International Sale of Goods

Question 1

Carriage of Goods by Sea Act 1992

Answer 1

o Gives the holder of the BoL an action against the carrier; avoids privity of contract issues; liabilities will cease if bill transferred to another owner: Borealis AB v Stargas Ltd
o Holder of BoL gets rights under contract of carriage, but also subject to duties (cf Contracts (Rights of Third Parties) Act 1999 – just give the benefit; compare to CoGbSA which means can sue for obligations under BoL)

Question 2

Standard duties of FOB seller

Answer 2

o Supply goods conforming to contract
o Put goods on board ship nominated by buyer
o Meet expenses until goods on board
o Obtain and tender to buyer documents (e.g. BoL)
o Ensure goods are shipped within shipment period agreed in the contract
o Provide B with relevant information to arrange insurance (SOGA 1979, s 32(3))

Question 3

Standard duties of FOB buyer

Answer 3

o Procure a ship or space on a ship
o Give shipping instructions to seller: location and timing for loading of goods
o Meet expenses after shipment of goods
o Pay the contract price

Question 4

Pyrene Co Ltd v Scandia Navigation Co Ltd [1954] 2 QB 402

Answer 4

FOB

Case: P sells goods to customer; Goods damaged when being loaded, but not yet across ship’s rail; tort claim by P against carrier - Hague Rules in carriage of goods contract limited liability of the career for negligent damage to goods to £200 (damage £966)

Decision: P had participated in the contract of contract in such a way to be bound by collateral contract; limitation (under this particular convention) applied; explores the flexibility of the FOB contract

Rule:
1. Risk passes to B when goods are put on board the ship or ‘over the ship’s rail’
N.B. Seller may reserve title until B has paid: SGA 1979, s.19(1)

Quote: Lord Mance in Scottish & Newcastle summaries Devlin J as follows -
‘[FOB as described by Devlin J in Pyrene v Scandia] embraces (a) cases where the buyer arranges and nominates the ship, but the seller ships and takes the bill of lading in his own name as consignor, (b) cases where the seller arranges shipment and takes the bill in his own name as consignor and (c) cases where the buyer arranges and nominates the ship, and the seller ships but the buyer is named in the bill as consignor’. (different possibilities of flexibilities; the third being the case in Pyron)

Question 5

Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [2008] UKHL 11, [2008] 2 All ER 768

Answer 5

FOB

Case: S (Scotland) contracts to sell cider to B (Cyprus); Contract stated to be CFR Limassol, but B designates carriers, shipment ports and freight rates; B fails to pay and question over where delivery took place as delivery location would determine whether S can sue B in English courts

Decision: Delivery took place in Liverpool and therefore was a matter for English rather than Cypriot courts as the facts pointed towards an FOB contract despite reference to CFR contract; shipment made by B at port specified by B; shipping line and agents specified by B; BoL was non negotiable; S had no interest in goods after shipment

Rule: Risk passes to B when goods are put on board the ship or ‘over the ship’s rail’
N.B. Seller may reserve title until B has paid: SGA 1979, s.19(1)

Quote: ‘However, there are three general differences between FOB and C&F contracts: First, an FOB contract specifies a port or a range of ports for shipment of the goods. A C&F contract specifies a port or ports to which the goods are consigned. Secondly, an FOB contract requires shipment of the goods at the port so specified; i.e. the seller cannot buy afloat … ’
‘ … In contrast, under a C&F contract responsibility for shipment rests on the seller, and this can be fulfilled by the seller either shipping goods or acquiring goods already afloat after shipment, and moreover shipment can be at any port (unless the contract otherwise provides) … ’
‘ … Thirdly, and as a result, a C&F contract involves (subject to any special terms) an all-in quote by the seller, who carries the risk of any increase (and has the benefit of any reduction) in the cost of carriage. In contrast, under an FOB contract, although the seller may contract for and pay the freight, the buyer carries the risk (and has the benefit) of any such fluctuation.’ per Lord Mance

Question 6

Duties of CIF seller usually include

Answer 6

o Ship conforming goods (or procure goods already afloat)
o Arrange contract of carriage by sea to destination
o Arrange insurance for goods
o Procure commercial invoice
o Tender documents to buyer

Question 7

Duties of CIF buyer typically include

Answer 7

o	Accept (conforming) documents tendered by buyer
o	Pay against conforming documents
o	Pay the contract price against relevant documents
•	This duty applies even without the opportunity to inspect the goods and even where the goods have deteriorated or perished or have been lost: e.g. Manbre Saccharine
•	Goode at 1050: ‘this principle of “pay now, argue later” is open to serious objection.’ 
o	Take delivery of goods at destination
o	Pay duties and procure import licence etc.

