Fob contracts - Lecture notes 17-21 PDF

Preview

Summary

Fob contract revision notes, these are very basic....

Description

II. FOB CONTRACTS

Reading Chuah, Schmitthoff, Todd, Clarke et al,

pp. 44 – 60 pp. 16 - 27 Ch. 3 pp. 537-542 (not very detailed)

Benjamin,

Ch 20 (very detailed)

FOB stands for, free on board - it is most popular for international sale of contract - mainly focuses on duties of the seller - FOB seller is under no further obligation in relation to the carriage of the goods - The seller is not under a duty to pay for the insurance or the freight of the goods - The FOB contract has been referred to as a flexible instrument - Although there is a ‘standard’ FOB contract, the parties are allowed to depart from certain aspects of that standard - In practice the parties do depart form this FOB contract There is a variety of forms of FOB contract Differences between CIF and FOB - first difference, in the case of the FOB contract, the sellers quaotationf or the price is only for the cost of the goods, does not include cost of insurance of freight - FOB seller does not bear the risk in cost of insurance and freight - In the case of the FOB contract, the named port is the port of shipment, whereas in a CIF contract, the port named is the port of destination - In case of FOB contract, duty of seller contract is to put the goods on the carrier - In FOB contract, cannot buy goods afloat

One Definition Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 Q.B. 402 - Judge identified three different types of FOB contract in this case 1. Classic type 1 FOB 2. Type two FOB 3. Type three FOB Scottish & Newcastle International Ltd v. Othon Ghalanos Ltd [2008] 1 Lloyd’s Rep. 462, [2008] 2 All ER 768  - Lord Manse (paragraph 34 of his judgement)  - a contract that the parties have describes as an FOB contract, may not be an FOB contract  - Contract was for the sale of goods from UK and Cyprus, it was agreed the buyer will make a shipping arrangement the seller may for the freight, if the seller did so then the seller will include the cost of freight as a separate item in the sellers invoice,  - The buyer inn Cyprus contract a shipping company and made arrangement to collect goods from Liverpool



 



 

- Buyer agreed the rate of the carriage (freight) after the buyer has made this arrangement with the carrier, the buyer contracted the seller in Scotland and requested that the seller should pay the freight on the buyers behalf, to include the cost of the freight as a separate item on the sellers invoice, in their contract, the parties had not referred to the contract as an fob contract, but in the other form completed by the buyer, the buyer had referred to the contract as a CIF contract, the goods were shipped from Liverpool as specified in Cyprus, the buyer failed to pay the contract price - If under the contract, the place of delivery was in England then the courts had jurisdiction under the goods, - It was held that the place of delivery was in Liverpool in England and the reason for this is because the court came to the conclusion that this was an fob contract, in an fob contract, he place of the sellers duty to deliver the goods is in the place of shipment - In lord Manse speech, he identified the key facts of this case which indicated that this contact was an fob contract, under the terms of the contract, it was the duty of the buyer to make shipping arrangements - Although the seller was requested to pay for the freight, the cost of the freight was stated as a separate item on the invoice for reimbursement - Even though the parties did not call it an fob contract

 2. Classification A. The classification in the Pyrene case (i) Classic f.o.b. The buyer nominates the ship and the seller puts the goods on board. The seller is directly a party to the contract of carriage until he takes out the bill of lading in the buyer’s name. The seller may also take the bill of lading in his own name and later transfer it to the buyer. - In the case of the classic fob contract, there are five features which identify with classic fob contract, the seller is not bound to make advance shipping arrangements - The seller is not bound to pay for the freight or insurance, - The seller becomes a party to the contract of carriage from the time the goods are put on board the ship - The seller is under the duty to obtain a bill of lading in terms which are usual to the trade, that bill of lading can be issued to be obtained in the buyers name or in some cases, in the sellers name - If the bill of lading Is issued in the sellers name, then no contract is created between buyer and carrier until the goods are transferred -

-

(i) Type 2 -seller makes shipping arrangements Type two fob contracts, the seller is under a duty, to make shipping arrangements in addition the seller will put the goods on board the vessel, the seller will obtain a bill of lading The bill of lading in type two will be in the sellers name The El Amria and The El Minia [1982] 2 Lloyd’s Rep. 28 “all we know is that the sellers arranged for the ship to come to become available, that the sellers shipped the onions, that the sellers took an order bill of lading and that the sellers endorsed that bill of lading in favour of the

