International Sale Contracts: The termination rules of English law recognise the need for legal certainty and predictability. Discuss the relevance and applicability of the above statement to international contracts for the sale of commodities.
“The use of law for termination can be conducted under the following:
(1) Effluxion of time: where the agreement is terminated because the original time
allocation has been completed, e.g. a two year contract, specified.
(2) Performance: where the agreed performance of a task has been completed, e.g.
construction.
(3) Frustration: Where the term of the original agreement cannot be adhered to, thus
cannot be completed owing to death, injury, illegality of operation or other
circumstances unforeseen.
(4) Bankruptcy: should any parties be unable to continue owing to the withdrawal of funding sufficient to complete the agreement.
(5) Insanity: the agreement would automatically fail should any party be deemed mentally unfit to continue. However, this does not apply if the Power of Attorney in such cases has been put in place.”
Termination can occur through the withdrawal of consent by any party. This can take either of two formats, firstly, through mutual consent which is self explanatory or, secondly, through unilateral action. This is where a party withdraws consent to continue, involving the renunciation of an agency or the revocation of a principal. Neither of these requires a formal agreement.
If no fixed time duration has been initially agreed then, termination can occur if reasonable notice is given. Reasonable depends upon a variety of concepts, but in Martin Baker Aircraft Co. Ltd v. Canadian Flight Equipment Ltd. it was agreed that conditions of termination were to be held as being reasonable.
In 1993 Regulations were issued governing termination. These reinforced those already outlined. Many companies employ agents and principals who have been given the authority to contract with other companies for their own company. These regulations take into consideration commercial agency agreements. The 1993 Regulations provide that a commercial agency agreement can be terminated in any one of the methods already described. The only exception will be where termination is by notice. The consequences of such a termination are that if an agency agreement is terminated in any the ways previously described a number of considerations need to be made. Firstly, consideration must be given to what effect the termination of the agreement has on the relationships that the principal and the agent have with any third parties who deal with the agent, and, secondly, what are the rights that the principal and the agent have against each other as a result of the termination.
When a commercial agreement is terminated it will have effect on any stocks of the products, samples and advertising material held by the agent. The sales which the agent has already negotiated but in respect of which no moneys have been paid over will be effected on termination. The termination of a commercial agreement will also effect both the agent’s authority to negotiate on behalf of the principal and the agent’s duty of confidentiality. The agent’s right to compensation on termination will also be effected. Contractual termination under English Law will also lead to their being effects on agreements negotiated but not paid for and issues of confidentiality between contracting parties.
Like on termination of any other contract damages or compensation is usually paid, but does the same apply to commercial agency agreements? Any compensation payable to an agent on termination of a commercial agency agreement or a commercial marketing agreement is usually a matter for negotiation and agreement between the parties.
As can be seen from the above discussion, the contract termination rules as provided by English Law have a far reaching and wide effect within international contracts of sale of commodities. This can be seen in the manner in which international contracts of sale are terminated in that they will either expire due to lapse of time or one company will go bankrupt or suffer financial difficulties and will not be able to meet its contractual obligations or the contract will be frustrated as a result of an event outside the control of either party, i.e. a ship sinking and the cargo being lost, or the contract will simply have been performed by the parties. The rules of termination are now commonplace with international sales of goods contracts.
__________________________________________________
Question 2(a)
In this scenario, A, who is an Argentinian grain has contracted with Bello plc, now known as B, for the sale of 500 tonnes of bran fob to be shipped between 1 and 31 October. The bran cost £40 per ton. On 30 October B contacted A and informed A that they were having difficulties securing shipping space and that there could be a short delay which A was not concerned about. A did however reserve its right to enforce the contract in accordance with its terms. On 31 October B contacted A to inform A that it had nominated the Enterprise to take the bran but A declined this nomination as it felt that it was impossible to load the bran in such a short time. B is considering issuing legal proceedings and A would like to know what claims B can bring, what remedies B will have and how successful the claim will be. The price of the bran has risen to £50 per ton since the contract was completed.
B could bring the following claims against A in this scenario. B could sue A for breach of contract on grounds of breach of contract for withholding of performance and termination and for the increase of price under the market rule. Each of these claims will be dealt with in turn. These claims are also known as the self-help remedies.
Furmston and Shears state that withholding performance and termination are separate but in practice there is a major degree of overlap. This is because the factual situations which lead one party to wish to withhold performance or to terminate are very similar. The threat by one party to withhold performance will either lead the other party to attend to its performance which will mean that the contract could go on or the innocent party will eventually have to decide whether or not to terminate the contract in the future.
When deciding whether or not a party has the entitlement to withhold performance one critical question must be answered. That is that consideration must be given to what the contract says or implies about the order of performance. On reviewing the facts of this scenario, it would appear that A has withheld performance of it contractual obligations when, but subject to the contractual obligations, it was not entitled to do so. This means that B could hold A to be in breach of contract and could either terminate the contract, sue for damages or sue for damages and request and order for specific performance.
The first option available to B here is to terminate the contract for fundamental breach. In order to do this B would need to prove that A has performed in such a defective way as effectively not to have performed at all. B could claim that A’s refusal to accept the nomination of The Enterprise as the carrying ship shows that A has performed in a defective manner which may be seen as A effectively not performing its contractual obligations.
B could also sue A for breach of contract and claim damages as a result of the breach. Any damages that B may be awarded will be awarded so that B can be put in the position that it would have been in had the contract been performed by A. It is at this point when considering damages that the market rule should also be considered. The price of the bran has increased from £40 per ton to £50 per ton which will mean that if the contract were to be performed as intended B would have an outlay of £5000 more than it would have originally done.