Question 8

The Miramichi [1915] P 71

Answer 8

CIF

Rule: General presumption that property does not pass until tender of documents by S and payment by B against documents

N.B. Passing of property could take place at another point if there is a contract intention

Question 9

Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198

Answer 9

CIF

Case: S agrees to sell starch and syrup to B under CIF contracts dated 16 Oct and 18 Nov; Sales on 15 Feb; Ship sunk on 12 Mar (war torpedo) and good list; S, aware goods have been lost, tenders documents

Decision: B not entitled to reject documents and refuse to pay as the purchaser will get the documents that he bargained for including insurance policies; B should pay the price and take up the documents even though the goods have been lost
N.B. so is CIF a sale of documents rather than sale of goods?

Rule: General presumption that risk passes at point when goods are shipped

N.B. Property/risk pass at different times but benefit from insurance policy

Question 10

Arnhold Karberg v Blythe, Green, Jourdain & Co [1915] 2 KB 379

Answer 10

Case: B contracted to buy beans CIF naples; beans were duly shipped in July 1914 abroad a German ship, the Gernis, but before the documents ere due to be tendered war was declared against Germany, with the consequence that the contract of carriage contained in the bill of lading became void for illegality

Decision: B entitled to reject bill as B responsible for risks effecting the goods (including war risks) but not risks of insurance policy not being valid

Rule: The documents tendered under a CIF contract must be valid and effective at the time of tender; it is not sufficient that they were valid when issued

Quote: “I am strongly of opinion … that a c.i.f. sale is not a sale of goods, but a sale of documents relating to goods.” per Scrutton J

Question 11

Johnson v Taylor [1920] AC 144

Answer 11

Rule: Failure by S to ship the contract goods is a fundamental breach

N.B. Supports notion that CIF contracts are contracts for the sale of goods

Question 12

Duncan Fox v Schrempft & Bonke [1915] 3 KB 355

Answer 12

Rule: Discharge of contract for illegality if it becomes illegal to discharge goods at delivery port

N.B. Supports notion that CIF contracts are contracts for the sale of goods

Question 13

Couturier v Hastie (1856) 5 HL Cas 673; SOGA s 6

Answer 13

Rule: Contract void if goods perish prior to contract

N.B. Supports notion that CIF contracts are contracts for the sale of goods

Question 14

The Playa Larga [1983] 2 Lloyd’s Rep 171, 180

Answer 14

Rule: S in breach by preventing goods reaching destination

Question 15

Termination of CIF contract for a breach where…

Answer 15

1. Repudiation of the contract: i.e. refusal to perform
2. Fundamental breach: i.e. breach that goes to the very heart of the contract
3. Term breached is a condition of the contract (indicative but not conclusive)
   - Statutory classified: e.g. SOGA 1979, s 14(2)
   - Term is labeled a condition in the contract, although not conclusive: L Schuler v Wickman [1974] AC 235
   - Best interpretation of the term
   - Type of terms has been accepted as being a condition in the case law: e.g. Bunge v Tradax [1981] 1 WLR 711

Question 16

Gill & Duffus SA v Berger & Co Inc. [1984] AC 382

Answer 16

Case: On 22 Dec 1976 Berger (S) agrees to sell to Gill & Duffs (B) ‘Argentine bolita beans - 1974 crop’ cif Le Havre; 21 Mar 1977 445 (of 500 tonnes) discharged at Le Havre; sails to Rotterdam with remainder; 22 Mar 1977 S presents documents; B rejects and does not make payment; 30 Mar 1977 S re-presents documents and B rejects again; 1 Apr 1977 S treats contract at an end.
S claims entitled to terminate due to B’s wrongful repudiation and damages
B claims that S did not provide with relevant certificate ‘GSC” confirming the goods discharged at Le Havre conformed to the sample seen prior to contract

