International Trade Law and International Commercial Law: International Shipping Law - Case Study Example

INTERNATIONAL COMMERCIAL LAW Summary of the Matter Sale of Goods – passing of property – whether property passed Sale of Goods – Cost In Freight – passing of property – who bears the risk of damage to the goods Sale of Goods – Cost In Freight – Hamburg Rules – Claims – Liability for claims Karg Animal Foods bought 6000 tonnes of Copra Meal from Unimeal Plc, CIF and 500 tonnes from Kurt Van der Vulk. The contract with Unimeal was subject to English law and the Hamburg rules. The goods were destroyed on board the Carrier. Karg Animal Foods is entitled to a claim for damages in contract against the Sellers and in tort and contract of carriage against the Carrier. Karg is as well entitled to reject the goods. Statutes referred to 1. Sale of Goods Act, 1979, United Kingdom 2. The Sale of Goods (Amendment) Act, 1995, United Kingdom 3. The Carriage of Goods By Sea Act, 1992, United Kingdom 4. The Sale and Supply of Goods Act, 1994 United Kingdom 4. The United Nations Convention on The Carriage of Goods By Sea, 1978. Statement of facts By a contract, Cost Insurance Freight (CIF), Karg Animal Foods (herein after The Buyer) purchased 6000 tonnes of copra meal from Unimeal Plc (herein after Unimeal). Unimeal issued the buyer with 12 bills of lading, each for 500 tonnes of the consignment. The buyer also bought 500 tonnes of copra meal from Kurt Van Der Vulk (herein after Kurt), a Dutch trader. The 500 tonnes sold by Kurt was not covered by a bill of lading. All the cargo purchased was on board a carrier, “The Aramis” and the total quantity of cargo aboard the Aramis was 22,000 tonnes. In fact the total quantity was slightly more than this. All the cargo was originally shipped by International Meal Export Corporation (IMEC) who negotiated the bills of lading in favour of Unimeal who in turn negotiated the bills of lading if favour of the buyer. The consignment was destined to Goteborg from the Philippines. Some of the cargo was discharged at Hamburg and Rotterdam and what remained was destroyed by water which destruction was attributed to lack of proper care for the cargo by the carriers. The buyer intends to lay claim for the damage to the goods and wants to know what claims are available and against whom. The contracts were said to be governed by the English laws and the Hamburg rules. Explanation There are major questions for consideration in forming an opinion over the matter on whether the buyer has any claims and if so against whom does the claims lie. I will consider whether property in the goods sold actually passed to the buyer and where the risk as to damage to the goods lay at the time of the damage. The discussion will also look at the available claims in this matter upon which reliance shall be placed on English laws relevant to the question, The United Nations Convention On The Carriage of Goods By Sea, 1978, case law and materials by scholars. The Sale of Goods Act1 provides that property in the sale of ascertained goods dose not pass until the goods are ascertained. This section provided a challenge to the sale of goods that form part of a bulk which has not been ascertained. However, an amendment was introduced to this law which sought to remedy the difficulty experienced by buyers who relied on English laws.2 Section 16 of the 1979 Act was amended by adding a new section3 which provides in part that it applies to contracts for the sale of a specified quantity of unascertained goods. The effect of the amendment is to allow sellers to pass property by merely specifying the quantity or the items in the bulk without necessarily appropriating the same in the contract. The amendment to section 16 could be seen to be in reaction to the difficulty faced by buyers in acquiring title of the purchased goods with a result that they lost in case of bankruptcy and other eventualities on the part of the seller. In Re Goldcorp Exchange Limited4 Mustill L.J refused to hold that property in a sale of part of a bulk had passed to the buyer instead holding that one cannot acquire title until it is known to what goods the title relates. Section 20A sets out conditions to be met if property is to be said to have passed, namely that the goods have been identified and the buyer has paid the price for some or all of the goods. When these conditions are met, the buyer becomes an owner in common of the bulk.5 Dr. Gail Person6 argues that a sale of part of an ex bulk of goods should not be treated as the sale of unascertained goods. Earlier precedents had provided divergent positions on the issue of sale of goods forming part of a