CIF Contracts

Question 1

Myth & Co. Ltd v Bailey Son & Co. Ltd (1940)

Answer 1

Lord Wright:
The CIF contract “is more widely and more frequently in use than any other contract used for purposes of sea-borne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under CIF contracts.”

Question 2

Arnold Karberg & Co. v Blythe, Green Jourdain & Co. [1915]

On nature of a CIF contract

Answer 2

SCRUTTON LJ explains the NATURE of the CIF contract, by reference to the seller’s duties:
“a contract to ship goods complying with the contract of sale, to obtain…the ordinary contract of carriage to the place of destination, and the ordinary contract of insurance of the goods on that voyage, and to tender these documents against payment of the contract price”

• CIF is a lump sum price including cost, insurance and freight.
• Seller’s duty to make contracts of freight and insurance - seller bears the risk of fluctuations in freight rates and insurance premiums.
• Seller discharges obligation to deliver goods by tendering bill of lading
• Traders will adapt these obligations to suit them (e.g. other documents can be used etc.) but must make sure they don’t destory the fundamental characteristics of a CIF contract
• “CIF Liverpool” means that Liverpool is the port of DISCHARGE (destination)

Question 3

Schmoll Fils & Co v. Scriven Bros & Co. (1924)

Answer 3

Lays down the seller’s DELIVERY OBLIGATIONS

Established that there are 3 stages in the delivery obligations, under a CIF contract:

(1) Provisional delivery
(2) Symbolic delivery
(3) Complete delivery

Question 4

Provisional Delivery

Can be effected in 3 ways…

Answer 4

STAGE 1 - seller’s delivery obligations:
ACTUAL SHIPMENT OF THE GOODS - can be done in 3 ways:

(1) CIF seller can put the goods on to a vessel himself.
(2) CIF seller can purchase goods afloat - i.e. buy goods that are already on another ship, provided they conform with the contract of sale, and use them to perform the contract.
(3) CIF seller can allocate his own goods that are already afloat to perfrom the contract of sale, provided they conform with the contact.

Question 5

Symbolic Delivery

Answer 5

STAGE 2: seller’s delivery obligations
DELIVERY OF DOCUMENTS - 3 main docs a seller must tender:

(1) BILL OF LADING
- serves as a receipt of the goods received by the carrier; as a document of title; and evidences the terms of the contract of carriage - see separate entry.

(2) INSURANCE POLICY
- the insurance is a contract with an insurer to cover the GOODS during the sea voyage against risks which is customary in the teade to cover.
- policy contains the detailed T&Cs (certificate is rarely sufficient unless it entitled holder to demand formal policy so can claim against insurer)
- Made by seller (as CIF) but must be transferrable to buyer, so that if buyer cannot claim against carrier for breach of contract, can claim against the insurer.

(3) SELLER’S COMMERCIAL INVOICE
- states the kind and quantity of goods shipped, the price of the goods as agreed and any other charges or cost, and then provides the total amount due from buyer.

(4) ADDITIONAL DOCUMENTS
- parties may stiuplate that other docs must also be tendered - e.g. certificate of quality.
- becomes part of seller’s duties

In a CIF contract, once the seller has tendered these three documents, and the documents are effective, that is the end of the seller’s duties.

Question 6

Functions of the BILL OF LADING

Answer 6

(1) IT SERVES AS A RECEIPT FOR THE GOODS RECEIVED BY THE CARRIER
- states the type, quantity and apparent condition of the goods - carrier is then bound to deliver the goods at the port of destination in the same condition.
- enables buyer to know if something is wrong when the goods arrive.
- statements within are binding on the carrier - carrier cannot deny what is says

(2) AS A DOCUMENT OF TITLE
- it gives A RIGHT TO POSSESSION of the goods they represent.
- whoever is the lawful holder of the bill is the only person entitled at that time to possession of the goods.
- essential for seller to transfer it to buyer to enable buyer to collect the goods at the port of destination.

(3) EVIDENCES THER TERMS OF THE CONTRACT OF CARRIAGE
- enables buyer to quickly look at the bill and determine whether the terms of the contract of carriage that has been made by the seller, are in accordance with the terms of the contract for the sale of goods.
- if not, buyer entitled to treat seller as being in breach of contract.

Question 7

Complete Delivery

Answer 7

FINAL STAGE OF DELIVERY - THE ACTUAL DELIBERY OF THE GOODS THEMSELVES.

But, CIF seller under NO obligation to ensure actual delivery of the goods nor does he undertake to ensure they arrive at eventual destination.

See Manbré Saccharine Co. Ltd v. Corn Products Co. Ltd. [1919]

Question 8

Manbré Saccharine Co. Ltd v. Corn Products Co. Ltd. [1919]

Answer 8

Authority for the Complete Delivery stage.

Held; CIF seller not bound to deliver the goods at the port of destination (AKA the port of discharge).
A contract requiring seller to actually deliver the goods at the port of destination is inconsistent with a CIF contract.

Question 9

The Rio Sun [1985]

Answer 9

Although the CIF seller is not bound to deliver the goods at the port of destination, he is under a duty NOT TO TAKE POSITIVE STEPS TO PREVENT DELIVERY OF GOODS AT THE PORT OF DESTINATION.
Bound not to interfere with delivery by the carrier.
Here, after the goods had arrived at the port of destination, the seller ordered the carrier not to deliver the goods to the buyer.
Held; seller was in breach of contract for doing so.

Note, seller will also be in breach of contract if he orders the vessel and diverts it from the contractual port of destination to a different port.
The principle point is that in a CIF contract, the seller’s duty of delivery ends at the point of the delivery of documents – under no duty to deliver the goods at the port of destination, so long has doesn’t take positive steps to interfere with delivery by the carrier.

Question 10

Arnold Karlberg & Co. v. Blythe, Green Jourdain & Co. [1915]

HIGH COURT
Sale of goods or documents?

