International Commercial Law - Case Study Example

INTERNATIONAL COMMERCIAL LAW SUMMARY OF FACTS. The client, Karg Animal Food, herein after referred to as karg, entered into several contractual relations with different sellers as a buyer. In the first set of contract cost insurance freight, Karg purchased 6,000 tonnes of copra meal from Unimeal Plc under four identical contracts where upon the seller used 12 bills of lading each for 500 tonnes of the cargo. The carrier of the cargo was the Aramis and the original shipper, International Meal Export Corporation, herein after IMEC negotiated the bills to Unimeal who in turn negotiated the bills in favour of Karg who dully paid for them. The client Karg entered into another contract with Kurt Van der Valk for purchase of 500 tonnes aboard the Aramis. Kurt had purchased the 500 tonnes from IMEC and it was not covered by the bills of lading. The total quantities of cargo aboard the Aramis were 22,000 tonnes and some of the cargo was discharged at Hamburg and Rotterdam at which point bills of lading had been indorsed in favour of Karg. Some of the cargo left in the ship was destroyed by water as a result of lack of care for the cargo. The client and Unimeal had contracted to be subject to the Hamburg rules and English law and Karg is desirous of legal advice on the viability of any claim and against whom. ISSUES ARISING FROM THE FACTS. 1. Whether property in the cargo passed to Karg Animal Foods 2. Who bears the risk of carriage of the cargo? 3. What claims are available to Karg? 4. Who is liable for the damage to the goods? RESOLUTION OF THE ISSUES ARISING FROM THE FACTS. The issues that have been raised by the facts are in relation to the ownership, the risk in the goods and the liability for the damage to the goods. Since the parties had contracted what regime of laws should govern their contract, it is not an issue. In advising the client Karg Animal foods, we shall interrogate the issues raised and resolve them in conformity with the English laws an sale of goods and shipment and international instruments, specifically the Hamburg rules. 1. Whether property in the cargo passed to Karg Animal Foods. Sale of goods contracts are governed by the Sale of Goods Act, 1979, UK as amended by the Sale of Goods (amendment) Act, 1995. Property in the goods is expressed to be transferred to the buyer when the parties intend it to pass1. In dealing with unascertained goods, no property in the goods is transferred to the buyer unless and until the goods forming part of the contract are ascertained2. In Re Goldcorp Exchange Limited3, Mustill L. J held that a buyer cannot acquire title until it is known to what goods the title relates for. The dictum has been criticised widely and it is safe to say that with the amendment to section 16 it is not entirely correct4. Section 20A5 provides that property in undivided shares in goods forming part of a bulk is transferred to the buyer and the buyer becomes the owner thereby if certain conditions are met6. The condition is that the goods or part of the goods form part of a bulk identified either in the contract or by subsequent agreement and that the buyer has paid the price for them or some of them which are part of the contract that form part of the bulk. It has been argued that a fraction or percentage of ex bulk goods as opposed to the sale of a fraction of the quantity of the bulk should not be treated as the sale of unascertained goods.7 In Hoare vs. Dresser8 the House of Lords granted 100 quarters of wheat to a merchant out of the 500 quarters because equity would give the merchant a lien on the latter cargo. The case of Re Wait, Wait had agreed to purchase 1000 bags of wheat on board a ship of which he sub-sold 500 bags. He was however adjudged bankrupt before the ship docked and the court refused to award the buyers the 500 bags since they had not been sufficiently identified to pass an equitable interest. These two cases provide conflicting dicta where the latter does not reflect the new amendment. In Karlshamus Oljefabriker vs. Eastport Navigation Corporation9, the property passed to the buyer although the property had not been unconditionally appropriated as between the four contracts between the parties. In this case the property actually passed by what is referred to as exhaustion.10 What transpired was that the only goods remaining out of the bulk were that of the one buyer and there was intention that property should pass at that time. It is further argued that following the dictum in the Re Wait case and the defunct Bills of Lading Act11 the reasoning of Mustill L.J in the Elafi case is not available12. A bill of lading is said to be a document that may govern all the physical aspects of the ownership of the goods and may be endorsed actually affecting ownership of the goods actually carried.13 Possession of a bill of lading is deemed to be possession of the goods. In Sanders vs. Maclean & Company14, it was stated that a bill off lading is the key in the hands of the rightful owner intended to unlock the door of the warehouse, floating or fixed in which the goods may chance to be. In Amhol Karbery vs. Blythe Green, Jordan & Company15, it was held that in a contract by Costs, Insurance Freight (c.i.f), once a buyer receives the relevant documentation he can sell the goods on the strength of the documents to third parties. This essentially means that the buyer obtains title to the goods. In Kwei Tek Chao16 it was noted that an unusual feature in CIF terms is that there are two parallel transactions. The learned Judge went on to expound that in the first instance there is physical delivery of the goods where the goods must