agreement (warehousing) and the place of the present provision in the agreement as a whole, the Court is of the opinion that the provision should be understood as meaning that the words “malfunctioning in respect thereof” refer to the aforementioned “warehouse, trucks and equipment“. The ‘malfunctioning’ is separate from Broekman’s obligation to keep the ‘warehouse, trucks and equipment’ in good operable condition and sufficiently maintained. Article 3 therefore holds Broekman liable in principle for a defect in the ‘warehouse, trucks and equipment’ used by Broekman. The fact that there was a defect in the foam extinguishing installation is not up for discussion between the parties. It therefore follows from Article 3 in connection with Article 15 of the agreement that Broekman is liable for the damage resulting from this defect during the storage period, except in cases of force majeure. The fact that the agreement contains an obligation to provide care and not an obligation to achieve a result, as argued by Broekman, does not relate to the text of Article 15(1) of the agreement, so that that defence fails.
Broekman invoked force majeure, arguing that there was force majeure within the meaning of Article 15 of the agreement, since it appears from the reports that the technical experts also took the view that Broekman could not have known about the problem with the solenoid valve and that, according to the technical experts, Broekman could not have done anything about it, while the foam extinguishing installation had, according to the reports, been properly maintained. Broekman explained that the solenoid valves in the system were checked every month, but that visual inspection was not possible because the valves are not visible without breaking open the system. There are inspection reports of these monthly checks. In addition, Broekman carried out tests themselves.
As soon as the foam extinguishing system was activated, the entire hall was full of foam within minutes. There was therefore no time to take any more damage control measures, according to Broekman. Moreover, there was no fire alarm before the installation was put into operation, so Broekman could not have prevented the damage.
Ellis disputed that there was force majeure on the part of Broekman because the foam extinguishing installation went off due to a technical defect, which is a cause for which Broekman is responsible. In addition, according to Ellis there can be no question of force majeure, since there was only one person within Broekman who was responsible for the foam extinguishing installation.
The District Court considers as follows. The parties have agreed in Article 15 of the agreement that Broekman is not liable for damage caused during the warehousing services in the event of force majeure. Force majeure pursuant to the Dutch Civil Code applies if a shortcoming (in this case: causing damage to Ellis’ goods as a result of the defect in the foam extinguishing installation) is not due to Broekman’s fault, nor by virtue of law, legal act or generally accepted standards. Article 6:77 of the Dutch Civil Code contains an elaboration of the afore-mentioned imputability by virtue of the law for the situation in which in the execution of the agreement use has been made of a good (here: the foam extinguishing installation) which is unsuitable for that purpose, or which has a defect. Pursuant to Article 6:77 the shortcoming arising from this use of the unsuitable foam extinguishing installation can in principle be attributed to Broekman. This unless it would be unreasonable in view of the content and purport of the agreement, the generally accepted views and the other circumstances of the case. These factors may mean that Broekman is not liable for the damage caused by the defect if it demonstrates that the technical defect could not have been foreseen by Broekman, was not the result of a lack of care in the purchase, maintenance and inspection of the system and was also not due to its fault (cf. Supreme Court, HR 5 January 1968, Zentveld/ Assicurazioni Generali;). The mere fact that Broekman’s foam extinguishing installation sufferd from a technical defect, therefore, does not automatically imply that Broekman is not entitled to appeal to force majeure, as Ellis states.
Ellis has not disputed Broekman’s claim that she carried out regular maintenance and regular checks on the foam extinguishing system, so that the Court assumes this as a fact. Furthermore, Ellis did not contest Broekman’s claim that according to the experts Gorpa and Dunacon Broekman could not have been aware of the defect in the solenoid valve, so that the District Court will also assume this as a fact. According to Ellis, however, Broekman did not take sufficient damage mitigation measures, among other things by not (or not being able to) switch off the foam extinguishing installation in time. According to Ellis, the District Court thus understands this proposition that Broekman is to blame for the (extent of the) consequences of the leaking magnetic valve, as a result of which she should be denied force majeure.
Broekman argued against this that there was a spontaneous extinguishing, as a result of which the entire hall was full of foam within a few minutes. According to Broekman, there was no time for damage control measures, as there had been no fire notification prior to the foam extinguishing system coming into effect. According to Broekman, she thus took all the measures that could reasonably be required of her in the given circumstances in order to prevent the damage. With this, Broekman has explained that and why it was not possible to take further damage limitation measures, and that earlier shutdown of the installation, whatever it was, could not have prevented the (extent of the) damage.
It follows from the foregoing ( discussion of conclusions by technical experts) that the defect in the solenoid valve could not have been foreseen by Broekman, nor was it the result of a lack of care in the maintenance of the foam extinguishing installation. In addition, it has been established that Broekman is not to blame for the extent of the consequences of the leakage of the solenoid valve. The District Court therefore concluded that the technical failure of the installation and the consequences thereof were not at Broekman’s expense. Broekman is therefore entitled to invoke force majeure, as a result of which it cannot be held liable for the damage resulting from the foam fire incident.Now that it has been established between the parties that Ellis has instructed Broekman to re-pack the packaging of Ellis’ goods damaged as a result of the foam fire incident, the costs of this work can be charged to Ellis.
Ellis will be ordered to pay the costs of the proceedings as the unsuccessful party.