International Trade and Maritime Law - Assignment Example

 International Trade and Maritime law 1.(a)In an FOB contract it is the duty of the buyer to inform the seller of a suitable ship in which goods can be loaded. Discuss FOB contracts gives the duty to the buyer to nominate the ship suitable for the task and inform the seller to that effect. Once the notice of readiness to load is properly given by the buyer, the seller must comply with the given date. Any failure to do so constitutes a failure to deliver. In SK Shipping v BP Energy(Asia)Pte Ltd1, it was stated that where the buyer was entitled under his FOB contract with the seller to serve a notice of readiness to load, that notice must be complied with and if the buyer has to incur additional costs, such as demurrage, as a result of the seller’s noncompliance, then the seller will be bound to compensate the buyer for such incidental losses. But where no notice of readiness has been given, the seller who takes his goods to port before time does so at his own peril. In J & J Cunningham Ltd v Munro Ltd2, the contract was for the sale of bran, delivery FOB Rotterdam October shipment. The seller had carried the goods to port by mid-October but the buyer had not yet given any notice of readiness to load. They were only able to procure shipping space much later, although it was within the shipment period. The bran had in the meantime deteriorated and the sellers argued that the risk in the goods had shifted to the buyers from the time the cargo was brought to Rotterdam. The court held that the first step to the performance of the FOB contract is to be initiated by the buyer, not the seller. The seller had gone ahead with the delivery of the goods to port without first receiving a notice of readiness from the buyers. The FOB contract guarantees the buyers the prerogative to choose the loading date; the sellers must not therefore be allowed to deprive the buyers of that right and duty. On the question of whether the sellers would be left without a remedy where the buyers substitutes the nominated loading date and the sellers in reliance on that notice, had brought the goods to port and the goods had subsequently deteriorated as a result of the buyers’ change of mind. Hewart L.C.J turned to a version of promissory estoppel which His Lordship felt would place the risk with the buyers. Paraphrased and applied in the context of the law on estoppels, the buyers could not be held to the original nomination unless the contract otherwise stipulates. The seller who acts in reliance on that nomination as if it were final does so at his own peril, but where there is some express or implied representation from the buyer that he would not change his mind, the buyer would be estopped from so doing. Chuah, J(2009,p.46)argues that:” As with the reasonable of the shipment date, the buyer’s duty to nominate a vessel implies that the vessel refers inter alia that the vessel nominated must be suitable for the performance of the FOB contract.”3 It should be noted that a seller is entitled to reject a nominated vessel which does not comply with the port’s load restrictions. In Richco International v Bunge and Co(The New Prosper)4, the entitlement applied even though it would have been impossible for the buyer to nominate a vessel that complied with the contract because no vessel could load the amount of goods in question while complying with the restrictions of port/s to be used under the contract. The doctrine of strict performance is not to be detracted from under such circumstances. The duty to nominate is a contractual term, as such it would appear possible for the parties to waive the nomination and use a suitable vessel. The FOB buyer has the right, unless the contract provides otherwise, to make a second nomination to substitute a vessel which for one reason or another is rendered unsuitable. In Agricultores Federator Argentinos v Ampro SA5, the contract called for the shipment of Maize on FOB terms between September 20 and 29. The buyers’ first nomination turned out to be unsuitable. They then made a second nomination at 16:30 on September 29. The sellers refused to load claiming that the buyers had breached the contract. The buyers sued the sellers for nonperformance. On the facts, it would have been possible to complete loading before the end of September 29 if workers were to work overtime. The buyers had already permission for overtime loading and obtaining labour was not a problem. It was held that the sellers were not entitled to treat the contract as repudiated. The buyers’ right to make a second nomination is valid so long as the goods could be shipped within the shipment period by the substitute vessel. The fact that the vessel had to work overtime to complete loading was immaterial to the issue of the buyers’ right to make a substitute nomination. The buyers’ right to make a substitute need not be founded on any serious grounds; it is his