CISG, CIF, risk, Hague Rules, Carriage of Goods by Sea

Extract 1 : Part-A
Extract 2 : Part-B

Part-A

We shall approach this question exactly as it is laid out, in essence in a chronological order, but with the exception of the situation with the end buyer, the Fruitfare Company, whose position here and its effect on the contract shall be dealt with last of all. A CIF contract is of course a cost, insurance and freight contract where the seller undertakes to ship the goods of the description contained in the contract, to procure a contract of carriage, to arrange insurance, to make an invoice for the buyer which will debit and credit him for the costs involved and to tender the aforesaid documents in a manner agreed between the parties.

It can be seen that the seller here, Sunshine products, has attempted to fulfil its obligations, (with the exception of insurance which is not mentioned), thus, the goods were put on board the ship, and the relevant documents were tendered to Imports UK on the 10th and 23rd of May.

The buyer, whom we are advising, Imports UK, ordinarily undertakes, amongst other duties, to receive the goods and the documents, provide instructions on the time and place of delivery, and to bear all the risks of the goods from the time when they have effectively passed the ships rail at the port of shipment. Thus the seller's responsibility for the goods ends when he delivers them to the agreed port and places them on board ship. Contrary to the rules set out under the Sales of Goods Act section 20 (1) of the Sales of Goods Act 1979, risk will not ordinarily pass with property here. Even though under CIF contracts property is presumed to pass at the intention of the parties,1 the usual custom in CIF contracts is not for the property to pass in the documents have been passed in exchange for payment of the price, as per the case of Mitsui and Co Ltd v Flota MercanteGrancolumbiana SA.2 Thus in essence, as Schmittoff points out 3even though the buyers are responsible for the payment of the freight and the marine insurance premium, the goods travel at the buyer's risk. (This is even though the property in the goods passes at the time that the bill of lading is delivered. 4)

The net result of this, as per the case of Manbre Saccharine Co Ltd v Corn Products Co 5, is that the seller may validly tender the documents even after the goods have been lost at sea after the shipment and both the buyer and seller are well aware of the fact. This of course subject to what the parties have expressly agreed to and the conventions that they have agreed apply to the contract.

Thus, here , in the absence of further information, as Day and Griffith point out,6 the buyer will by virtue of all the documents been passed over to them be vested "all the rights of suit against the carrier." Therefore it is to the liability of the carrier that we must now turn, as there is little doubt that the seller is absolved from liability completely.

Under the Hague Visby Rules, Article III, the carrier must use dual diligence to assure that the ship is seaworthy, man and properly equip the ship, and make parts of the ship that are going to carry goods fit and safe for the reception, carriage and preservation of the goods. Here the rudder pins have sheared and as such the ship has sunk. Do the rules apply here however?

Australia has enacted a local statute to which the Hague Visby Rules is attached as a schedule, but has not acceded nor ratified the l 1924 Convention adopting the Hague Rules and therefore cannot strictly be considered as "contracting state."7 However, in essence the rules will have the same effect as they will not be open to conflict with Australian Law, as English Law applies to this contract.

We should then ask - do they apply to the type of contract in question? The principle regarding the application of The Hague Rules is that they apply by their own force, or ex proprio vigour, to contracts of carriage covered by a bill of lading or any similar document of title. Art. 2 defines "contract of carriage." Perhaps more important for this scenario is Art. 1(b), which states that the term 'Contract of carriage'8 applies only to contracts of carriage covered by a bill of lading or any similar document of title,…. including any bill of lading …. or pursuant to a charterparty from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same" In addition, Under Rule 8 of the rules there is no allowance of contracting out by the carrier of the goods.

Following form above, a further complication is that charterparties are not ordinarily subject to the Hague Visby Rules, as per Article V.9 However in this case they have been included in the bill of lading clause paramount. That is to say, as per the case of Admastos Shipping Co Ltd v Anglo Saxon Petroleum Co10 that, in the words of Lord Denning form the Court of Appeal case in 1957,11 "the purpose is to give the Hague Visby Rules contractual force, so that although the bill of lading may contain very wide exceptions, the rules are paramount and make the ship-owners liable for want of due diligence to make to make the ship seaworthy and so forth"

Thus the question will need to be asked -was the carrier, or his employees or agent12 negligent in using a ship that became or was unseaworthy? As Chuah points out13 , the owner of the goods has the freedom to take an action against the charterer and or the shipowner under the Hague Visby rules, as the rule themselves make no distinction between them, but simply refer to the carrier. So both Myrus SS and Antipodean Trading are capable of being held liable.

Under Article IV the "carrier" will not be liable for any loss or damage that arose unless it is from the lacking of due diligence. Thus, if the carriers bring sufficient evidence to show that the shearing occurred through some other reason, for example through a design fault then they will not be liable. The burden of proof is on the cargo owner to show that the ship was unseaworthy and that the unseaworthiness caused the accident, which here should not be too problematic. The burden of proof then however, firmly shifts to the carrier himself to prove due diligence as regards to the seaworthiness of the ship itself.14 Thus, as per the case of Bayoil SA v Seawind Tankers Corporation (The Leonidas), the relevant term will be treated as an express term of the contract and given equal standing with any other express term.