conform to sample on delivery and secondly there is delivery of documents where the documents must conform strictly to the description in the letter of credit.17 In the Delfini case, Mustill L.J also held that a bill of lading has the three characteristics, namely, the acknowledgement of receipt of goods by carrier, a documentation of title18 and a contract of carriage of goods. A documentation of title essentially connotes that the buyer obtains title to the property and may sub-sell the same. The Aliakmon case essentially held that property passes when shipping documents are delivered and paid for by the buyer. However, any part payment of the same is not good enough to transfer property in the goods19. In a contract on CIF terms, receipt of the shipping documents by the buyer confers a defeasible title to the goods until such a time when the payment of the goods shall be made on delivery. This right or title to the goods is only for a limited period to be made absolute on full payment of the purchase price on the goods. The seller can actually defeat the right to the goods if purchase price is not paid on delivery. Having analysed the authorities on this aspect, the conclusion is that property in the goods passed to Karg before the damage was done. In the first place, the seller Unimeal endorsed the 12 bills of lading to Karg for the 6,000 tonnes bought which was sufficient to transfer ownership and dealing in the property to karg. This is on the basis that Karg paid for the documents delivered to it. At the ports of call in Hamburg and Rotterdam, the bills to the cargo had been endorsed. It is also arguable that property passed by exhaustion for after the discharge of some of the cargo all that was left was for Karg. This proposition in Elafi case has neither been challenged nor overruled and even the thought the repealed Bills of Lading Act provide to the contrary the same has not been distinguished. The total bills of lading were for a quantity of 22,000 tonnes though the total quantity was in excess of this. By the view of the learned judge20 when the only consignment in the carrier was that of the plaintiff, property passed by way of appropriation. Further to the above the payment for the documents essentially implied the transfer of property. In conclusion the above issue should be answered in the affirmative, that is, at the material time of damage to the goods, property had passed to Karg. 2. Who bears the risk of carriage of the cargo? The sale of goods Act21 provides that the risk in the property remains with the seller until the property in the goods is passed to the buyer. The parties may provide otherwise in their contract expressly or by implication of conduct it may be deduced otherwise. However under the contracts in Costs, Insurance and freight terms22 risk and property do not necessarily pass simultaneously. In Borthwick vs. Bank of New Zealand23 the court stated that in contracts c.i.f the parties must agree as the risk expressly and it does not follow that risk shall pass with property. The case further went on to state that in the absence of express provision the seller must insure the goods. One of the duties of the seller under c.i.f contract as was held in Vitol SA vs. Norelf Limited24 is to ensure that the goods are properly insured under a contract of insurance to which the buyer may avail. Manbre Saccharine Company Ltd vs. Corn Products Company Ltd25 expounds insurance should only be to cover those goods that have been sold by the seller to the buyer. Where the seller does not insure the goods, they will remain at the seller’s risk26. The contract between Karg and Unimeal was stated to have been c.i.f, and that would mean that the risk did not automatically pass with the property. However, it is argued that even in contracts of sale of unascertained bulks, once the property passes in accordance with Section 20A27, then the risk will pass with the property and determine who should bear the loss in case of accidental damage.28 Others have argued that the issue of risk in a sale of part of unascertained goods in a bulk is of concern. The parties should be in a position to define where the loss falls in case of risk occurring in the performance of the contract.29 According to Lord Devlin30, in a contract on CIF terms, risk passes to the buyer when the goods cross the ship’s rail. It has further been explained that this gives the buyer recourse to insurance for damages occasioned to the goods and not the seller.31 However, it should be remembered that in the Sales of Goods Act risk passes when the property in the goods has passed and as explained above CIF contracts only stipulate for full property where the full purchase price has been paid. It is on the premise of this uncertainty that the Hamburg rules oblige the seller to insure the goods. Having analysed the salient details in a contract on CIF terms, and the passing of property, the risk would be deduced to have been with the buyer, for the goods were beyond the ship’s rail. The seller Unimeal was only obliged to insure 6,000 tonnes of the copra meal sold to Karg. This is the amount that was sold under the four identical contracts. As to the 500 tonnes that were sold by Kurt, the buyer acquired the property in them and thus risk passed to Karg. 3. What claims are available to Karg? I. the right to reject the goods or documents. By virtue of section 15A32 a buyer has a claim against the seller for goods delivered that do not match the contract descriptions. If the goods do not as well satisfy sections 13, 14 and 1533, which is if the goods are not fit for purpose and if the goods do not match the sample or description the buyer