In CIF transactions, a seller has two obligations:
1. To deliver conforming documents
2. To deliver contractual goods
Correspondingly, the buyer has separate rights arising from the breach of the seller’s dual obligations:
1. To reject non-conforming documents when they are tendered to the buyer which include:
a) A bill of lading evidencing a physical breach (non-conformity in the goods themselves) by the seller;
b) A bill of lading though correctly dated reveals shipment to have taken place outside the shipping period;
c) Document that states an untruth
Henry Dean & Sons v O’Day Pty Ltd (1927) 39 CLR 330
CIF sale on terms of quantity of “Liverpool wheat sacks”. Buyer refused to accept draft when presented with shipping documents on grounds the goods shipped were not “Liverpool wheat sacks”. The Court held inter alia the buyer was bound to take up proper shipping documents which were documents relating to goods of the description contained in the contract.
Shipping documents aren’t proper when on their face they aren’t irregular but contain false information e.g.:
1.Misdescription of goods;
2.State goods have been shipped in good condition when this is not the case;
3. When the bill of lading attests shipment date other than the correct date.
2. To reject non-conforming goods
This arises once the goods are discharged from the ship and the buyer has a reasonable opportunity to examine them.
LEADING CASES
1. KWEI TAK CHAO v BRITISH TRADERS & SHIPPERS LTD [1954] 2 QB 459
Where there was a CIF contract for shipment of goods by Oct 31, 1951. The bill of lading indicated that the goods were shipped on this date, though in actual fact, goods were shipped on Nov. 3rd.The sellers were unaware of the forgery. Owing to the late shipment, the plaintiff’s lost their resale contract and were unable to sell elsewhere because of a serious fall in the market.
They claimed for return of the price (which failed) and damages for breach of the contract (succeeded).
Their claim for return of price failed on the ground that the bill of lading was voidable not void. It still evidenced a contract of carriage, valid receipt of goods, and enabled holder to obtain goods from the ship. The claim for damages succeeded on the grounds that the seller had breached his obligation to deliver the correct documents and correct goods. The buyer was entitled to reject both the goods and the documents. However, they did not reject the goods or the documents because they were unaware of the right to do so because the incorrect date concealed from them their right. They were entitled to the difference between the contractual price and the market value at the delivery date.
2. GILL & DUFFUS V BERGER & CO. [1984] AC 382
A contract for the sale of 500 tonnes of Argentinian bolita beans CIF Le Havre. An inspector’s certificate was to be final. The Court held inter alia that a certificate of quality was incapable of being included among shipping documents which the CIF seller is required to tender to the buyer. If the parties had intended this, then they should have stated this in the contract. In this case, there was no such provision and the buyers committed a fundamental breach of contract by declining to take up the shipping documents.
Can a buyer reject conforming documents when he knows the cargo is physically defective?
Lord Diplock (obiter): The CIF buyer was bound to pay price against the documents.
3. PANCHAUD FRERES [1970] I Lloyd’s Rep 53
The dual rights of rejection of goods and documents are distinct. However, acceptance of documents covering defective goods affects the right to reject goods on the same grounds when the buyer is aware of defects in the goods because the documents clearly evidence so, or should have been aware of them.
CIF contract for quantity of Brazilian yellow maize, shipment June/July 1965. One of the bills of lading tendered was for 200 tonnes dated 31st July yet accompanying inspection certificate indicated shipment on 12th August. The buyer paid without objection when the documents were tendered. The Court held that the buyers were prevented from terminating the contract for late shipment as they had accepted the documents without protest thus surrendered their rights to terminate. It did not help that the buyers invoked late shipment as a reason for rejecting the goods 3 years into the proceedings.
4. FINLAY (JAMES) & CO. V NV KWIK HOO TONG [1929] 1 KB 400
Where sellers committed separate breaches of documents and goods by delivering goods out of time and issuing a pre-dated B/L wrongly stating the shipment date. The Buyer was entitled to claim damages for being deprived of the right to reject non-conforming documents.
Subject to waiver, acceptance of a falsely dated B/L will not prevent the buyer from rejecting the goods on discharge from the ship.
5. PROCTOR & GAMBLE PHILIPPINE V BECHER (KURT A ) GmBH [1988] 2 Lloyd’s Rep 21
Under a GAFTA 100 contract for sale of quantity of Copra on CIF terms originally in January was extended to the end of February. The documents presented to the buyer included a B/L dated 31st Jan. Having doubts about shipment date, buyers paid under all contractual reserves. Goods had been shipped on 10th Feb. Buyers declared their intention to reject goods and recover the price paid.