bulk. For example while Mustill L.J7 refused to hold that property passed, Lord Cranworth8 in a sale of 100 quarters out of 500 quarters of wheat, granted a merchant the 100 quarters relying on equity, thus “equity will give the merchant a lien over the latter cargo”. Similarly in Re Wait, the court refused to hold that some 500 tonnes of wheat out of 1000 tonnes had passed to the purchasers. In relying on the amended section 169, it was held by the majority that there was not sufficient identification to establish an equitable interest. It has been argued that with this problem, the buyers had a great risk of losing in case anything happened in a sale of goods forming part of the bulk if it was subject to English laws.10 The Elafi case,11 introduced the concept of property passing by remainder. The goods in his case had not been unconditionally appropriated as between the four contracts of sale that the buyer entered into with the seller. Some of the cargo was delivered at a port of call and the only goods that remained aboard the carrier were those for the buyer. It was held that the property passed as there was intention that it should pass at that point and that the only goods left were those of the buyer. Since the parties contracted under CIF terms, it should be considered as to when does property pass in such contracts. A contract in CIF terms is not far fetched from the usual contracts. The principles available in the Sale of Goods Act relating to passing of property are applicable mutatis mutandis. In the Aliakmon, it was held that payment for shipping documents by the buyer and their delivery by the seller passes the property in the goods. Without the employment of the rules the parties may also stipulate when property in the goods should pass. Mustill L.J12 held that the delivery of the goods to the ship was sufficient to pass the property to the buyer where it was stipulated in the contract that property would pass upon delivery of the goods to the ship. The 1995 amendment to the Sale of Goods Act, 1979 has been stated to have been a timely intervention and a significant development.13 The buyer having bought 6000 tonnes from the seller, Unimeal Plc in four contracts on CIF terms and paid for the bills of lading acquired title to the property. The 6000 tonnes were bought aboard The Aramis and the bills of lading in favour of the buyer. Therefore I would find that property in the goods passed to the buyer. In relation to the 500 tonnes purchased form Kurt, the buyer paid Kurt for the goods and thus property in the 500 tonnes passed to the buyer. On conclusion of the question of property in the goods, it becomes incumbent to determine where the risk in the goods lay, that is, who bears the risk? The 1979 Sale of Goods Act provides that risk passes with property. The statement is true with regards to sale of goods but is not ordinarily correct in relation to sale of goods under the CIF terms. In the Pyrene case, Lord Devlin held that risk in property passes to the buyer when the goods cross the ship’s rail. The basis for this holding appears to be based on the requirements that the seller is under a duty to deliver documents of shipment to the buyer. The contract of insurance is part of the documents contained in the insurance policy. CIF contracts further require that risk will pass to the buyer only when the buyer has acquired title to the property. It need further be stated that property passes when the buyer has fulfilled his bargain and paid the full purchase price. In Manbre case14the court was dealing with the issue of insurance of the consignment and stated that risk and property do not necessarily pass simultaneously under a contract on CIF terms. The importance of ascertaining where the risk lies in a sale of goods is due to the damage that may occur to the goods before the buyer takes possession.15 It is also important so as to take precautions as to the safety of the goods. While the buyer might have possession of the goods before property has passed, it would require the seller or the buyer to insure the goods. It is on this premise that while the owner of the goods cannot be expected to be the insurer of the buyer’s goods, it should be noted that the owner should be careful with the goods and not use the goods or store them carelessly and still retain title. As earlier discussed, the buyer paid Unimeal and Kurt for the bills of lading and the price to the cargo respectively. The goods were on board the Aramis at the material time. It therefore follows that risk had passed to the buyer in terms of CIF with respect to Unimeal. The conclusion as pertains to Kurt must be drawn from the fcat of full payment