is entitled to reject the goods. In Kwei Tek Chao34 it was held that in a CIF contract the buyer may reject the goods where they do not match the sample and reject the documents where the goods do not match the description. However, the learned judge further stated that the right to reject the goods should be on material non-conformity in the goods. In case the defect is not material the buyer only has a remedy in the rule of de minimis where in essence is that the buyer is only entitled to damages on the difference in the goods as delivered and as were described or sampled. In the premise of the foregoing, it is conclusive that the right or the claim accrued to the client Karg. What is to be deducted is whether the non-conformity was material or not. Karg having contracted for 6,000 bags of copra meal from Unimeal and only part or some of the bags were damaged, in my view it would only entitle it to the de minimis rule whereby they would only be entitled to the difference thereof in the goods. II. A claim in tort. It is stated that claims in tort only arise in instances where 3rd parties seek to enforce a breach in contract. This preposition is on the basis that a breach in contract may also amount to a breach in tort of negligence. However, for the 3rd party to bring an action in tort for negligence, the 3rd party must show that the breach was of a duty of care owed to it. Section 2 (1)35 provides to the effect that a carriage of goods contract is made between the carrier and the person who bears the risk in the goods carried. On the other hand, it has been argued that in case of where the goods are lost or damaged there may be a claim in tort due to sub-bailment between the charterer and the ship owner. The Aramis case dealt with the issue of contracts and actions on contract. In this case there was an attempt to persuade the court to imply that a contract existed. The court held that whether or not to imply a contract is a question of fact and would only be implied where the circumstances so necessitates. According to the court it would be fatal to imply a contract where the parties did not intend it to be36. In The Forum Craftsman Case,37 the court held that since the defendants were not party to the contarct, they could not enforce the jurisdiction clause in the contract and moreover the claim before the court was based on tort against them and not on any contract which they were not party to. The Midland Silicones case also stated that the doctrine of privity of contract was still fundamental principle in common law. In another case38, the court held that since the ship owners were not party to the bills of lading, the only claim against them was in tort. In Golden Lake39, the learned judge Chuao, conclude that a consignee of the goods could bring a claim in tort against the ship owners for damages to the goods. On analysis of the facts, Karg bought 500 tonnes of cargo aboard Aramis from Kurt whence no bill of lading was given. It suffices to say from the discussion above that a bill of lading is evidence of a contract of carriage. In the absence of the same, the relation of Karg and Aramis is that of 3rd parties. It is therefore possible for Karg to sue Aramis for breach of contract through a claim in tort due to the principle of privity of contract. The important point is that no bill of lading was indorsed to Karg in respect of the 500 tonnes and thus even the provisions of the Carriage of Goods by sea Act may not suffice to remedy the damage. III. Claim for damages. Section 15B (1)40 entitles the buyer to the remedy of damages where there has been a breach of contarct that is not material. The materiality or not of the contract has been discussed above. Where the breach is not material the buyer is to treat the breach as a breach of warranty and only sue for damages. In the Kwei Tek Chao case, the court stated that apart from the remedy to reject the goods, the buyer also has a claim in damages for any loss or damage on the goods. Whether a breach is material or not is a question of fact to be decided on the merits of each case. However, an attempt to adumbrate the same leads to a conclusion of where the breach does not go into the root of contract. As was discussed in the immediate preceding title, damages may as well be claimed in an action founded on the tort of negligence. Where it is explicit in the contarct that a breach has been committed, the buyer still enjoys the right to damages. The cargo on board the Aramis has been damaged, albeit only part of it and it is conclusive that on delivery it will not be in the condition contracted for. The buyer Karg Animal Foods has a claim for damages in respect of the destroyed part of the cargo it had contracted for. 4. Who is liable for the damage to the goods? The question of liability will be resolved with the consideration on the claims discussed above in mind. The various claims have different parties in the sale and carriage of the goods liable to them while others would overlap and be enforceable as against several parties. In an attempt to confront this question the various parties will be considered separately. I. the seller Unimeal Plc. Section 15B41 entitles the buyer as against the seller to claim for damages or repudiate the contract by rejecting the goods where the seller is in breach of the terms of the contract. The breach is provided further by section 15A to be in relation to sections 13, 14 and 15, which have been discussed above. In a contract CIF, the seller has a duty to deliver the goods to the port of discharge as agreed in the contract with the buyer. In Vitol SA vs. Norelf42, it was held that it is the duty of the seller to deliver