Answer 10

Said that a CIF contract is not a contract for the sale of goods but rather for the sale of documents.
Because: what the buyer actually gets from the seller are the documents, under which the buyer gets a right of action to bring claims against the relevant third parties.
Therefore, it is not a contract for the sale of goods, but a contract for the sale of documents which confer rights of action.

Question 11

Congimex Companhia etc SARL v. Tradax Export SA [1983]

Answer 11

Said it’s not exactly correct to say that a CIF contract is a contract for the sale of documents.
Rather, it is a contract for the sale of documents, representing goods.
Not merely a contract for the sale of the rights of action, but for documents representing goods.
A nuanced difference to High Court in Arnold Karberg.

Question 12

SIAT di del Ferro v. Tradax Overseas SA [1978]

Answer 12

Court said that there is something to the view that the CIF contract is a contract for the sale of documents - said there is a gain of truth to this, but that it is not wholly correct, only partially correct.

Question 13

Arnold Karlberg & Co. v. Blythe, Green Jourdain & Co. [1916]

COURT OF APPEAL
Sale of goods or documents?

Answer 13

C of A rejected veiw of High Court.
Said that CIF contract IS A CONTRACT FOR THE SALE OF GOODS, TO BE PERFORMED BY THE DELIVERY OF DOCUMENTS.
(LJ BANKES)
This is the dominant view today.

Reasoning:

• A CIF seller is bound by the normal obligations of any other seller of goods.
• Bound to ship goods that comply with the requirements of the contract, in relation to the quantity, quality, fitness for purpose, compliance with description, of the goods.
• Like any other seller of goods, the CIF seller must be capable of giving title to the goods that he is selling.

SO STILL ABOUT THE GOODS.

Question 14

Hindley & Co Ltd v East Indian Produce Co Ltd [1973]

Answer 14

KERR J, citing C of A in Arnold Karlberg:

It is an oversimplification to say that the CIF contract is merely a contract for the sale of documents.
“is indeed a matter of elementary law – that a CIF contract is to be performed by the tender of documents covering goods which have been shipped …”
“If no goods have in fact been shipped the sellers have not performed their obligation”.

Question 15

Why does it matter whether CIF contract is a contract for the sale of goods or documents? Signifiance?

Answer 15

(1) Under English law, if the CIF contract is a contract for the sale of documents, then it will not be governed by SOGA 1979
(2) Contracts that become frustrated by supervening illegality - often because of war - if goods to be delivered in country that UK then declares war on - illegality; but if it is contract for the sale of documents - country where goods are delivered is irrelevant - only country where documents are delivered that matters, as this is where perfromance of the contract would be deemed to happen.
(3) Place of performance under a contract determines the place of breach - if CIF contract is one for the sale of documents, then the place of breach of contract by the seller will be the country where the documents were to be delivered - In international transactions, the place of breach of contract can be very important – can determine which court will have jurisdiction to try the case.

Question 16

The Parchim [1918]

Answer 16

Construction case.

Parties expressly referred to the contract as a “CIF contract”, but it did not include the cost of insurance in the price - instead insurance was stated as a separate item.
Buyer was given the right to cancel the contract of carriage which had been arranged by the seller - of exercised before loading, would become duty of buyer to find alternative vessel for carriage.
Held; NOT a CIF contract, despite label for these 2 reasons above.
Even though seller had concluded the contracts of carriage and insurance, he did so only on behalf of the buyer.

Example that despite label parties attach to contract, IT IS A MATTER OF CONSTRUCTION FOR THE COURTS.
Ultimately, the court is looking to see whether the main features of a CIF contract are present - if not, won’t be a CIF contract, even if the parties thought that it was.

• If parties intend that actualI delivery of the goods is an essential condition, NOT a CIF contract.
• If on transfer of the shipping documents, no direct relationship is created between the buyer on the one hand, and the carrier and insurer on the other, the contract lacks the essential legal features of a CIF contract.

Question 17

Delivery Order

Answer 17

Sometimes, a seller will ship a large quantity of goods in a vessel but the goods will be destined to different buyers – i.e. in a single bulk consignment.
Carrier will give the seller a bill of lading for the entire bulk.
When vessel arrives at the port of destination, the seller will give a buyer who has paid a “Delivery Order”.
This is an order to the carrier requiring the carrier to deliver a particular quantity of the bulk goods to the person named in the order.

Question 18

The Julia [1949]

Answer 18

Another construction case - leading case.

Seller had given a delivery order to his own agent in Antwerp, who was to come to collect the goods from the carrier - buyer was to pay the contract price to seller’s agent, and then take goods from him.
Contract expressed to be “C.I.F. Antwerp”.

H of L Held; NOT a CIF contract, because the buyer did not have the right to take delivery of the goods from the carrier.
Instead, it was a contract for the delivery of goods “on shore” – goods had to be landed before they could be delivered to the buyer.
+ here, buyer bound to pay when he received goods, not against documents.
+ buyer did not receive the delivery order to collect the goods.
DOCS TENDERED HERE GAVE BUYER NO RIGHTS DIRECTLY AGAINST THE CARRIER - goods could only be transferred by physical delivery, and not through the delivery order (which was acting as a bill of lading).

LORD PORTER
“the whole circumstances have to be looked at.”

NB: also authority that ship’s delivery orders can be tendered instead of bills of lading in a bulk sale, as long as the contract provides.

Question 19

The Gabbiano [1940]

Answer 19

Another construction case.

Contract provided that goods lost or undeliverable to be written off from contract quantity - so buyer only yo pay for goods actually delivered at port of destination.
Parties admitted this was inconsistent with CIF.

But: Held; can still be a CIF contract, even though it fixes payment on goods that arrive at the port of destination.
Mirror image of The Parchim, The Julia, because the parties thought it wasn’t CIF, but court said it still could be.