for the goods that constituted passing of property and thus the risk therein. Which claims are available to the buyer in respect of the destroyed goods? The 1979 Sale of Goods Act16 provides that the buyer may chose to treat a breach as a warranty where the breach is slight. If the buyer so chooses to treat the breach as a breach of warranty, then only damages are available.17 In Cavalier Marketing (Australia) Pty Ltd vs. Rosell18 it was stated that merchantability in goods requires the goods to be fit for the purposes for which it was bought. The Sale of Goods Act 1979 defines fit for purpose to include even commercial sales. John Adams19 considered the provisions of the 1979 Act as amended by the 1995 Act and concluded that the goods bought from a trader must be fit for purpose. Since the part of the meal was destroyed by water, it could not be said to be fit for purpose. It is alleged that the damage to the goods occurred due to the carrier’s lack of care. The ships’ hatches were not closed despite bad whether which in essence amounted to negligence on the part of the carrier and if proved will entitle the buyer to damages. Contractual claims may in certain instances amount to a claim in tort.20 Damages is defined as money claimed by or ordered to be paid to, a person as compensation for loss or injury.21 Damages in tort are awarded to place the claimant in a position it would have been had the tort not taken place. However, a breach of contract will only amount to the tort of negligence where the claimant can show that in breach of the contract, there was a breach of duty of care owed to the aggrieved party by the guilty party.22 The duty is imposed on a party obligating it to exercise a standard of care reasonable while carrying out the acts that would lead to loss or injury on others. In Donoghue vs. Stevenson23 Lord Atkins held that if the act could be reasonably foreseen as likely to harm, then a tort of negligence would have been committed. The buyer must therefore prove that the carrier was negligent so as to be entitled to damages in tort. The fact that the agents for the carrier did not close the hatches in bad whether shows negligent. The carrier also owed a duty of care to the buyer, who is the holder of the bills of lading, to ensure that the goods reached the port of discharge in good condition. The buyer is also entitled to reject the goods. Section 324 amended section 35 of the 1979 Act by making a provision for the partial rejection. It include section 35A which provides that if the buyer has a right to reject goods by reason of breach on the part of the seller that affects some or all of them and accepts some of the goods, he does not by accepting them lose the right to reject the rest. The inclusion was to afford the buyer the right to reject only the destroyed goods and accept the rest. Where there is a breach, the buyer can reject the goods on delivery where the goods fail to correspond to the contract description or are of unsatisfactory quality.25 In Kwei Tek Chao, Devlin J noted that CIF sales involve the delivery of documents and physical delivery of goods. The documents are required to conform to the description of the goods on the documents failure to which the buyer may reject the documents for no conformity. On the other hand, the buyer may also reject the goods if the goods do not match the sample at the time of sale. The right to rejection must be based on material non conformity to the contract and not insignificant breaches.26 As discussed above, where the breach is not fundamental the buyer will only claim damages basing on the rule of de minimis. The buyer bought 6000 tonnes of copra meal from Unimeal and 500 tonnes from Kurt. Only part of the cargo was destroyed by water in the hatch. The buyer is entitled to reject the goods that have been destroyed and accept the remaining cargo. The carrier having issued the bills of lading confirmed that the goods were received in good condition and thus it is responsible for the damages to which the buyer is entitled not to receive the goods at the port of dispatch. After ascertain what claims are available for the damage to the goods, the question is who is liable for the damage? A discussion on liability will attempt to investigate the nature of the liability, the extent and the party liable. I will be focusing on the various parties to the dealings with the buyer namely, Unimeal, Kurt, The Aramis and the insurer27. Unimeal sold 6000 tonnes to the buyer. There are four different contracts and the cargo is covered by 12 bills of lading for 500 tonnes each. The buyer duly paid for the bills of lading. It is the duty of the seller to procure