Decision: S not obliged to provide certificate with cif documents and so S not in breach and B therefore unable to terminate for breach (S did have the right to terminate if they so chose as B did not provide the appropriate documents) - ensure you look at who has a right to terminate -

Rules:

1. Under a CIF contract, the buyer has twin rights of rejection in relation to documents and then goods (pay now, decide later) which are ‘separate and successive’ (Lord Diplock) rights
2. A buyer cannot reject documents that on their face conform to those called for by the contract

Quote: ‘ … it is, in my view, a legal characteristic of a c.i.f. contract so well established in English law as to be beyond the realm of controversy that the refusal by the buyer under such a contract to pay to the seller … the purchase price upon presentation … of shipping documents which on their face conform to those called for by the contract, constitutes a fundamental breach of contract, which the seller is entitled to elect to treat as rescinding the contract and relieving him of any obligation to continue to perform any of his own primary obligations under it.’ per Lord Diplock

Question 17

Bowes v Shand (1877) 2 App.Cas. 455

Answer 17

Rule: Seller can accept documents and refuse to pay if goods and fundamentally different from contract description as this would be a ‘total failure of consideration’

Quote: “if you contract to sell peas, you cannot oblige a party to take beans.” per Lord Blackburn

N.B. Lord Diplock in Gill & Duffs - cannot fathom a situation where it is not fraud to ship beans but have tendered documents required for cif to sell peas

Question 18

James Finlay [1929] 1 KB 400

Answer 18

Rule: Case law indicates that S has a duty to tender documents that are genuine

Question 19

Sale of Goods Act 1979: s 50, s 51, s 53

Answer 19

CIF

B can claim for losses that are reasonably foreseeable, subject to mitigation of losses

N.B. ‘Market loss damages’ (Treital)

Question 20

Taylor & Sons v Bank of Athens (1922) Ll L Rep 88

Answer 20

‘Market loss damages’ case 1

Case: Cif contract for sale of beans with July/August shipment and goods not shipped until September; BoL was incorrectly dated 31 Aug; B pays prices n return for documents but discovers BoL incorrect some months later; B had sold goods thus lost the right to reject so the only remedy available is damages

Decision: The correct measure of damages is the difference between MV on actual date of delivery and MV on date ship would have arrived if BoL had been correct (negligible not substantial damages), therefore difference between MV in September and August

N.B. Breach in relation to goods (not shipped within period) but not in relation to documents (S was not required to tender BoL)

Rule: Negligible damages only recoverable (difference between MV on date of delivery and MV on date ship would have arrived had BoL been correct) available where ship arrives late due to false BoL i.e. breach only in relation to the goods

Quote: ‘Market falls are not generally due to a vendor’s default. A buyer cannot, I think, save perhaps in very exceptional circumstances, attribute to his seller a loss which, in substance and in fact, arises not from the seller’s breach but from a fall in market values. To impose the burden of such a loss would be to saddle him with something for which he is wholly free from blame.’ per McCardie J

Question 21

James Finlay & Co v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400

Answer 21

‘Market loss damages’ case 2

Case: CIF contracts for sale of sugar, S tenders BoL with incorrect shipment date; B accepts documents and pays S; B’s sub purchaser refuses to accept delivery of goods on basis that goods not shipped in correct month

Decision: B entitled to damages reflecting difference between contract price and market value; No allegation of fraud against S, but tender of inaccurate BoL is breach of a contractual condition

Rule: Where breach in relation to both documents and goods the damages should be the difference between the contract price and market value i.e. Market Loss Damages available

N.B. Breach in relation to both documents AND goods

Question 22

Proctor & Gamble v Kurt A Becher [1988] 2 Lloyd’s Rep 21

Answer 22

‘Market loss damages’ case 3

Case: Contract gif Rotterdam under GAFTA 100; Clause 6 - BoL to be dated when goods are on board; last date of shipment extended to 29 Feb; BoL dated 31 Jan but goods not loaded until 6/11 Feb; B pays S in return for shipping documents; when goods arrive B indicates intention to reject goods but then makes sub-sale; B claims damages from S: difference between contract price and amount realised in sub-sale