prerogative to replace the original vessel as sees fit. It is for the sellers to prove the substitute was unsuitable. Where the contract expressly provides that the nomination is to be final and binding then, the buyer is irrevocably bound by his first nomination. In Cargill v Continental C/A6, the contractual notice supplied by the buyers stipulated that it was to be treated as “final notice” of the nomination. The declaration was sufficient to deprive the buyers of any contractual right to make a substitution. It should be noted that the first nomination remains binding if the substitution is unsuitable or ineffective. In Coastal(Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA(The Marine Star)7, under a CIF contract, the sellers who had the duty of nominating a vessel to take delivery of oil from the Black Sea had substituted “The Marine Star” so that it could be used to take delivery of another cargo. The sellers alleged that as the substitute vessel was not possible to perform the contract as a result of frustrating circumstances, they were right to treat the entirety of the contract as having been rendered impossible. The force majeure clause should therefore apply. The court disagreed holding that the sellers were barred from claiming impossibility of the CIF contract simply because their second nomination had failed. The original nomination could not be ignored and the substitution was not caused by any frustrating event falling within the ambit of the force majeure clause. The force majeure clause did not therefore avail the sellers. It was said that proposition should apply mutates mutandis to the buyer in a FOB contract who has the duty and right of nominating a vessel. Besides undertaking to pay the additional costs and expense in making the second nomination, the buyers should act with the least possible delay to allow the sellers sufficient time to load and perform duties within the shipment period. However,one argument that needs addressing is the flexibility of an FOB contract. Chua, J further states that:” The FOB contract is in fact a flexible instrument which allows the parties to agree to different terms as they see fit.”8 This element of flexibility is perhaps what makes the FOB contract so popular. In Pyrene Co Ltd v Scindia Navigation Co Ltd9, Devlin J held: “The FOB contract has become a flexible instrument. In what counsel called the classic type……Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least those of which she is notified…..Sometimes the seller is asked to make the necessary arrangements; and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer, as in a CIF contract. Sometimes the buyer engages his own forwarding agent at the port of loading to book a space….” In NV Handel Ny J. Smits Impor-Export v English Exporters(London) Ltd10, the sellers had agreed to do their best to secure shipping space for a cargo to be delivered FOB Rotterdam. The sellers failed to nominate a ship. The court decided that the mere fact that the sellers were burdened with the limited obligation of doing their best to secure shipping space did not prevent the contract from being on FOB terms. These terms remained effective to specify the exact price, and what was to be included in that price and were equally apt to address the issue of when and where property will pass. However, the sellers had expressly undertaken to secure shipping space and failed to do so, their claim was to be dismissed. It can be thus submitted that while the buyer has a duty to nominate the ship, there is flexibility under FOB contracts as to who can do the nomination or load the cargo etc.as outlined in the above cases. 1(b)The general rule in a CIF contract is that property only passes when the documents are transferred and paid for. Does this apply to all situations and conform to the scheme envisage under section 16 to 20 of the sale of Goods Act 1979? Discuss Perhaps the starting point in addressing the legal issue above is to look at s.16 of the Sale of Goods Act 1979. The Act does stipulate that no ownership in the goods will pass until the goods have been ascertained. S.16 provides: ”Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained.” “Where there is a contract for sale of specific or ascertained goods the property in them in transferred to the buyer at such time as the parties to the contract intended it to be transferred.”11 S.17(2) further provides that: ”For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.” It should be noted that the first rule is that property cannot pass if the goods are unascertained. This makes the distinction between specific and unascertained goods fundamental. The second rule is that, if the goods are specific or ascertained, the parties are free to make whatever agreement they like about when property is to pass. It can be said that s.18 provides rules for ascertaining the intention of the parties ’unless a different intention appears’. Rules 