#5254 - International Sales - Commercial Law

TYPES OF INTERNATIONAL CONTRACTS

1. Ex words contract

   • Buyer takes delivery at the store

   • Property and risk

     • Pass according to the rules in the SGA

2. FOB Contract

   • How does it work?

     • Seller’s duty is to place the goods free on board a ship named by the buyer,

       1. After loading, S is given a mate’s receipt which he received and the price is payable by B in return for the mate’s receipt.

     • Port names is the port where the goods are to be loaded

     • Contract of carriage is made between the seller and shipowners

   • Seller’s duty

     • Ensure that goods conforming to the contract are put on board the ship nominated by the buyer

     • S.14(2) goods must be of a satisfactory quality

       1. S.14(2B)e Durability – in a FOB contract you don’t know where the goods are going so you can’t use the actual length of the journey to assess durability so you look at a reasonable time KG Bominflot v Petroplus (2009)

   • Buyer’s duty

     • Procure space on the vessel and nominate it. If not nominated in time, seller can treat the contract as repudiated Bunge v Tradax (1975)

   • Passing of property

     • Property passes on shipment unless the seller has reserved a right of disposal

       1. If unascertained

          1. Loading of the goods may be an unconditional appropriation, under s.18 Rule 5

          2. Or s.20A may apply if the buyer has paid

     • But usually there will be a reservation of aright of disposal – the seller will name himself as consignee on the bill of lading

       1. So s.19(1) or s.19(2) applies and the seller is taking to be a reservation of right of disposal and so property does not pass.

   • Passing of risk

     • Risk passes on shipment – as soon as the goods cross the ships rails even if the goods are not specific, per Sterns v Vickers (1923) e.g. 1000 tonnes of which 500 tonnes are for this buyer

     • Literally when the goods cross the ship’s rail Pyrene v Scindia (1954)

     • When they are safely loaded on board, per INCOTERMS and American UCC

   • Contract of carriage problems

     • If B is party to the contract of carriage ab initio

       1. there may be no privity of contract between S and shipowners, and this may cause difficulties when the goods are damaged in the course of lading by shipowners

       2. Pyrene v Scindia (1954) Devlin J said that this could be solved in two ways

          1. S had participated in the contract of carriage sufficiently for them to be bound by the Hague Rules. S takes those benefits of the contract which appertain to his interest therein

          2. There was a collateral contract between S and shipowners

             1. By delivering the goods alongside, S impliedly invited shipowner to load them, and S by lifting the goods implied his acceptance. This implied contract incorporated the shipowner’s usual terms

          3. Devlin J preferred the participation situation. The collateral contract would stretch creditability if there is nothing that carrier did to seller, and it is artificial doubtful that S intended there to be a separate contract

     • If S is party to the contract of carriage ab initio

       1. S has to sue, and any surplus is held on trust for B, The Winkfield (1902)

3. CIF Contract

   • How does it work?

     • The port is the anticipated port of destination and the price the seller pays includes cost of goods + insurance + freight

   • Seller’s duties

     • Duty to ship goods conforming to the contract of sale

       1. Stipulations as to the time and place of shipment are conditions Bunge v Tradax (1981)

     • Duty to tender shipping documents conforming to the contract

       1. Bill of lading

          1. Document must be clean The Galatia (1980) recorded damage but that was AFTER shipment events and so did not prevent the bill being clean

       2. Seller’s invoice

       3. Insurance policy convering goods

   • Passing of property

     • Property is transferred when payment occurred, as an application of s.19(2) because S will have named himself as the consignee on the bill of lading

       1. But when the bill of lading is in B’s name the prima facie rule is that delivery to carrier is deemed to be an unconditional appropriation – but this is rebutted by the very nature of the CIF contracts, and property passes with documents (which is the same as aon payment)

       2. But always subject to the intention of the parties The Albazero (1977) related companies and so the documents were not used for security, and property passed as soon as the BL was presented to the buyer.