Said that in some cases, feautres will point in both directions - what matters is where the balance of these features rests, in the courts contruction of whether CIF or not.

Question 20

Dupont v. British South Africa Co (1901)

Answer 20

Another construction case.

Performance of the buyer’s obligations to pay depended on the quantity of goods that arrived at the port of destination.
Contract required half of the contract price to be paid upon shipment of the goods, and the other half at the port of destination.

Held; notwithstanding that the payment clause, in effect, divided the risk between the buyer and the seller – this COULD still be a CIF contract.

Question 21

Krohn & Co. v. Mitsui & Co. Europe GmbH [1978]

Answer 21

Another construction case.

Where the contract is a contract for the sale of goods such as Kerosine, which can evaporate during shipment, and the parties have agreed that the price will be determined on actual quantity that has arrived excluding the evaporated quantity, held that this could still be a CIF contract.

If this is a CIF contract, and the goods are to be weighed at the port of destination, then if the seller diverts the vessel from the port of destination to a different port, the seller will be in breach of contract.

Question 22

Johnson v. Taylor Bros [1920]

Answer 22

CIF SELLER HAS THREE DIFFERENT WAYS OF SHIPPING THE GOODS:

(1) Can put the goods aboard a vessel himself.
(2) Can buy goods afloat from a third party.
(3) Can allocate his own goods that are already afloat to the contract.

Whichever form of shipment is chosen, the goods shipped must comply with the requirements of the contract, specifically:

• Description of the goods,
• Quality of the goods
• Quantity of the goods

Question 23

Cobec Brazilian Trading and Warehouse Corporation v Alfred C Toepfer [1983]

Answer 23

Authority that, in a CIF contract, the seller is bound to deliver the exact quantity of the goods required under the contract; not more not less.
This operates subject to s.30 (2A) SOGA (where shortfall/excess is ‘so slight’ that would be unreasonable for buyer to reject).

Question 24

SOGA 1979, s.30

specifically subsection 2A

Answer 24

(1) Where seller delivers less than he contracted to sell, buyer may reject - but if he doesn’t, buyer must pay for them at contract rate.
(2) If seller delivers more than he contracted to sell, buyer may accept just the contract amount and reject the rest, or may reject the whole.

(2A) buyer may not—
(a)where the seller delivers less, reject
or
(b) where seller delivers more, reject

if the shortfall or, as the case may be, excess is SO SLIGHT that it would be UNREASONABLE for him to do so.

Question 25

Suzuki & Co. v. Burgett and Newsam (1922)

Answer 25

Contract provided for shipment within a time limit, but it did not say that time was in the essence of the contract.
Held; that nevertheless, the seller was bound to ship the goods within the time stated - not necessary for the contract to have stated that time was of the essence.

Whatever the period is, the duty of the seller is to ship the goods within the time specified in the contract.

Question 26

Bowes v. Shand (1877)

Answer 26

Conctract shipment period - during March and/or April.
Most of the goods were loaded in February, and the rest in March.
4 bills of lading were issued by the carrier; 3 of them were dated in February – only one was dated in March.
Buyer argued that seller in breach for having shipped the goods outside the specified period (too early)

Court accepted.
Held; shipment in February not allowed by the contract - although part of the goods were shipped in March, the majority were outside the shipment period.
+ Also: shipment means the actual loading of the goods on board; not delivering them to the dock to be shipped at some point in the near future.

Question 27

Alexandria Cotton and Trading Co (Sudan) Ltd v. Cotton Co. of Ethiopia Ltd [1963]

Answer 27

Contract required shipment from June 1st 1960, but gave buyer the option to postpone shipment until June 1st 1961.
Buyer argued that he had a right to ship the goods sometime after June 1st 1961, in the sense that a new shipping period begins from June 1st 1961.
Held; no – the shipment period ended on that date, did not begin again.

Question 28

Re Anglo-Russian Merchant Traders and John Batt & Co. (London) Ltd [1917]

Answer 28

Where contract specifies a shipment period, the seller has a right to ship the goods ANY TIME within that shipment period - seller is not bound to ship the goods at a particular time within the shipment period - can do at the beginning, middle or end of that period, it is entirely up to him.

Held here, if seller decides to ship late on in the shipment period, and something happens to prevent shipment (e.g. an unforeseen supervening event), it is NOT a breach of contract – the buyer cannot argue that the seller should’ve shipped the goods earlier in the shipment period.

Question 29

Ross T. Smyth & Co. Ltd (Liverpool) v. W.N. Lindsay Ltd (Leith) [1953]

Answer 29

If it becomes clear early on that there might be something that will prevent shipment later during the shipment period, is the seller bound to ship the goods earlier in the shipment period?

Here, sale of goods from Sicily to Glasgow - shipment to be in October or November.
20th Oct: Sicilian authorities announce export ban on relevant goods from 1st November.
Held; the seller came under an obligation make sure that he shipped the goods within the remaining period of shipment – thus had to ship the goods before the 1st November.
Failure to do so meant that the seller was in breach of contract.

Distinguishable from Tradax Export SA v. André & Cie.

Question 30

Tradax Export SA v. André & Cie [1976]

Answer 30

Here, authorities did not announce a definite ban on the export of the goods in question - said that they might impose one.
Is seller under a duty to ship the goods earlier on in the shipment period?

Held; NO - must announce definition prohibtion, not possibility of one.
Seller will not be in breach; rather the prohbition will FRUSTRATE THE CONTRACT.

Distinguishable from Ross T Smyth.

Question 31

Appropriation

+ Notice of Appropriation

Answer 31

The selection of the goods to be used to perform the contract.
Normally done by the seller, as buyer is not present - will need to be communicated to the buyer, normally by sending a notice of appropriation (AKA ‘Declaration of Shipment) - if contract requires one, becomes part of a CIF seller’s duties - failure = breach; but if it doesn’t require one, then seller not bound to deliver one.