As regards the second contract, with Fruitfare Company, Imports Uk contracted to sell the produce CIF cash against documents. This occurred on the 5th of May, 1 day before the ship that was carrying the goods had been revealed to Imports UK by the seller Sunshine Products, three days before the entirety of the cargo was lost and 5 days before FruitFare became aware that the goods bound for them were on board the SS Myrus. Under English Law, section 16 of the Sales of Goods Act 1979 provides that no property in the goods shall pass until the goods have been ascertained. In the subsale initially, and arguably altogether through the doctrine of incorporation, there is no contract for any ascertained goods. Simply a contract for the supply of 20,000 drums of concentrated juice to be so sold CIF March/April.

A few pertinent points can be gained from the case of Re Wait.15 Here a merchant, A, had paid for 1,000 tonnes of wheat form it s supplier and had sold 500 tonnes to a 3rd party, B (albeit for cash unlike here). As the goods were in transit, and after the subsale the original buyer, A went insolvent. Could B therefore take good title to the goods over priority over the trustee in bankruptcy? The answer given was an emphatic no. The goods were unascertained, and thus the property had not passed to the sub purchaser as there had never been any identification or appropriation of the 500 tonnes of goods which represented the sub buyers share. Thus, up until the 10th of May, the sub buyer can in no way be said to have property in the goods at all that were lost in on the 8th of May, and the contract can not be said to relate to them. In addtion, even if when he was made aware of the nature of the goods, on the 10th of May, property would still not have passed to Imports UK (see CIF customs above) and so cannot be said to have to passed to Fruitfare either.

Thus property in this case cannot have to have passed at all on the 5th of May, and it is irrelevant that the goods may have become ascertained on the 6th of May, as the sub buyer had no notice of this. Therefore no property had passed in the goods, and the property in the goods remained that of Sunshine, to be passed on to Imports Uk who would then pass it to Fruitfare. Even though the goods have been lost at sea through not apparent fault of Imports UK, there obligation under the contract may still hold good however, as, per the 10th of May; they may be held to have contracted to sell 20,000 drums of Australian juice, specifically on board the SS Myrus to Fruitfare. This in essence the contract may be held to be frustrated as the subject matter became destroyed. Yet in reality. This is unlikely however as it is doubtful that the email will be held to be a contractual document, or one that adds to the terms of the existing contract.

Thus, to conclude the first part of this question, Imports Uk can bring an action against the "carrier" either Myrus SS co, or Antipodean Trading under the Hague Visby Rules, holding them to the duty of the carrier to ensure the seaworthiness of the ship. Or if this duty has been discharged by them they would claim on the insurance policy that Sunshine should have procured for them, or is Sunshine had not procured the policy for then brings action against them for breach of contractual duty under the terms of a CIF contract. Fruitfare are likely to be able to bring action as they had contracted for as sale of juice that has not been delivered. Even though the goods themselves wee lost, and this may frustrate the contract, it is not likely, as the mail it will probably be held not to be incorporated into the contract and so have no legal force.

  1. See Chuan JCT Law Of International Trade 2nd Edition pp 159[^ Return]
  2. [1989] 1 All E.R. 951 Thus the payment for the goods is tendered for the bill of lading, which represents the title in the goods[^ Return]
  3. Schmitthoffs Export Trade -The Law and Practice of International Trade D'Arcy. Murray, Cleave pp38[^ Return]
  4. Section 32(1) of the sales of Goods Act 1979 as English law governs the contract[^ Return]
  5. [1919] 1 K.B. 189[^ Return]
  6. Day and Griffiths The Law of International Trade Butterworths pp70[^ Return]
  7. See http://tetley.law.mcgill.ca/maritime/ch1.pdf pp 4 - The Carriage of Goods by Sea Act 1991 (Cth.), No. 161 of 1991, Schedule 1, in force October 31, 1991, repealing the former Sea-Carriage of Goods Act 1924, which had given effect to the Hague Rules 1924 in Australia with effect from January 1, 1925. [^ Return]
  8. "Art. 2 - Subject to the provisions of Article 6, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth.[^ Return]
  9. For more see Day and Griffiths The Law of International Trade Butterworths pp46[^ Return]
  10. [1959] AC 133[^ Return]
  11. [2001] 1 Lloyd's Rep 532 QB 233[^ Return]
  12. see W.Angliss v And Co (Australia) Proprietary v Peninsular and Oriental stern Navigation Co [1927] 2 KB 456 at 461[^ Return]
  13. Chuah JCT, Law of International Trade 2nd ed.pp 263[^ Return]
  14. See Phillips Petroleum Co v Reardon Smith Line Ltd [1951] 2 Lloyd's Rep. 39 and Minister of Food v Reardon Smith Line Ltd [1951] 2 Lloyd's Report 265[^ Return]
  15. [1927] 1 Ch 606[^ Return]

BIBLIOGRAPHY

Chuan, JCT Law Of International Trade 2nd Edition

D'Arcy, L Murray, C Cleave, B Schmitthoffs Export Trade -The Law and Practice of International Trade

Day, D and Griffin, B The Law of International Trade Butterworths, 3rd ed 2003

Honnold, J 'Uniform Law for International Sales under the 1980 United Nations Convention (3rd ed. 1999) Kluwer

Schlechtriem, P Uniform Sales Law. The UN Convention on Contract for the International Sale of Goods, in Law-Economics-International Trade, vol VI, Vienna, 1986

Takahashi, K 'Right to Terminate (Avoid) International Sales of Commodities' 2003 Journal of Business Law

Todd, P Cases and Materials on International Trade Law Sweet and Maxwell 2003

 

Extract 1 : Part-A
Extract 2 : Part-B

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