The Court held inter alia that the shipment of goods under the contract was a timely one under contract, so the only breach committed was a documentary breach. The buyers had a right to reject the bill of lading because it was inaccurately dated, which was not apparent on the face of the document itself.
Kerr J noted that it was an implied condition that the documents be true in all material aspects.
The buyer unaware of a documentary breach not apparent on the face of the document is in the same position as the buyer of goods who loses the right to reject them because time has tolled under S. 35 of the Sales of Goods Act. Each is treated as having affirmed the contract and neither can reverse the market risk by means of a damages award. An award of nominal damages is the appropriate award.
REFERENCES
1.Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8[1]
2. The Sale of Goods Act Ch.54 1979
Saturday 14 February 2009
Day's Notes: Examination and Acceptance of Goods
Examination
There is no firm rule prescribing where examination should occur. However, a buyer should have a reasonable time to examine the goods.
a) The Court doubted the existence even of a prima facie rule that the place of destination for FOB delivery is the place of examination, rather the opportunity to examine a shipment depended on all circumstances; Schofield (JW ) & Sons v Rownson, Drew and Clydesdale Ltd (1922) 10 Ll LR
b) Where goods were sold FOB New York and shipped on a vessel bound for Liverpool, which was diverted by Admiralty orders to Glasgow, the buyers rejected the goods after examination at his premises in London. The Court held inter alia that the rejection was effective despite all of the delays leading to the examination, sellers having contended that the buyer ought to have examined the goods in Glasgow; Scaliaris v. Ofverberg (E) and Co. (1921) 37 TLR 307
Acceptance
Under S. 35 a buyer is deemed to have accepted goods:
1. When he intimates to the seller that he has accepted them.
Acceptance must be unqualified: Transcatalana de Commercio SA v. Incobrasa Industrial e Commercial Brasiliena SA [1995] 1 Lloyd’s Rep 215,220
(An action resulting from the rejection of goods by the buyer on the basis that loading was not done from the contractual berth. The seller argued that the buyer had made representations to the effect that they accepted the loading of the goods from the non- contractual port. The Court found that though the buyer may have made representations to this effect, it did not constitute an unqualified acceptance of goods and documents within the scope of S. 35)
2. When the goods have been delivered to him and he does any act in relation to them which is inconsistent with the seller’s ownership.
ESSENCE OF AN INCONSISTENT ACT: buyer asserts proprietary rights in the goods or acts in a way that is detrimental to the seller’s ownership of the goods.
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604,613; where buyers were aware of the contents of a certificate of quality which indicated that the goods has a high proportion of foreign matter, and went ahead and discharged the goods, they accordingly lost their right to reject the documents.
A buyer who goes on to commit an inconsistent act after notice of rejection may be liable for the tort of conversion.
3. Reasonable Time
Where goods are delivered to the buyer and he has not previously examined them, he is not deemed to have accepted them until he has had a reasonable opportunity to do so.
1. The buyer is deemed to have accepted the goods after the lapse of a reasonable time when he retains the goods without intimating to the seller that he has rejected the goods.
2.The buyer is not deemed to have accepted the goods merely because;
§ He agrees or asks to their repair by or under an arrangement with the seller
§ Goods are delivered to another under a sub-sale or other disposition.
Kwei Tak Chao v British Traders & Shippers Ltd [1954] 2 QB 459; right to reject goods arose only once goods were landed.
Gill & Dufus SA v. Berger & Co. [1984] AC 382; CIF buyer’s right to reject goods wouldn’t become exercisable until the seller’s…..reservation of the right of disposal….is terminated by his transferring the shipping docs to the buyer.
4. Partial Acceptance
Where the sale of goods making one or more commercial units, a buyer accepting any goods included in the unit is deemed to have accepted the goods making the unit, commercial units means a unit division of which would materially impair the value of the goods of the character of the unit.
5. Partial Rejection
This is subject to s. 35A which states where the buyer has a right to reject goods or an instalment of goods, by reason of breach by the seller of all or some goods, accepts some goods……. he does not by accepting them lose his right to reject the rest.