Purpose of Notice of Appropriation:

(1) Allows buyer to make onward contracts to sell the goods, even before receiving bill of lading, as NoA gives buyer confidence that goods have been shipped and has more detailed information about them, specifically the date of shipment.
(2) Enables buyer to make any necessary arrangements for storage at port of destination, for the same reasons as above.

Question 32

James v. The Commonwealth (1939)

AUSTRALIA

Answer 32

Australian court expressed the view that, if the seller ships a definite quantity of goods in the performance of the contract, that would constitute prima facie appropriation.

Question 33

Produce Brokers Co. Ltd v. Olympia Oil and Cake Co. Ltd [1917]

Answer 33

Said that the mere shipment of goods does not appropriate them to the contract - thus divergent from Austrlain approach expressed in James v The Commonwealth.

English position? the mere shipment by a seller of goods that conform to the contract does not amount to an appropriation; it is not enough to bind the seller to supply those exact goods or a part of them.

Question 34

Hoare v. Dresser (1859)

Answer 34

Held; where contract requires seller to ship goods in a named vessel, and the seller ships goods of the contract description in that vessel, that could amount to appropriation, even in the absence of a notice of appropriation.

Slightly different to Produce Brokers v Olympia Oil and Cake Co. - but seems to contradict what it generally says.
So English law is confused on whether any conduct can amount to appropriation.

Question 35

Kleinjan & Holst NV Rotterdam v. Bremer [1972]

On notice of appropriation..

Answer 35

Authority: if contract requires seller to issue a notice of appropriation, SELLER HAS A DUTY OF STRICT COMPLIANCE.
Seller must comply with ALL requirements in relation to the notice of appropriation.
This covers both
(i) the TIME at which the notice must be sent; and
(ii) the CONTENTS of the notice.

Held; if the seller fails to comply strictly with the notice of appropriation, the buyer then has a right to reject that notice, and therefore to reject the goods.

(But buyer can waive the breach)

Question 36

Bremer Handelsgesellschaft mbH v. Deutsche Conti-Handelsgesellschaft mbH [1983]

Answer 36

Although seller has duty of strict compliance if contract requires notice of appropriation, the buyer can waive this breach by the seller and ACCEPT A DEFECTIVE NOTICE.

Held; if buyer accepts a defective notice, he loses his right to then reject the goods - can’t come back later and exercise this right.
BUT, buyer can accept defective notice and expressly reserve his right to reject the goods - held; if buyer does this, will not lose his right to reject the goods.

Question 37

The Post Chaser [1981]

Answer 37

If contract requires notice of appropriation, but doesn’t say precise time for giving it - e.g. just says ‘promptly’ or something, IT WILL STILL BE CLASSIFIED AS A ‘CONDITION’ OF THE CONTRACT

If seller doesn’t comply, buyer can reject the goods and terminate the contract.
In such a case, down to court to determine whether seller breached - e.g. what was meant by ‘promptly’, ‘as soon as possible’ etc.

Question 38

Cie Continentale d’Importation v. Handelsvertretung der Union der Soviet Republic in Deutschland (1928)

(On timing of notice)

Answer 38

Often the contract will specify the exact time for the notice of appropriation to be sent.
Here, contract required the notice to be given 7 days from the date the bill of lading was issued.
Seller SENT the notice within 7 days of the date of the bill of lading, but:
Held; not sufficeint - what was required was that the notice should REACH the buyer within 7 days.
(Strict compliance)
Seller in breach of contract.

Question 39

Daulatram v. European Grain and Shipping Ltd [1971]

Answer 39

Case illustrates that the rule of strict compliance must be APPLIED SENSIBLY.
I.E. not every single requirement must be complied with to the letter.

Here, contract provided that the notice must be given by cable, and that it must reach the buyer by a stipulated time.
Seller, instead, sent the notice by air mail.
Notice still reached buyer by the stipulated time.
Buyer argued seller in breach - failed to strictly comply with contract - sought to reject as defective notice.
Held; NO - what was important was the speed with which the notice was sent to the buyer – it is the time of arrival that mattered - since the buyer received the notice within the time specified in the contract, the method by which it was sent was not important in this case.

Question 40

Vitol SA v. Phibro Energy AG (The Mathraki) [1990]

Answer 40

Contract required notice of appropriation to reach the buyer on a set date.
It did arrive on that date, but after business hours - buyer argued that this notice was late and therefore defective.
NO - held; where the contract required the notice to be given on a set date, the seller has the whole of that day to deliver it.
Therefore, it makes no difference what time it arrived, as long as it was that day.

Another example that duty of strict compliance will be APPLIED SENSIBLY.

Question 41

Cie Continentale d’Importation v. Handelsvertretung der Union der Soviet Republic in Deutschland (1928)

(On contents of notice)

Answer 41

The starting point is that if the notice of appropriation fails to list the particulars required by the contract (CONTENTS), then that notice is defective, and the buyer can reject it.

BUT: if buyer rejects notice because it was defective due to contents, SELLER MAY CURE THE DEFECT AND SEND THE NOTICE AGAIN, BUT ONLY IF THERE IS STILL TIME TO MAKE A SECOND SUBMISSION, within the stipulated timeframe in which the notice must be sent.
(Reinforces Borrowman, Phillips & Co. v. Free and Hollis)
So, if by the time of rejection, there’s no more time for seller to submit the notice, then buyer will be able to terminate the contract by rejecting the defective notice.

Question 42

Bremer Handelsgesellschaft mbH v. Deutsche Conti-Handelsgesellschaft mbH [1983]

(On contents of notice)

Answer 42

Authority: where the notice of appropriation states additional, but incorrect, information (i.e. contents that was not required by the contract), seller will not be in breach.

Here, contract did not require notice to state bill of lading number - but it did, but stated the number inaccurately.
Buyer sought to reject notice as defective.
NO - held; buyer could not reject it, because the bill of lading number was not required under the contract.