the goods to the port of discharge and obtain the necessary documentation including a bill of lading. It is on this duty that it becomes incumbent on the seller to insure the goods. The costs incurred by the seller will pass to the buyer as costs for the goods.43 In Kwei Tek Chao, Lord Devlin stated that a breach by a seller leaves the buyer with two options; reject the goods or the documents, under a CIF terms contract. The buyer Karg having contracted CIF with the seller Unimeal has a claim as against the seller for the damage to the goods on board the Aramis. The goods will not be of merchantable quality at the port of discharge contrary to section 14 of the Sale of Goods Act, 1979. The seller is thus liable in respect of the goods at the port of discharge that have been destroyed. II. the seller, Kurt Van der Valk. Sections 15A and B of the Sale of Goods Act have been discussed above. Under article 1444, the carrier is required to issue a bill of lading to the shipper who endorses it to the seller who in turn endorses it to the buyer. The bill of lading is the proof of contract of carriage for the buyer. Section 445 recognizes the evidential effect of a bill of lading. It is on transfer of the bill of lading that the buyer adopts the rights and responsibilities of the seller. It was further explained in the Elder Dempster case that a consignee of a bill is in the same position as the shipper for the rights and liabilities are acquired on transfer. In the Delfini case, the court held that a sub-buyer on CIF terms could not claim against the carrier because of the principle of privity of contract. It was further stated that in any case property had not passed to the buyer who could pass it to the sub-buyer independent of any bill of lading. Having analysed that, Kurt did not indorse any bill of lading in respect of the 500 tonnes sold to Karg. In the absence of the bill of lading no property passed to Karg and so the risk stayed with Kurt. Being that goods have been destroyed on board, the remedy for Karg against Kurt is to reject the goods or to claim for damages in respect of any goods left. III. The insurer. From the facts no mention of an insurer is made and it is important to point out that the contarct was on CIF terms and subject to Hamburg rules and English law. Under the CIF contarct, the seller must arrange and bear the cost of marine insurance which will form part of costs of goods to the buyer. Part of the shipping documents that should be delivered to the buyer is the policy for marine insurance. On the basis of the above it follows that the goods were insured and Karg can claim damages form the insurance company if it is not desirous of claiming against the other parties. IV. The owner of the Aramis. In Leduc vs. Ward (1888) the endorsee of a bill of lading sued the owner of the ship for loss of cargo due to deviation. It was held that the ship owner was liable for loss and further explained that anything that was not embodied in the bill could not affect the endorsee. As discussed above, a bill of lading is evidence of contract of carriage. In Hiram Walker & Sous Ltd v. Dover Navigation Company Limited, it was declared that where the charterer of a ship is a carrier, the ship owner becomes the bailee of the goods and liable to the owner. In Golden Lake, the owner of the goods who was also the endorsee of the bill of lading sued the sued the ship owner in tort for damages to the goods. The claim was allowed as it was founded in tort and not contract. In the same case it was established that an assignee of the bill is in the same position as the shipper for he inherits all the rights and liabilities. The transfer of the bill of lading also confers on the buyer, the statutory right to sue the ship owner for damages to the goods.46 The doctrine of privity will appear to have less significance where there is a bill of lading endorsed to the buyer. Karg has a claim against the owner of Aramis, but only with respect to 6,000 tonnes that a bill of lading was endorsed for and not for the 500 tonnes. The fact that no bill of lading was issued in respect of the 500 tonnes, means that there was no evidence of contract of carriage between Karg and Aramis in respect of the 500 tonnes. 3. CONCLUSION. The essence of the work is to advice Karg on the availability of claims and as against which of the other parties are the claims enforceable. Under the Hamburg rules47 provide that once the bill of lading is endorsed to a 3rd party acting in good faith the carrier may not bring proof to the contrary. Article 5 (4) further provides that the burden of proof is on the carrier to show that loss or damage occurred despite all reasonable attempts taken to avoid the occurrence and its consequences. The interrogation of the Sale of Goods Act and the Carriage of Goods by Sea Act together with case law on the area of concern has shown that Karg has a claim, what kind of claim it has and against whom it shall seek the remedy available. The contracts and parties being subject to English law, Karg may sue in the UK. Even though the UK has not signed the Hamburg Code, it nevertheless allows parties to litigate over the rules in her courts. BIBLIOGRAPHY. KCT SUTTON; Sales and Consumer Law, (LBC information Services) 1995. J.W.A Thornely; The Passing of property on sales of bulk, Cambrdge University Press, London Mills, Stephen: Bills of Lading; A guide to good Practice, London (2005) Robert C. Fitzpatrick; passing of property: specific solution to the lawyering issues pertaining to quasi-specific goods, London, 2005 Burns, “Better late than Never: The reform of the sale of Goods forming part of Bulk” 59 MLR (1996). Read More