REFERENCES
1.Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8[1]
2. The Sale of Goods Act Ch.54 1979
There is no firm rule prescribing where examination should occur. However, a buyer should have a reasonable time to examine the goods.
a) The Court doubted the existence even of a prima facie rule that the place of destination for FOB delivery is the place of examination, rather the opportunity to examine a shipment depended on all circumstances; Schofield (JW ) & Sons v Rownson, Drew and Clydesdale Ltd (1922) 10 Ll LR
b) Where goods were sold FOB New York and shipped on a vessel bound for Liverpool, which was diverted by Admiralty orders to Glasgow, the buyers rejected the goods after examination at his premises in London. The Court held inter alia that the rejection was effective despite all of the delays leading to the examination, sellers having contended that the buyer ought to have examined the goods in Glasgow; Scaliaris v. Ofverberg (E) and Co. (1921) 37 TLR 307
Acceptance
Under S. 35 a buyer is deemed to have accepted goods:
1. When he intimates to the seller that he has accepted them.
Acceptance must be unqualified: Transcatalana de Commercio SA v. Incobrasa Industrial e Commercial Brasiliena SA [1995] 1 Lloyd’s Rep 215,220
(An action resulting from the rejection of goods by the buyer on the basis that loading was not done from the contractual berth. The seller argued that the buyer had made representations to the effect that they accepted the loading of the goods from the non- contractual port. The Court found that though the buyer may have made representations to this effect, it did not constitute an unqualified acceptance of goods and documents within the scope of S. 35)
2. When the goods have been delivered to him and he does any act in relation to them which is inconsistent with the seller’s ownership.
ESSENCE OF AN INCONSISTENT ACT: buyer asserts proprietary rights in the goods or acts in a way that is detrimental to the seller’s ownership of the goods.
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604,613; where buyers were aware of the contents of a certificate of quality which indicated that the goods has a high proportion of foreign matter, and went ahead and discharged the goods, they accordingly lost their right to reject the documents.
A buyer who goes on to commit an inconsistent act after notice of rejection may be liable for the tort of conversion.
3. Reasonable Time
Where goods are delivered to the buyer and he has not previously examined them, he is not deemed to have accepted them until he has had a reasonable opportunity to do so.
1. The buyer is deemed to have accepted the goods after the lapse of a reasonable time when he retains the goods without intimating to the seller that he has rejected the goods.
2.The buyer is not deemed to have accepted the goods merely because;
§ He agrees or asks to their repair by or under an arrangement with the seller
§ Goods are delivered to another under a sub-sale or other disposition.
Kwei Tak Chao v British Traders & Shippers Ltd [1954] 2 QB 459; right to reject goods arose only once goods were landed.
Gill & Dufus SA v. Berger & Co. [1984] AC 382; CIF buyer’s right to reject goods wouldn’t become exercisable until the seller’s…..reservation of the right of disposal….is terminated by his transferring the shipping docs to the buyer.
4. Partial Acceptance
Where the sale of goods making one or more commercial units, a buyer accepting any goods included in the unit is deemed to have accepted the goods making the unit, commercial units means a unit division of which would materially impair the value of the goods of the character of the unit.
5. Partial Rejection
This is subject to s. 35A which states where the buyer has a right to reject goods or an instalment of goods, by reason of breach by the seller of all or some goods, accepts some goods……. he does not by accepting them lose his right to reject the rest.
REFERENCES
1.Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8[1]
2. The Sale of Goods Act Ch.54 1979
Day's notes: Remedies for breach of contract: Introduction
There are mainly two remedies for breach of contract:
Remedies for breach of contract are dependent on the term of the contract, which is determined by the consequences of its breach. Contractual terms are of three kinds:
Conditions
Breach of a condition goes to the root of the contract and entitles the innocent party to terminate the contract and seek for damages as well. Contractual conditions are laid down in the Sale of Goods Act 1979 s.12-15 as implied terms; briefly dealing with the seller’s title, sale by description, implied quality and fitness of goods and sale by sample.
Warranty
Breach of a warranty does not entitle the innocent party to terminate the contract, but only seek for damages.
Whether a term is a warranty or a condition is dependent upon the construction of the contract (S. 11(3). Even though a condition is a warranty, under S. 11(2) the buyer may:
Waive the condition, or may elect to treat the breach of the condition as a breach of warranty, foregoing the right to treat the contract as repudiated. If the buyer
a) waives the condition, he will be prevented (estopped) from pursuing any breach of contract claim against the seller.
b) treats the breach of condition as a breach of warranty (affirms the contract), he can only make a claim for damages
Innominate term (Intermediate stipulation)
This is a creation of case law, see Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26. An innominate term is neither a condition nor a warranty. The consequences of the breach of this term may lead to the right to terminate a contract and damages, or the right to damages only.