Question 43

Borrowman, Phillips & Co. v. Free and Hollis (1878)

Defective notice

Answer 43

Held; a CIF seller is entitled to withdraw a defective notice and to cure the defect and resubmit a valid notice, always provided that there is still time to do so within the stipulated timeframe.

Reinforces this same point made in Cie Continentale d’Importation v. Handelsvertretung der Union der Soviet Republic in Deutschland (1928)

Question 44

Gertreide Import Gesellschaft mbH v. Itoh & Co. (America) Inc [1979]

Answer 44

Seller submitted a declaration of shipment (same as NoA) which the buyer rejected as being defective.
Seller withdrew the document and cured the defect, then sent a second declaration of shipment - Buyer also rejected this second declaration and argued that the seller was not entitled to make a second presentation.
Held; no – the seller had the right since the first declaration was invalid, to withdraw it and entitled to make a second valid declaration, as he still had time to do so.
Consequently, THE BUYER WAS NOW IN BREACH OF CONTRACT FOR REJECTING A VALID DOCUMENT.

Reinforces:

• Borrowman, Phillips & Co. v. Free and Hollis
• Cie Continentale d’Importation v. Handelsvertretung der Union der Soviet Republic in Deutschland (1928)

Question 45

Warren Import Gesellschaft Krohn & Co. v. Toepfer (The Vladimir Ilich) [1975]

Answer 45

Can BUYER REJECT a VALID notice of appropriation?
Notice will be valid if the timing and contents comply with contract, EVEN IF STATEMENTS WITHIN ARE FALSE.

C of A: “validity depends upon form and timing and not upon substance or factual accuracy”.
E.G.if seller sends a notice saying he’s shipped 10,000 tonnes of oranges as required by the contract, but only shipped 9,000 tonnes, that notice is valid, as it says what the contract requires it to say.
(Seller will still be in breach of contract in respect of the goods)
But Notice of Appropriation will be valid

BUYER IS NOT ENTITLED TO REJECT IT A VALID NOTICE OF APPROPRIATION; IF HE DOES, HE IS IN BREACH.

Question 46

Borrowman, Phillips & Co. v. Free and Hollis (1878)

Valid notice

Answer 46

Can SELLER WITHDRAW A VALID NOTICE OF APPROPRIATION?
(Where contract is silent on this, cases are divided on this).

Here, held: in a case where the contract does NOT give the seller a right to withdraw a notice of appropriation, the seller is not entitled to withdraw a valid notice, at least where the buyer has already “ACTED ON THE NOTICE”

E.G. Upon receiving a valid notice, buyer concludes a contract with a third party, in relation to the goods (but how would seller know of this?!)

Question 47

ERG Petroli SpA v. Vitol SA (The Ballentia) [1992]

Answer 47

Where contract makes provision for seller’s right to withdraw a valid notice, the seller has the right to do so - (distinguishable from Borrowman, Phillips & Co. v. Free and Hollis, because there contract was silent on this)

But problem can arise if contract is not clear as to whether seller actuallly has this right.

Here, contract allowed seller to ‘nominate a ship or substitute’.
Seller nominated Ship A - then discovered goods on board Ship A did not comply with contract.
The NOTICE OF APPROPRIATION WAS VALID (time + contents rule), but in substance did not comply with contract.
Seller withdrew that notice, and nominated another vessel, Ship B.
Goods on board Ship B complied with the requirements of the contract.
Buyer argued it was too late – the seller did not have the right to withdraw the first nomination (it was a valid notice).

Court rejected this view, HELD; wording in contract “or substitute” allowed seller to make a substitution; therefore seller had right to withdraw the first nomination.
On INTERPRETATION of the contract by the court, the seller did have to make a second nomination.

Question 48

Kleinjan & Holst NV Rotterdam v. Bremer [1972]

Warren Import Gesellschaft Krohn & Co. v. Toepfer (The Vladimir Ilich) [1975]

Answer 48

Where the contract clearly does not give the seller the right to withdraw a valid notice of appropriation, can the seller reserve the right for himself, when he submits the first notice of appropriation?
(Even though the contract does not give him the express right of withdrawal?)

Held in both these cases;
Seller does NOT have the right to reserve for himself the right to withdraw a valid notice and give a second notice.

But this outcome is complicated by the decision in Coastal (Bermuda) Petroleum Ltd v. VTT Petroleum SA (The Marine Star) [1993]

Question 49

Coastal (Bermuda) Petroleum Ltd v. VTT Petroleum SA (The Marine Star) [1993]

Answer 49

Court assumed that a CIF seller CAN reserve for himself the right to withdraw a valid notice of appropriation.
HOWEVER, court did not consider Kleinjan & Holst or Warren Import.

Thus - weak case and undermined by the fact it did not consider previous authority.
So this case should not overrule the others.

Question 50

Arnold Karberg & Co. v. Blythe, Green Jourdain & Co. [1915]

(Rejection)

Answer 50

Contract for te sale of goofs, CIF, from Naples, contract price to be paid in London,
German bills of lading issued.
Before bills presented to buyer, UK declared war on Germany - contract frustrated by supervening illegality (because illegal to trade with anyone in enemy State)

Held; this bill of lading was no longer valid and effective - buyer entitled to REJECT IT.

(NORMALLY, BUYER IS BOUND TO ACCEPT A BILL OF LADING TENDERED THAT IS VALID AND EFFECTIVE)
But this case shows that a bill of lading which originally was valid, may become invalid after its issue, commonly because between the time the contract of carriage is made with the carrier and the bill of lading is given to buyer- supervening illegality.

In such a case, bill of lading is invalid - buyer has right to reject it.

Question 51

M Golodetz & Co Inc v Czarnikow Rionda Inc (The Galatia) [1980]

Answer 51

The rule that the bill of lading must be valid and effective does not mean that the buyer must be able to make a claim under the bill of lading - it can still be valid and effective notwithstanding buyer cannot make claim under it.