a contract of carriage to deliver the goods in accordance to the contract between the parties.28 A further obligation on the part of the seller is to insurer the goods. In Vitol SA vs. Norelf Ltd29 it was stated that in an international trade, the seller of the goods is required to properly insure the goods under a contract of insurance. The seller will avail the buyer the contract of insurance. The assumption is that the seller insured the goods as obligated by the CIF terms. It therefore follows that Unimeal may not be held liable for damages out of breach of duty to insure. The sale of Goods Act entitles the buyer to sue for damages where the goods delivered to the buyer do not conform to the sample and description or are not fit for purpose. Aatiyah explains that goods sold and delivered should meet the requirements of section 13, 14 and 15 of the Sale of Goods Act failure to which the courts would award damages to a buyer who elects to treat the breach as a warranty. Section 35A30 also provides that the buyer may reject part of the goods and accept the rest without losing the right to reject the whole consignment. On the basis of the above discussion I would conclude y stating the buyer is entitled to damages as against Unimeal for part of the goods that are not fit for purpose. The right to reject has been discussed above and the finding is that the right is available against Unimeal. The other party to the transactions is Kurt Van Der Vulk who sold 500 tonnes of copra meal to the buyer. These 500 tonnes were not covered by any bill of lading. The buyer paid for the goods. In resolving the question whether any liability accrues against Kurt, note should be kept on the earlier discussion on whether property in the 500 tonnes passed to the buyer. Prafina Joglekar31 states that a bill of lading is a document of transfer being transferable and evidence that the buyer has title to the goods. The bill of lading has been held by courts to be a document of title through which the buyer may seek financing. Section 20A of the 1995 Act, stipulates that in a sale of goods forming part of a bulk, where it is specified and the buyer pays part of or the whole purchase price, property in the goods passes to the buyer. The goods sold were on board the Aramis, so the goods had crossed the ships’ rail. Chua32 states that risk in the property passes with property in normal sale of goods contracts and risk passes when the goods cross the ships’ rail in international sale of goods contracts on CIF terms. The buyer had therefore assumed the risk for the goods and therefore if the destroyed goods could be identified with certainty to have been part of the 500 tonnes, there is no remedy against Kurt for the goods were paid for only that the buyer had no possession of the goods nor the documents. At this point it would be vital to consider the liability of the carrier, the Aramis. The goods were destroyed abound the Aramis due to what is considered to be the lack of care on the part of the carrier or its agents or servants. The failure was in leaving pen the ships’ hatches in bad whether when they should have foreseen that water in the hatch would destroy the cargo. A bill of lading acts as evidence that a valid contract of carriage or chattering contract exists between the carrier and the endorsee of the bill of lading. A bill of lading has been stated to govern all the legal aspects of the physical carriage of goods and its endorsement affects the ownership of the goods actually carried.33 A bill of lading will bind the carrier of the goods to its terms, irrespective of who owns the goods or who holds the bills at a specific moment. Through the bill of lading, the carrier becomes liable for any damage to the goods and may be sued by the buyer. It is argued that upon endorsement to a third party, the bill of lading becomes a contract of carriage. In Leduc vs. Ward34 the endorsee sued the ship-owner for loss to cargo. The ship owner argued that the parties, the ship owner and the shipper, had agreed that the ship will deviate and it was not known of the deviation and hence the owner of the goods could not sue on the basis of the deviation. It was held that the endorsee of the bill could not be affected by whatever happened between the shipper and the ship owner that was not contained in the bill of lading. The Carriage of Goods By Sea Act, confers on the holder of a bill of lading the right to sue the carrier for any loss to the goods without the property having necessarily passed to the endorsee. It is stated further that since the bill of lading is issued to the seller, the buyer who gets the bills through endorsement may be hindered from