If the breach goes to the root of the contract and substantially deprives the innocent party of the whole benefit of the contract, the innocent party is entitled to terminate the contract. If the breach is not sufficient to frustrate the commercial purpose of the contract, then the innocent party will only be entitled to damages.
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604 dealt with an action of the buyer’s right to reject the goods on the basis of a certificate of quality which indicated a high amount of impurities. The Court held inter alia in the absence of an agreement that the provision as to impurities was a condition, the Court should construe it as an intermediate, only a serious and substantial breach of which entitled rejection. If there has been no provision as to the quality certificate, the breach ...would have entitled the buyer to an allowance. The fact that the certificate showed minor breach did not make a difference.
REFERENCES
1.Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8[1]
2. The Sale of Goods Act Ch.54 1979
1.Termination of the contract: the parties are discharged from their contractual obligations
2. Damages: the aim of awarding damages is to restore the injured party to the position they would have been in had the contract not been breached.
Remedies for breach of contract are dependent on the term of the contract, which is determined by the consequences of its breach. Contractual terms are of three kinds:
Conditions
Breach of a condition goes to the root of the contract and entitles the innocent party to terminate the contract and seek for damages as well. Contractual conditions are laid down in the Sale of Goods Act 1979 s.12-15 as implied terms; briefly dealing with the seller’s title, sale by description, implied quality and fitness of goods and sale by sample.
Warranty
Breach of a warranty does not entitle the innocent party to terminate the contract, but only seek for damages.
Whether a term is a warranty or a condition is dependent upon the construction of the contract (S. 11(3). Even though a condition is a warranty, under S. 11(2) the buyer may:
Waive the condition, or may elect to treat the breach of the condition as a breach of warranty, foregoing the right to treat the contract as repudiated. If the buyer
a) waives the condition, he will be prevented (estopped) from pursuing any breach of contract claim against the seller.
b) treats the breach of condition as a breach of warranty (affirms the contract), he can only make a claim for damages
Innominate term (Intermediate stipulation)
This is a creation of case law, see Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26. An innominate term is neither a condition nor a warranty. The consequences of the breach of this term may lead to the right to terminate a contract and damages, or the right to damages only.
If the breach goes to the root of the contract and substantially deprives the innocent party of the whole benefit of the contract, the innocent party is entitled to terminate the contract. If the breach is not sufficient to frustrate the commercial purpose of the contract, then the innocent party will only be entitled to damages.
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604 dealt with an action of the buyer’s right to reject the goods on the basis of a certificate of quality which indicated a high amount of impurities. The Court held inter alia in the absence of an agreement that the provision as to impurities was a condition, the Court should construe it as an intermediate, only a serious and substantial breach of which entitled rejection. If there has been no provision as to the quality certificate, the breach ...would have entitled the buyer to an allowance. The fact that the certificate showed minor breach did not make a difference.
REFERENCES
1.Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8[1]
2. The Sale of Goods Act Ch.54 1979
Monday 2 February 2009
Day's notes: Transfer of Risk
TRANSFER OF RISK[1]
Risk involves the allocation of loss to goods due to an external event for which neither buyer or seller is responsible. These events may include acts of God, acts of third parties such as riots, insurrections etc.
The general rule under S. 20(1)[2] is risk passes with property. In the case of bulk shipments, a principle of proportionality could be applied where all parties divide risk amongst all those entitled to the bulk. This rule however, does not apply to overseas sale contracts conducted on FOB, CIF and other similar terms.
FOB CONTRACTS
Risk passes once the goods are put on board. Even though the seller may reserve the right of disposal, this does not affect the general rule that risk passes upon shipment.
In the case of dry commodities, the entire shipment must be loaded, for risk to pass. In Anderson v Maurice (1875) LR 10 CP 609 (Exch Ch.), Blackburn and Lush JJ; in an entire contract for sale of rice they declined to accept, in the absence of an agreement to the contract, that risk would pass incrementally to the buyer upon the loading of each bag.
On the contrary, oil contracts may provide for the passing of risk as the oil is loaded. Contracts may provide for transfer of property and risk when oil passes the permanent hose connection.