E.G. bill is perfectly valid - goods lost at sea - buyer unable to claim against carrier under bill, because bill of lading contract contains exemption clauses.

Held; buyer cannot say that the bill of lading is ineffective, simply because he cannot claim against the carrier.

Question 52

Re Weis & Co [1916]

Answer 52

Same point as in The Galatia - bill of lading can be valid even though buyer has no claim thereunder - applies even when goods completely destroyed in war.

Here, contract was CIF Antwerp - ship was attacked by German forces when on route - all goods destroyed - but Antwerp was still under Allied Occupation - so contract not frustrated by supervening illegality (distinguishable from Arnold Karlberg).
Thus, bill of lading remained valid, even though goods completely destroyed and fact that buyer had no claim against carrier, due to exemption clauses.

Had Antwerp been occupied by enemy - contract would’ve been frustrated, bill of lading would have been invalid, entitling buyer to reject it.

Question 53

Landauer v Asser [1905]

Answer 53

Cite alongside Re Weis & Co - reinforces point on ally/enemy occupation.

Question 54

C Groom v Barber [1915]

Answer 54

Seller must present VALID and EFFECTIVE insurance POLICY (contianing all the terms) - so not cover note or certificate
IF INSURANCE POLICY NOT VALID AND EFFECTIVE, BUYER CAN REJECT IT.

Mere fact buyer can’t claim under it doesn’t make it invalid - e.g. coz buyer not insured against particular risk that has occured.
Key question: has seller made contract of insurance on terms usual in the trade?
If yes, it is valid, even if buyer can’t make claim because not covered for the risk.

Here, goods lost when ship sunk by German warship - policy of insurance did not cover war risk - but this was usual in the trade that it was matter for buyer to insure against war risk himself if he wished

Held; insurance policy was both valid and effective because the policy was on terms that were usual in the trade.

Question 55

Manbre Saccharine Co v Corn Products Co [1919]

Answer 55

Seller has a duty to tender the documents (valid and effective) at the time specified by the contract.

Bound to do so even if goods have already been destoyed or damages.
No excuse for seller to refuse to tender the documents on the basis that the goods have been damaged or lost.

Question 56

Sharpe & Co. Ltd v. Nosawa [1917]

Answer 56

In a case where the contract does not specify a particular time for he tender of documents, the seller is bound to tender the documents as soon as possible after the goods have been shipped.

Question 57

Toepfer Lenersan-Poortman NV [1980]

Answer 57

Where the contract does not expressly specify a time for tender of documents, the courts may imply a term to this effect in such a case - such an implied term might derive from the other terms of the contract.

Here, contract did not specify time for tender of documents but did specify a time for payment by the buyer - “payment againt documents”.
Held; time for tender was the time at which payment was to be made.

Question 58

SOGA 1979, s.28

Answer 58

‘Unless otherwise agreed, delivery of the goods and payment of the price are CONCURRENT CONDITIONS, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods’.

General rule that buyer pays when goods are delivered - but ‘unless otherwise agreed’.

BY CHOOSING TO CONTRACT ON CIF TERMS, THE PARTIES ARE DEPARTING FROM THIS RULE.
Commonly in CIF, payment expressed to be “against documents”.

Question 59

Clements Horst Co. v. Biddell Bros [1912]

Payment

Answer 59

Where the parties do not expressly state the time of payment by buyer, the courts may still imply a term to this effect – where it is clear that it is a CIF contract – the courts can imply that the parties have departed from s.28 SOGA.

Question 60

Elliot & Co. v. Candor Manufacturing Co. (1920)

Answer 60

Becuase general rule in CIF contracts is that payment and delivery of the goods are NOT concurrent conditions, and that payment is in exchange for documents, if the parties wish to depart from the general rule applying to CIF contracts, then they must use very clear language to do so.

Here, contract expressly provided for cash “against documents”, but local custom that payment not to be made until after arrival of the ship at the port of destination.
Conflict between the contract and the local custom.
Court rejected the local custom as being inconsistent with the general rule applying to CIF contracts.
Held; if the parties wished to depart from the general rule applying to CIF contracts, they should use very clear language.

Question 61

Stein, Forbes & Co. v. County Tailoring Co. (1916)

Answer 61

Contract required “payment against documents on arrival of the ship”.
Held; the duty of the buyer was still to pay on presentation of documents - must use clear language if intending to depart from the general rule applying to CIF contracts (that is, departing from s.28 SOGA)

Held; here, Buyer’s payment obligation arose upon presentation of the documents, but the actual time of payment is postponed until arrival of the vessel.

Similar:
Soon Hua Seng Co Ltd v Glencore Crain Co

Question 62

Soon Hua Seng Co. Ltd v. Glencore Grain Co. Ltd [1996]

Answer 62

Held; duty of seller to tender documents is not cancelled out by a provision in the contract that the exact amount to be paid will be calculated at the port of destination.
Seller must still tender the documents and the buyer’s obligation to pay still arises at that point (I.E. AGAINST DOCUMENTDS) but is postponed until arrival of the vessel at the port of destination.

Echoes Stein, Forbes & Co. v. County Tailoring Co.

Question 63

Kwei Tek Chao v. British Traders and Shippers Ltd [1954]

Answer 63

Authority that BUYER HAS TWO SEPARATE, SUCCESSIVE RIGHTS OF REJECTION.
Arise in succession; not at the same time.
(1) Reject the documents
(2) Reject the goods themselves.

Question when exercising first right - do documents conform with the contract? Not whether goods conform. If documents don’t conform, buyer can reject them - but can’t reject conforming documents on the ground the goods are non-conforming: they are SEPARATE RIGHTS.
If buyer rejects goods, they revest in the seller (bill of lading must be returned).