1,2, and 3 deal with sales of specific goods. In Re Wait12, the buyers had received no title, legal or beneficial, where the goods, although paid for, formed a part of a larger unidentified bulk and therefore were not yet identified and ascertained for the purposes of the contract. Where the goods have become ascertained, property in them passes according to the presumed intention of the parties. This raises specific difficulties in a CIF contract. The intention behind a CIF contract is that even though goods are lost after shipping, the seller can still insist on payment because there exists insurance covering the cargo. As long as the seller is able to tender conforming documents he is entitled to be paid. The buyer should have adequate protection under the insurance policy secured on his account by the seller. The presumed intention of the parties is a question of fact and construction of the contract. Although it is a matter of fact and construction, it might be submitted that trade practice seems to indicate that the traders would expect property to pass upon the transfer of the documents in exchange for payment of the price. In Mitsui & Co Ltd v Flota Mercante Grancolumbiana SA13, the court indicated that where the international sale contract(whether FOB or CIF) is characterized by the transfer of documents, property is to pass on tender of documents and payment of the price. Section 19(1) and (2) of the sale of Goods Act 1979 will apply where the bill of lading issued is made out to the order of the seller or his agent. This obviously means that there is a statutory inference that the seller has reserved his right of disposal. Property will not pass until the conditions set by the seller have been fulfilled, usually referring to full payment of the price. Under section 19(3) where the seller presents the buyer with a bill of lading relating to the goods, the buyer must return the bill of lading if he does not pay or accept the bill of exchange. If the buyer does not accept or make payment of the bill of exchange, the seller retains his right of disposal even though the bill of exchange drawn on the buyer has been discounted to a bank. The general practice is that there is no intention to pass property in the goods in the transfer of the documents if there are no reciprocal payment of the price from the buyer. In Leigh & Sillivan Ltd v Aliakmon Co Ltd(The Aliakmon)14, the C&F contract called for the delivery of a cargo of steel coils from Korea to Humberside. The steel was damaged whilst being stowed on the Aliakmon. The seller had not yet been paid but the documents relating to the goods had been transferred to the buyer’s agent. The House of Lords held that the mere transfer of the bills of lading would not signify the passing of property when the terms of the C&F contract in question clearly envisaged property to pass on payment of the price. It can be submitted that although the general intention of the parties in a CIF agreement is to pass property in the goods when the documents are exchanged in payment of the price, there may be special cases with a different finding. In The Albazero15, the sellers and buyers were both companies which were members of one corporate group, and the sale was not a genuine arm’s length transaction. It was held that property passed on the posting of the bill of lading. In modern times a new problem has occasionally surfaced as a result of which requires the goods may pass at some other time than the transfer of the documents. The problem is that bills of lading are sometimes very late in being issued, and cargoes nowadays sometimes arrive before the bills of lading are ready for transfer to the buyer. When this happens, the seller may instruct the carrier to deliver the goods to the buyer without the production of bills of lading. It must be noted that the transfer of the property in the documents is conditional. S.20 of the sale of Goods Act 1979 raises the general statement of law regarding risks to the property. “Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, nut when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not. But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault”16 In conclusion, it can be submitted that property can actually pass at some other time other than on the delivery of the documents. 2700 Words Bibliography Books Wilson, J.F(2004),Carriage of Goods by Sea,5th ed, Longman, London Furmston, M(2001), Commercial Law, 2nd ed, Cavendish, London Hodgin, R(2002), Text & Materials on Insurance law, 2nd ed, Cavendish, London Chua, J(2005),Law of International Trade, 3rd ed, Sweet & Maxwell, London Chua, J(2009),Law of International Trade,4th ed, Sweet & Maxwell, London Statutes Sale of Goods Act 1979 Unfair contract terms Act 1977 Bills of Lading Act 1855 Carriage of Goods by Sea Act 1992 Carriage of Goods by Sea Act 1971 Maritime Insurance Act 1906 Merchant Shipping(Liability of Ship owners & Others) Act 1958 Read More