[buyers] and delivered it to the [buyers] on payment of the price . . . this is a type 2 f.o.b. contract”. (iii) Type 3 -buyer to make shipping arrangements The buyer makes the shipping arrangements and the seller puts the goods on board. The seller takes a mate’s receipt and gives it to the buyer or his agent who then takes the bill of lading in the buyer’s name. Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 Q.B. 402 - In type three-fob contract, the buyer makes shipping arrangement, when the seller receives the main receipt The seller delivers the receipt to the buyer for the buyer himself to arrange the bill of lading The seller is not bound to obtain the bill of lading, the seller has to obtain receipt and give it to the buyer, and the buyer will use this receipt Was the seller a party to the contract of carriage? It was held that the seller was a party to the contract of carriage up to the point where the bill of lading is issued in the buyer’s name

- There are some essential features of a contract, which identify it to be an FOB contract - The classic FOB is a standard contract - The internal classification is not irrelevant; it simply gives you a starting point - In an FOB contract, delivery to the carrier, is delivery to the buyer - Seller has duty to put goods on board the vessel and that delivery= delivery to the buyer - FOB seller has a duty and right to deliver goods on board - FOB seller is not bound to deliver goods in another other way, e.g. by land - He can do so it he wishes, but he is not bound to do so. - This position is the same even where something occurs where it is impossible/illegal to ship goods by sea. B. Relevance of Classification 3. Duties of the seller A. Delivery Wimble, Sons & Co v. Rosenberg [1913] 3 KB 743 - The delivery to the sea carrier is delivery to the buyer Maine Spinning Co. v. Sutcliffe & Co. ((1918) 87 L.J.K.B. 382 - The contract was for the sale of goods, FOB Liverpool - Required seller to obtain export licence for the goods - Sellers licence was rejected - It was illegal for seller to put goods on vessel - Buyer asked seller to deliver goods by land to his warehouse - The seller refused to do so - Buyer bought claim to seller for failing to deliver goods - The buyer argued that he was entitled to waive delivery on board the vessel and to take goods on land - COA held that “A term in the contract as to the mode of delivery is not entirely for the benefit of either party to the contract and neither party can waive it without the consent of the other.”

-

-

-

Court said that in some cases, the seller may be selling for export, and the price quoted for export, may be a price that takes account for the government export rebate, then it will be commercially detriment to the seller to deliver goods by land the seller, in quotation for the goods, is quoting them as if the goods are going to abroad, this price may be different from his domestic price in such a case, if seller is compelled to deliver this in land, they can come into competition in the domestic market with sellers other goods so FOB seller should not be compelled to deliver goods anywhere else if he does not want to do so Cohen & Co. v Ockerby & Co Ltd (1917) 24 C.L.R. 288 AUSTRIALIAN CASE: the FOB buyer may be entitled to deliver goods in land, unless he can show that he will suffer from commercial detriment if he sells these goods in land

-

Meyer v. Sullivan, 131 P. 847 (1919) USA CASE: awarded damages against an FOB seller who refused to deliver in land, after the contract was concluded, It was impossible to deliver goods by vessel due to WW1 Buyer offered to deliver goods to the warehouse Seller refused to deliver to warehouse Court held that seller was in breach of contract

B. Shipping documents - Once seller has put goods above vessel, it is his duty to obtain the bill of lading on terms that are usual in the trade, and to deliver bill of lading to the buyer - The FOB seller is under no duty to pay the freight - If the carrier refused to give bill of lading until freight is paid, it is the buyer’s duty to pay for freight - FOB buyer is to delivery document but not insurance document - In classic FOB contract, it is duty of buyer to arrange shipping and nominate ship - Then seller puts goods aboard the named ship Pyrene Co. Ltd case (above) Green v. Sichel (1860) 7 C.B. (N.S.) 747 C. Shipping space D. H. Bain v. Field & Co. (1920) 3 Ll. L. R. 26 - The conventional model does not fit to contracts regarding small parcels - In some instances, it is the seller who makes shipping arrangements, as part of the seller’s duties

Yelo v. SM Machado [1952] 1 Lloyd’s Rep. 183 - An FOB contract, is where the seller undertakes to find the ship, even though there was no express provision in the contract for that effect - the view expressed in these two cases, this vie, does not represent the dominant view, the dominant view is that if the FOB seller makes shipping

arrangements, he is doing a favour for the buyer or acting as an agent to the buyer 4. Duties of the buyer A. Shipping instructions - In classic FOB contract it is the duty of the buyer to make shipping arrangements, buyer must do this in terms of the contract - must nominate, time, manner of nomination, buyer must specify exact port of shipment - The buyer’s nomination must be effective - A nomination is not effective if it is impossible or illegal to put the goods upon a vessel that has been nominated The buyer will them be in breach of contract, and seller will be entitled not to ship the goods, - Impossibility of shipment can include impossibility to ship goods within the contract period - If it not possible to load the goods, then the buyer will be in breach of contract (i)