Furmston and Shears consider the market rule in depth and they ask how the principles of this rule may be applied to the case of a contract for the sale of goods. They give one answer to this question as the Sale of Goods Act 1979 which states the market rule. Furmston and Shears state that English litigation in the field of sale of goods has been dominated by commodity contracts where there is a national or international market and it is possible to say with precision what the market and it is possible to state what the market price is during market hours. It is, therefore, to be assumed that if the seller, in this case A, refuses to deliver, the buyer, in this case B, will buy against the seller in the market or if that buyer refuses to accept, the seller will sell against the buyer in the market and that the starting point for enquiry is the difference between the contract price and the market price. This rule does not apply where there is no available market and even where there is an available market the rule may still not apply. It is important to note that whether or not the market rule is the correct rule to apply will depend on the nature of the loss that has been suffered by the plaintiff.
It is possible that B could make a claim using the market rule claiming the difference between the contract price, £40 per ton, and the market price, £50 per ton. If A performed the contract and B received the barn fob but at the market price they would have had to spend £5000 more than they would have done if they had paid the contract price. Therefore, B could sue A for breach of contract and claim damages as well as using the market rule to make up the difference in price between the contract price and the market price. B could expect to be successful with this claim.
Finally, the remedy of specific performance was stated as a possible remedy. If B was successful with its claim and asked for specific performance, the court may order specific performance of the contract with A but will only do so where the contract is for the sale of specific or ascertained goods. However, this remedy is discretionary and it will only be awarded where the goods are unique. Therefore, B would have to prove that the bran is specific and ascertained as well as being unique. This may be difficult for B to prove. B could expect more success in suing A for breach of contract and claiming damages and using the market rule when claiming.
___________________________________________
Question 2(b)
A has entered an agreement with C and D which is known as a cost, insurance, freight (CIF) agreement. Under this contract payment against documents is used usually on presentation of a bill of lading. Under this agreement, the seller is giving an undertaking to ensure that the goods are supplied and transported to the buyer’s country.
Under this agreement the seller is required to ships goods conforming to the description in the contract, clear the goods for export, arrange for sea carriage to the port of destination, obtain a full bill of lading or waybill when the goods are loaded, arrange insurance under which the buyer can claim, and provide insurance documents to the buyer, provide an invoice for the costs of the goods and carriage and insurance, and transmit to the buyer the bill of lading, insurance documents and invoice and any other documents needed. On consideration of the facts, it would appear A has carried out all of these requirements.
Under this agreement the buyer is required to accept the documents tendered by the seller if they are in order, pay the contract price, receive the goods at the port of destination, pay any ancillary costs of the sea voyage and costs of unloading and land transport to the buyer’s premises, bear all risks of the goods after their passing over the ship’s rail at the port of shipment, pay all customs dues and taxes, and obtain any import licences.
Under this agreement the price quoted to the buyer for the goods includes insurance and freight to the buyer’s home port. This increases the certainty of the price for the buyer.
The property in the goods passes when the buyer pays for them and accepts the documents. The risk in the goods has already passed to the buyer when the goods were loaded on to the ship in the port of shipment. This makes this form of agreement an exception to the Sale of Goods Act 1979 where risk passes with the property in the goods.
The advice to be given to Mr. Mark regarding C and D will now be dealt with separately. The advice regarding the situation with C is as follows. A, as the seller, appears to have carried out all of their contractual requirements but C is refusing to pay the price for the goods which they must do as it is a condition of this form of agreement. C’s actions in not paying for the goods because they have not been able to inspect can be said to unreasonable as C, as the buyer, is under a duty to pay the price against the shipping documents tendered blind and without seeing the goods and, in some cases, even if the goods are known to have perished or deteriorated . A cannot therefore bring an action for the price against C under the Sale of Goods Act 1979 . This is because the payment provision in the contract is for payment of cash against documents which means that section 49 will not apply because, firstly, the property will not have passed to the buyer and, secondly, the date of payment is not a day certain irrespective of delivery.
In respect of A’s position regarding D, this would appear to differ from the position with C in that D cannot afford to pay for the goods as D has financial problems. A cannot bring an action for the price because D simply cannot pay the money required. A’s best option is therefore to terminate the contract because of D’s repudiation in that it cannot pay the price of the goods.
____________________________________________
BIBLIOGRAPHY
1. Sale of Goods and Consumer Credit – 6th Edition by Paul Dobson. Published by Sweet &
Maxwell in 2000.
2. Commercial Law – 1st Edition by Michael Furmston & Peter Shears. Published by
Cavendish Publishing Ltd. in 1995.
3. Commercial Law and Practice by Trevor Adams and Alexis Longshaw. Published by
Jordans in 2004.
4. Commercial Law and Practice by Alexis Longshaw, Tim Sewell and Chris Spencer.
Published by Jordans in 2001.
5. Commercial Law by Robert Bradgate & Fidelma White. Published by Oxford University
Press in 2002.
6. Cheshire, Fifoot & Furmston’s Law of Contract – 14th Edition. Published by
Butterworths in 2001.
7. Contract Law – 2nd Edition by Prof. Richard Stone. Published by Cavendish Publishing
Ltd. in 1996.
8. INCO Terms 2000. ICC Official Rules for the Interpretation of Trade Terms.
Related international law essays
Back to Free Law Essays