There are other rules which may affect the passing of risk. Where the seller is required to issue a notice to the buyer to procure insurance, failure to give such notice will result in the goods remaining at the seller’s risk.
Under S.32 (2)[3] the seller is under an obligation to procure a reasonable contract of carriage for the buyer having regard to the nature of goods and the circumstances. If he does so, then he will not be liable in the event that the carrier fails to perform the contract.
If the seller procures an unreasonable contract of carriage for example to the wrong destination, the buyer may refuse to treat delivery to the carrier as delivery to him, and may hold the seller responsible for damages. The buyer’s refusal to accept delivery permits the buyer to terminate the contract and sue for damages for non-delivery.
CIF CONTRACTS
In most cases, goods to be appropriated to a CIF contract are purchased afloat. The rule is that risk passes upon shipment. The event that triggers the retroactive transfer of risk to the buyer is the issuance of a binding notice of appropriation. Where seller issues a late notice, or a notice in the wrong form, and the buyer accepts without objection, then risk passes at this point.
With regard to oil contracts, where the seller has to nominate a vessel to arrive within a stated arrival range, risk passes as from the time that the buyer has a reasonable time to respond for this purpose, accepts the nomination.
CIF and FOB contracts are shipment contracts. That is unlike arrival contracts, they do not guarantee the delivery of the goods. Under FOB, seller delivers goods by shipping them and not discharging them at the destination port. Under CIF, the seller contracts for the carriage of the goods, without it being a term of the sale contract that the goods should be discharged in that port. However, in both instances the seller has to provide goods that conform to the quality and fitness standards set out in the contract.
[1] Reference made to Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8
[2] Sale of Goods Act Ch.54 1979
[3] Ibid
Risk involves the allocation of loss to goods due to an external event for which neither buyer or seller is responsible. These events may include acts of God, acts of third parties such as riots, insurrections etc.
The general rule under S. 20(1)[2] is risk passes with property. In the case of bulk shipments, a principle of proportionality could be applied where all parties divide risk amongst all those entitled to the bulk. This rule however, does not apply to overseas sale contracts conducted on FOB, CIF and other similar terms.
FOB CONTRACTS
Risk passes once the goods are put on board. Even though the seller may reserve the right of disposal, this does not affect the general rule that risk passes upon shipment.
In the case of dry commodities, the entire shipment must be loaded, for risk to pass. In Anderson v Maurice (1875) LR 10 CP 609 (Exch Ch.), Blackburn and Lush JJ; in an entire contract for sale of rice they declined to accept, in the absence of an agreement to the contract, that risk would pass incrementally to the buyer upon the loading of each bag.
On the contrary, oil contracts may provide for the passing of risk as the oil is loaded. Contracts may provide for transfer of property and risk when oil passes the permanent hose connection.
There are other rules which may affect the passing of risk. Where the seller is required to issue a notice to the buyer to procure insurance, failure to give such notice will result in the goods remaining at the seller’s risk.
Under S.32 (2)[3] the seller is under an obligation to procure a reasonable contract of carriage for the buyer having regard to the nature of goods and the circumstances. If he does so, then he will not be liable in the event that the carrier fails to perform the contract.
If the seller procures an unreasonable contract of carriage for example to the wrong destination, the buyer may refuse to treat delivery to the carrier as delivery to him, and may hold the seller responsible for damages. The buyer’s refusal to accept delivery permits the buyer to terminate the contract and sue for damages for non-delivery.
CIF CONTRACTS
In most cases, goods to be appropriated to a CIF contract are purchased afloat. The rule is that risk passes upon shipment. The event that triggers the retroactive transfer of risk to the buyer is the issuance of a binding notice of appropriation. Where seller issues a late notice, or a notice in the wrong form, and the buyer accepts without objection, then risk passes at this point.
With regard to oil contracts, where the seller has to nominate a vessel to arrive within a stated arrival range, risk passes as from the time that the buyer has a reasonable time to respond for this purpose, accepts the nomination.
CIF and FOB contracts are shipment contracts. That is unlike arrival contracts, they do not guarantee the delivery of the goods. Under FOB, seller delivers goods by shipping them and not discharging them at the destination port. Under CIF, the seller contracts for the carriage of the goods, without it being a term of the sale contract that the goods should be discharged in that port. However, in both instances the seller has to provide goods that conform to the quality and fitness standards set out in the contract.
[1] Reference made to Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8
[2] Sale of Goods Act Ch.54 1979
[3] Ibid
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