   • Passing of risk

     • Happens at the moment of shipment (if seller was original shipper) or appropriation (if B1 selling to B2)

       1. Therefore S must be paid if he delivers documents even if he knows the goods have been already lost, because risk is with B

          1. Manbre Saccarine (1919)

     • Overview – in a standard seller is shipping situation

       1. Contract shipment/appropriation (risk passes) documents/payment (property passes)

       2. But what if you are selling goods afloat

          1. Presumably appropriation happens with the payment of documents? So risk and property pass together

     • If goods destroyed before the contract

       1. Specific goods

          1. S.6 SGA 1979 applies – if it is specific goods and the goods have perished at the time that the contract was made. It is void

       2. If unascertained – seller just has to get more goods

     • If goods are destroyed after the contract is made but before they are shipped

       1. Goode Buyer does not have to pay, because risk cannot pass before the goods have been appropriated to the contract

          1. If goods are destroyed before they are appropriated when shipped, these are not the contrat goods anyway and so S should fetch some more

       2. Buyer has to pay

          1. In a string sale, the most important things are the documents. The buyer can still sue on the documents because this is the allocation of rights

          2. It is hard to distinguish between goods being completely lost and detrioriated. If you can appropriate damaged goods what is the difference with lost goods

          3. BUT this gives the seller a choice – he can sue himself or pass the documents to S to sue.

     • If goods are destroyed after shipment but before documents

       1. Mambre Saccharine (1919) the buyer has to pay because the risk has already passed to him at shipment

4. Right of rejection over the documents

   • If conforming the buyer must pay

     • Even if he knows that there is something wrong with the goods with few exceptions

       1. Fraud

          1. United City Merchants (1980) only if it is the fraud of the seller or his agent or you can prove that the seller knows of the fraud.

          2. So you can get an injuction to restrain IB from paying under the LOC.

       2. Illegality

          1. Group Jose Re v Walbrook (1996) on the facts there was no illegality but there said that there would be one, for example the contract for the sale of arms when illegality

          2. Mahonia v JP Morgan Chase (2003) yes, illegality. Enron subsidiary committing a US securities offsense

       3. Nullity

          1. Left open in United City Merchants (1980) but general nullity exception per Montrod v Grundkotter (2001)

          2. Singapore CA took the contrary view in Beam Technology v Stanchart (2003)

• Donnelly (2008) we don’t have a sensible definition of a nullity. Lord DIplock in United City Merchants said that a misdated bill of lading is valueless but not a complete nullity but Leggatt J in The Rafaella describes it as a sham piece of paper. No test given in Beam, said it was a question of facts. But there could be no clearer example that an air waybill issued by a non-existent freight forwarding company

• Donnelly (2008) also argues that this is better explained by the judgment of Rix LJ in Czarnikow-Rionda (1999) that this is an implied limitation on the banks mandate. Better rationale that Lord Diplock in United City Merchants who says it is ex turpi causa non oritur action but that’s not true. Only SELLER’S fraud.

• Goode (1991) documents must be substantially conforming rather than facially confirming. This is at odds with the idea that the bank is not required to look beyond the face.

  • If the buyer improperly rejects

    1. And the seller does not accept the repudiation and ships the goods anyway

       1. The buyer can then reject on the goods when they arrive.

    2. And the seller accepts the repudiation and sues for damages

       1. If B later discovers that the goods are nonconforming he cannot use this to justify the earlier repudiatory breach Gill & Duffus v Berger (1984)

          1. Goode argues that this unrealistic as the doctrine of pay now, argue later, is commercially unrealistic as B will not be able to take an action over a distant seller without a lien. And you should be able to use the doctrine of anticipatory breach here

          2. Treitel (1986) agrees with the decision in Gill

       2. But the facts that the goods are defective are relevant in assessing damages

          1. Gill & Duffus v Berger (1984) B rejected documents that were conforming. Goods were non-conforming, but S could still sue for non-acceptance.

             1. However, damages which would ordinarily be the difference between CP and MP (per s.50) can be reduced by the amount by which the value of the goods was reduced below the contract price by reason of not conforming

  • If not conforming

    • And B still accepts

      1. he loses the right to reject on the goods as regards such defects Panchaud Freres (1970)

      2. But can still reject the goods, if, on arrival, they are not in conformity with the contract Gill & Duffus v Berger (1984)

    • And B rejects

      1. The defect in them can be cured by a fresh and conforming tender within the time allowed

5. Right of rejection over the goods itself British Traders (1954)

   • These are for breach of the usual duties in the SGA

     • S.13 SGA Correspondence with description

       1. Includes the words as to when the foods are shipped Bowes v Shand (1877)

     • S.14(2) goods of a satisfactory quality

       1. Mash v Murrell (1961) sufficiently...