Here, contract required shipment by 31 October; actually shipped 3 November.
Bill of lading stated 31 October
Held; a CIF buyer has two rights of rejection (the right to reject documents, and a separate right to reject the goods).
DEVLIN J:
“…the right to reject the documents arises when the documents are tendered, and the right to reject the goods arises when they are landed and when after examination not found to confirm with the contract”.

If the documents are compliant and buyer rejects the documents (i.e. a wrongful rejection), buyer will be in breach of contract – will be regarded as a repudiatory breach of contract – (of a condition) - means seller can claim damages AND terminate contract.

Question 64

Gill & Duffus SA v. Berger & Co. Inc. [1984]

Buyer’s rights of rejection

Answer 64

CIF contract called for a number of documents, which seller tendered, but buyer rejected on grounds they did not include a certificate of quality.
Contract did not call for a certificate of quality - so buyer’s rejection was wrongful.
Seller could have terminated, but elected to perform, contract.
Seller made a 2nd tender of documents, this time with certificate of quality.
Buyer rejected again - seller accepted buyer’s repudiatory breach - terminated contract and sought damages.

Buyer argued - at the time of the 2nd tender - they had discovered goods shipped were non-conforming, and therefore they had right to reject goods.

H of L rejected - held;
Right to reject docs + goods are SEPARATE (Kwei Tek Chao) - right to reject goods only comes about once they’ve been delivered - contract had been terminated before that - there was no contract in existence under which buyer had right to receive goods.
Thus, buyer’s right to reject the goods never arose.

BUYER COULD NOT USE LACK OF CONFORMITY IN THE GOODS TO REJECT CONFORMING DOCUMENTS.

Question 65

Bill of Ladings that are not genuine

Answer 65

• If seller tenders bill of lading which contains a false statement and the seller knew statement was false, seller will be committing a fraudulent misrepresentation.
• But since bill of lading is issued by carrier, may contain false statement and seller may not know that it’s false - this is not a genuine bill of lading.
• If bill of lading is MANIFESTLY DEFECTIVE, buyer can reject it outright.
  If the bill states something simply different from what contract requires, it is manifestly defective.
  E.G. contract requires bill which states date of shipment in October; bill present states goods shipped in November - buyer can reject bill of lading outright.
• The problem lies where the bill of lading APPEARS ON ITS FACE TO CONFORM, but contains a material false statement – can buyer refuse to pay? - THE CASES ARE DIVIDED ON THIS - scope for discussion - look at the dates of cases and the court deciding it: ratio/obiter? etc.

Question 66

United City Merchants Ltd v Royal Bank of Canada [1983]

Answer 66

CIF contract through bank’s letter of credit.
Bill of Lading issued by the carrier contained a false date of shipment.
This date written down was still within the contract period – thus, on its face, the bill of lading looked like a valid bill of lading.
But, before bank could make payment to seller, discovered that bill was false - the actual date of shipment was outside contractual period - so not a genuine bill of lading - but seller not aware of false statement (as this was done by carrier), at the time they gave bill of lading to bank.

H of L held; [LORD DIPLOCK]
the bill of lading was non-genuine, and although the falsity of the bill of lading had been discovered, nevertheless the bank was bound to pay the seller – because the seller was not committing any fraud.

(Position is different where sale is directly between buyer and seller, no letter of credit)

Question 67

James Finlay & Co Ltd v Kwik Hoo Tong [1929]

Kwei Tek Chao v. British Traders and Shippers Ltd [1954]

Answer 67

Courts assumed that where the bill of lading is non-genuine, the buyer is entitled to reject it, even though the seller is not guilty of fraud (because he was not aware of any false statement)
If this is the law, it is different from the position where the documents are presented through a bank (United City Merchants Ltd v Royal Bank of Canada)

But uncertain - scope for argument - complicated by Lord Diplock’s remarks in
Gill & Duffus SA v. Berger & Co. Inc. [1984]

Question 68

Gill & Duffus SA v. Berger & Co. Inc. [1984]

Bill of lading that is not genuine

Answer 68

Lord Diplock again gave the leading judgment (as he did
Did not concern a bill of lading that was not genuine (rather concerned a dispite about a certificate of quality)
LORD DIPLOCK, obiter dicta, that a CIF buyer would be in breach of contract if he refuses to pay upon presentation of “shipping documents which on their face conform to those called for by the contract.”

• Appears consistent with what HE said in United City Merchants) – these two cases very close in time as well.
• Appears inconsistent therefore with
  James Finlay & Co Ltd v Kwik Hoo Tong [1929]; and
  Kwei Tek Chao v. British Traders and Shippers Ltd [1954]

Question 69

Proctor & Gamble Philippine Mfg Corp v Becher [1988]

Answer 69

Bill of Lading presented was not genuine as it contained a false date, but seller was not guilty of fraudulent misrepresentation because he was unaware of falsity.

High Court took the view that the CIF buyer was bound to pay if the bill of lading appears, on its face, to comply with the requirements of the contract.
(Echoing:
Gill & Duffus SA v. Berger & Co. Inc. [1984];
United City Merchants Ltd v Royal Bank of Canada [1983])

But C of A took opposing view:
Held; bill of lading must be genuine so that it doesn’t matter whether a seller knew or did not know that it contained a false statement.
If a bill of lading contains a material false statement, the bill of lading is not genuine and the buyer is not bound to pay for a bill of lading that is not genuine.
(Echoes:
James Finlay & Co Ltd v Kwik Hoo Tong [1929]
Kwei Tek Chao v. British Traders and Shippers Ltd [1954])

Question 70

Buyer’s Remedies where he pays for Bill of Lading that is not genuine

Answer 70

(1) CLAIM IN RESTITUTION (not contract)
- buyer seeking to get money back he’s paid seller, on basis seller is unjustly enriched if keeps money.
- ONLY available where there’s been a TOTAL FAILURE OF CONSIDERATION.
- Where buyer makes payment in exchange for a consideration which has now failed (defective documents).
- BILL OF LADING ONLY GIVES ‘NO CONSIDERATION’ WHERE IT IS COMPLETELY DEFECTIVE.
- e.g. if forged - “forgery = nullity” - nullity cannot transfer possession
- e.g. a bill of lading in respect of goods which simply have not been shopped at all = completely defective.