Decision: B had lost the right to reject the document as unaware at time of breach in relation to documents; B’s remedy limited to recovering losses suffered as a result of breach; B entitled to no damages as they had suffered no loss; they had received goods conforming to the contract

Rule: No damages where breach is in relation to the documents but not the goods

Quote: Kerr Lj notes that “When we see a bill of lading dated on the last day of a month we know that it was ante-dated to serve a clear-cut, though dishonest, commercial purpose: the pretence that the goods were in fact put on board before the expiry of the contractual shipment period. “

Question 23

N.B. Terminology

Answer 23

• Claused bill (distinct from clean bill) if defect with goods is noted

Question 24

A buyer of goods under cif: package of shipping documents has been effectively transferred can therefore assert…

Answer 24

(1) Contractual rights against his immediate seller under the contract of sale;
(2) Contractual rights against the carrier under the contract of carriage, by virtue of the Act of 1992: in turn, he will be liable to the carrier for the freight;
(3) His rights, as assignee of the benefit of the insurance policy, against the insurer, if the goods are lost or damaged by an event which the policy covers.
N.B. Rights in tort depends on whether property has passed (The Aliakmon) but will still have contractual rights against carried since they are holders of BoL

Question 25

Kwei Tek Chao v British Traders Shippers Ltd. [1954] 2 WLR 365

Answer 25

Case: Buyers in HK contracted to buy from sellers in London a chemical of Swedish origin known as ‘Rongalite C’; under the contract, property passed to the buyers when the price was paid in exchange for the shipping documents (happened 12 Nov); by the time the goods arrived in HK on 17 Dec, B had ascertained that the goods have been shipped outside the contractual period for shipment and that the shipping documents had been forged (by a third party) to conceal this fact

Decision: Devlin J held that the buyers could reject the goods for this reason, and that they could do so even though the property had already passed to them; it must be regarded as having passed defeasibly, i.e. subject to the condition subsequent that in an event such as that which had happened, it could be reverted in S bye B properly exercising a right of rejection; B, by pledging the documents to their bank, had not dealt with the goods in a manner inconsistent with the sellers’ ownership so as to lose their right of rejection under s.35 of the Act

Rule: The buyer under a CIF contract has two rights of rejection (1) if the documents are not in order, he may refuse to take them up, and treat this as a repudiator breach by the seller or (2) even after accepting the documents, he has a right to reject the goods if, on arrival, they prove not to be in conformity with the contract

Question 26

Ross T Smyth & Co Ltd v TD Bailey, Sons & Co [1940] 3 All ER 60 (HL)

Answer 26

CIF

Case: Facts are immaterial

Rule:
Essential characteristics of CIF contract -
- The seller has to ship or acquire after that shipment the contract goods, as to which, if unascertained, he is generally required to give a notice of appropriation
- On or after shipment, he has to obtain proper BoL and proper insurance policies
- He fulfils his contract by transferring the BoL and policies to the buyer
- As a general rule, he does so only against payment of the price, less the freight, which the buyer has to pay
N.B. BoL retained by seller is general property and not special property by way of security

Discussion: The importance of the retention of property is not only to secure payment from the buyer but for purposes of finance – international trade relies on – cannot be source of doubt… therefore by mercantile law, the BoL are the symbols of the goods; the general property in the goods must be in the seller if he is to be able to pledge them; the whole system of commercial credit – a mere unpaid seller’s lien would be inadequate and unsatisfactory (per Lord Wright)

Question 27

Hansson v Hamel & Horley Ltd [1922] 2 AC 36

Answer 27

Case: H agreed to sell 350 tons of guano to H&H gif Kobe or Yokohama; since there was no ships running directly to Norway to these Japanese ports, the guano was sent on a local ship, the Kiev, from Braatvag in Norway to Hamburg and there transhipped to the Atlas Maru for the ocean voyage to Japan; After the Atlas Maru had sailed, the seller tendered to the buyers in purported performance of his contract a BoL, which related only to the ‘ocean’ leg of the transport

Decision: Buyers were entitled to insist on ‘continuous documentary cover’ i.e. documentary evidence of a contract or contracts of carriage covering both legs of the journey and the period of transhipment and to reject this tender

Rule: CIF seller must protect from shipment port to destination port