-

-

-

Must be effective Bunge & Co v. Tradax England [1975] 2 Lloyd’s Rep. 235 Soufflet Negoce v Bunge SA [2010] EWCA Civ 1102 If ship is unclean to load goods, is seller entitled to load these goods. The buyer nominated a vessel to ship goods, under the contract the buyer had the right to authorise shipment to continue, once shipment has started within the shipping period, until shipment is complete The sellers inspectors came to the ship and said that the ship was unclean to receive the new cargo, the following day, the master of the ship gave a notice of readiness to the seller, to re inspect the ship The seller refused and did not load the goods\ The buyer bought an action claiming that the seller had breached the contract It was physically and legally possible to load the goods, the fact that ship was unclean did not make the ship ineffective Court said that because the FOB seller puts goods on a ship free of risk The ship being unclean was not the sellers concern (ii)

-

Place of shipment Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130

It is the buyers right to choose the specific port, the buyer decides which port the goods will be shipped from That is the buyers right and the seller has no choice in the matter The buyer nomination in terms of the lace of shipment must comply with the terms of the contract The buyer must nominate vessel that will be available to load all of the goods during shipment period In most cases, the contract will provide for a period of time It is the buyers right to choose a specific time within that period that the goods will be shipped Therefore, if the contact makes provision for shipment period and seller decides to bring to port at the start of the shipment period, then he does so at his own risk

(iii)

-

-

-

Period of shipment JJ Cunningham Ltd v Robert A Munro & Co Ltd (1922) 28 Com. Cas 42 If goods arrive earlier and deteriorate in the property, this is the sellers risk Contract provided for shipment in October, on the 14th of October, seller provided ships to the port, but the buyer could only able nominate the vessel on the 28 th of October During this period, the goods had deteriorated in the port The buyer rejected these goods at the port It was held that buyer was not in breach in contract and was right to reject the goods because the buyer should not have bought goods to port so early, before the goods had been nominated, buyer has right to chosen specific time that the goods can be delivered Bunge & Co v. Tradax England [1975] 2 Lloyd’s Rep. 235 Time of delivery of goods, is of the essence of the FOB contract Buyer needs to make sure that he nominates ship within the time (iv)

-

-

-

Substitution of nominated vessel (a) Common law right Agricultores Federados Argentinos Coperativa Ltda v Ampro SA [1965] 2 Lloyd’s Rep. 157; If buyer makes nomination within the time, he can withdraw that nomintatiion and provide a substitute FO buyer has rights to withdraw nomination and make a second nomination, provided that he has the time do to so If the contract required the nomination to be given by the time specified in the contract Notice must be served 10 days before the shipment On the 20th of March, the buyer made the first nomination, that nomination of the 27 th of March as the estimated time of arrival, that vessel was getting late at arriving at the port of shipment, on the 26th of March, the buyers made a second nomination, with the estimated date of arrival as the 28th of March Notice must be given at least 10 days before the arrival The sellers rejected that nomination and refused to load the goods, buyers argued that seller was in breach of contract, court held that the seller was entitled to breach of the contract, second nomination did not apply Buyer had right to make an application, but it had to apply within the 10 day period, so in this case it was a breach of contract

(b) Contractual right Ramburs Inc v Agrifert SA [2015 EWHC 3548 (Comm)

B. Payment - Payment has to be made in the form specified by the contract and the place specified the contract, - The FOB buyer is bound to make payment of the documents only where the documents comply with the contract

- CIF buyer has two rights, right to reject document, and right to reject goods - FOB buyer also has two rights of rejection, the FOB buyer may have two rights of rejection, right to reject documents and right to the reject the goods - The CIF buyer rights to reject the goods are separate and independent CIF buyer cannot reject goods upon tender of documents - The FOB buyer can reject the goods, even if the documents are compliant - In FOB contract, delivery of goods from the buyer is at the port of shipment - CIF contract, goods at port of shipment is not delivery of goods to the buyer is not at the port of shipment S. 28 SGA Right to reject documents and goods Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015] EWHC 80 (Comm) An “FOB buyer will (or at least may) ordinarily have two rights of rejection i.e. a right to reject the documents and a right to reject the goods . . . an FOB buyer may be able to reject the goods even if the documents are contractually compliant.”...