(2) DAMAGES

Question 71

The Raffaella [1984]

Answer 71

Example where buyer was entitled to bring claim in restitution after paying against a bill of lading that wasn’t genuine, on the ground that the bill was worthless - completely defective - total failure of consideration - because the goods simply hadn’t been shpped.

Sale of cement on board a specified ship, from Constanza to Port Said - bill of lading said this ship and these ports.
But actually, cement had not been shipped from Constantza to Port Said - the specific goods in question had actually been shipped a year before (fraud by 3rd party)
When buyer received bill, cement had already solidified.
But bill, on its face, complied with contract, so buyer paid for it.
HELD; buyer could bring action in restitution to recover money he paid against bill, because IT WAS A NULLITY - THERE HAD BEEN A TOTAL FAILURE OF CONSIDERATION.

Question 72

Kwei Tek Chao v. British Traders and Shippers Ltd [1954]

Restitution

Answer 72

Shipment required in October - actually shipped on 3rd November; but bill of lading falsely stated 31st October, so appeared on its face to conform.
So buyer accepted bill and paid for it.
When discovered falsity, brought action in restitution for the price.

Rejected - held;
Although there had been a failure of consideration, it wasn’t a COMPLETE failure, only PARTIAL - because a bill of lading with an incorrect date is still capable of giving title to the goods, so buyer still getting something of value.

Distinguishable from The Raffaella.
Need a COMPLETE FAILURE OF CONSIDERATION - e.g. like forgery, or non-shipment of the goods.

Question 73

James Finlay & Co Ltd v Kwik Hoo Tong [1929]

Kwei Tek Chao v. British Traders and Shippers Ltd [1954]

(Remedies)

Answer 73

Courts recognised the right of the buyer to recover damages for breach of contract where the buyer has paid for a bill of lading that is not genuine - so if action in restitution doesn’t succeed, buyer has another option.

Legal basis: if the document had stated the truth, then the buyer would have had the right to reject it.
By giving the false date of shipment, the buyer lost the opportunity to reject the bill of lading.

Damages awarded constitute the difference between the contract price of the goods and the value of the goods when the buyers discovered the breach of the seller’s obligation.

Question 74

Practical Considerations (remedies)

Answer 74

Important when advising client in a PQ:

When buyer deciding whether or not to reject the goods - buyer can still accept the defective goods and claim damages - if he rejects the goods, having already paid for the documents, he has no leverage against a seller in a distant country! (Difficulties in enforcing judgment, etc.)

Therefore, buyer might consider accepting the goods and finding a way to get value from them (e.g. selling them cheaply rather than using in your factory, then claiming against the seller for the balance - part of mitigating losses).

Question 75

Clements Horst Co. v. Biddell Bros [1911]

Answer 75

Buyer does not have the right to examine the goods before payment – must pay for the goods in exchange for the documents beforehand - not entitled to insist on inspecting the goods first - if he does so, will be in repudiatory breach of contract.

Court said that if the buyer was to have this right, it would be commercially unsound, because

(1) Seller would be bound to make arrangements for inspection facilities at port of destination (held; this is not commercially viable as seller will normally be thousands of miles away); or
(2) Seller would have to give buyer bill of lading so buyer can collect goods and inspect the, BEFORE paying for them - this would defeat very purpose of CIF - bill of lading most useful document for seller - it is seller’s security for payment - if seller releases it to buyer before payment, he would lose his security.

Question 76

Gill & Duffus SA v. Berger & Co. Inc. [1984]

Answer 76

Illustrates that buyer MUST pay against conforming documents, EVEN IF THE GOODS ARE NON-CONFORMING.

This because buyer’s rights to reject the documents and then the goods are two separate, successive rights (as many other cases show).
So buyer can’t refuse to pay for documents by claiming that the goods don’t conform.

General rule is thus: PAY FOR DOCUMENTS NOW, COMPLAIN ABOUT THE GOODS LATER (retains the right to do this).

Question 77

Armitage v. Nurse [1998]

Answer 77

Authority for the FRAUD EXCEPTION - exception to the rule that buyer must pay against conforming documents even when goods do not conform.

Where seller has committed fraud in presenting the documents, the buyer is entitled to reject the documents on the basis of the fraud committed by the seller.
Important to remember that the fraud is by the seller – the exception DOES NOT apply where the fraud is by a third party, for whom the seller is not responsible.

Question 78

C Groom Ltd v. Barber [1915]

Goods lost in transit

Answer 78

Where bill of lading is valid and effective, buyer must accept it and pay against it EVEN IF THE GOODS HAVE BEEN LOST IN TRANSIT.
Buyer’s remedy is normally a claim against the carrier or insurer – seller must still be paid against the documents!
CIF seller is bound to deliver the documents, and not the goods.

Case where ship was attacked by German forces - when seller tendered documents, buyer was aware goods had been lost and refused to accept the documents.
Held; buyer bound to accept and pay for the documents because they were conforming - buyer’s claim would be against insurer - the fact that insurance policy did not cover war risk was not seller’s problem, because he had taken out insurance policy that was usual in the trade - buyer could have taken out additional insurance if he wanted.

(Cite for this proposition alongside Re Weis & Co)

Question 79

Re Weis & Co [1916]

Answer 79

Another example of the rule that buyer must pay against conforming documents, even if he knows goods have been LOST AT SEA.

Here, ship was attacked by enemy forces.
But contract of carriage was not frustrated by supervenining illegality, because the port of destination remained in Allied occupation

Held; because the documents were still valid and effective, the buyer was still bound to pay for them, even though the goods had been destroyed.