a suit by the doctrine of privity of contract. In Sanders Brothers vs. Maclean and Company35 it was stated that the bill of lading is the key to which the holder gets access to the property. The court stated that t amounts to possession of the goods. This therefore confers on the holder the outright right to sue the carrier. It was held in The Santa Clara case36 that on acquisition of the relevant documentation the buyer may resell the goods, and that the buyer acquires the right to sue the ship owner under the Carriage of Goods By Sea Act, 1992 with the transfer of the bill of lading. By virtue of Section 2(1) of the 1992 Act, a contract for the carriage of goods is deemed to be, in the absence of any agreement to the contrary, between the carrier and the person at whose risk the goods are being carried, who in essence is the consignee. Article 14 (1) of the Hamburg rules, The United Nations Convention on the Carriage of Goods by Sea, 1978, obliges the carrier to issue a bill of lading in respect of the consignment. It further provides that once the bill is transferred to a third party acting bona fide, the carrier cannot prove otherwise.37 The Hamburg rules placed a heavier burden on the carrier and it also requires the carrier to that they did what was reasonable in the circumstance to prevent the loss of the goods which became inevitable.38 In McFadden vs. Blue Star [1905] it was held that the carrier of the goods is obliged to exercise due diligence in the care and stowing of goods delivered to them by the shipper. Those who argue that the buyer is barred by the doctrine of privity of contract, in my view, are wrong by virtue of section 2 and 3 of the Carriage of Goods By Sea Act, 1971 which provides that the endorsement of the bills of lading confers on the endorsee of the bills all the rights and liabilities of the endorser. In the Aramis case, it was held that a buyer acquires the right to sue by virtue of the endorsement of the bills of lading. Hiram Walker & Sons Ltd vs. Dover Navigation Co Ltd39 held that the charterer of a ship becomes the agent of the ship owner, if it is a carrier, and thus the ship owner becomes the bailee of the goods and responsible in tort for their damage towards the owner. In the Golden Lake40 the court held that the owner of the cargo could bring a suit against the ship owner for loss to the goods where the owner of the goods was the endorsee of the bills of lading. The case reiterated the position that the consignee of the bill of lading is in the same position as the shipper by virtue of the 1971 Carriage of Goods by Sea Act. The liability of the insurer will arise from the policy document which is the contract of insurance. If the goods were insured, then the insurers may be liable to make good the loss by either paying damages or replacing the goods. Conclusion The buyer Karg Animal Foods will not receive the whole quantity of the goods for which it contracted for. The buyer is desirous of claiming compensation for the damage to the goods. The review of the relevant laws, cases and scholarly materials show that the carrier is liable to the damage to the goods. It had a contract of carriage with the buyer which contract it has breached by failing to take care of the cargo. The Aramis may thus be sued for the damage to the goods that were aboard it and the buyer entitled to damages thereof. It would not be economical to pursue a claim against Kurt; neither will it be legally viable to so do as discussed above. On a whole the Sale of Goods Act points out that as against Unimeal, the buyer may sue for damages in respect of the destroyed goods and accept the rest only paying for the fit goods. My finding would thus be that the buyer claims compensation from the carrier for the destroyed goods, for only in this way does it stand to get compensation over the 500 tonnes bought from Kurt. BIBLIOGRAPHY. Steven Smith; Law of Contract Evans; FOB and CIF contracts, AJL 844 1993 KCT SUTTON; Sales and Consumer Law, (LBC information Services) 1995 Cheshire and Fifoot Law of Contract J.W.A Thornely; The Passing of property on sales of bulk, Cambridge University Press, London Mills, Stephen: Bills of Lading; A guide to good Practice, London (2005) Dr. Gail Person; Sale of Goods law, BA (Qld) Phd (JNV) Lecturer in Law University of New South Wales Robert C. Fitzpatrick; passing of property: specific solution to the lawyering issues pertaining to quasi-specific goods, London, 2005 Chua, “Law of International Trade” Archbold on Tort Burns, “Better late than Never: The reform of the sale of Goods forming part of Bulk” 59 MLR (1996) Prafina Jogelker; Bill of lading, I.L.S Law College Pune Read More