International Trade Law PDF

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1. INTRODUCTION TO INTERNATIONAL TRADE LAW Certainty is the most important thing in international sales contracts Contracts do not need to be fair – UCTA 1977 does not apply Vallejo v Wheeler, per Lord Mansfield: “In all mercantile transactions the great object should be certainty: and therefore it is of more consequence that a rule should be certain than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.”

A. Risk in international sales Geography The seller and buyer are based in different countries. This exacerbates the normal problems and the parties have, as a matter of course, to make provision in their contract for dealing with them. Security Any seller is reluctant to part with the control of goods without receiving payment unless an interest in the goods as some sort of security for payment can be retained. Any buyer is equally reluctant to pay for goods before receiving them unless there is a legal right. Neither party wish to have capital tied up in goods in transit. The seller is less likely to be familiar with the buyer, his solvency, creditworthiness and integrity. Any attempt, should the buyer default, to obtain payment through legal process is likely to be a much more serious matter and might involve a foreign system of law. A seller will often seek to ensure that the contract of sale sets up a system of payment that will give him recourse against a bank in the UK. Carriage of goods The goods themselves have to be transported from the seller to the buyer. The arrangements for carrying the goods to the buyer assume a far greater importance than they are likely to have in any normal domestic contract; so much so that the type of sale contract, which the parties make will be dictated to a very great extent by the type of carriage they envisage for the goods. The mode of carriage they employ will be determined by various factors. The nature of the goods is clearly one of these. Are they, for example, perishable, fragile, valuable or heavy or otherwise awkward to handle? Other factors include the urgency with which the buyer requires the goods and the availability and cost of the various methods of carriage.

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Insurance Goods have to be carried for long distances and possibly moved from one mode of transport to another. They are at greater risk of loss or damage and buyer and seller will usually require some form of insurance to protect themselves as far as possible from the financial consequences of such loss or damage. Agency In most of these contracts the parties will be acting through intermediaries, such as insurance brokers, selling agents, forwarding agents and loading brokers, and the functions of these agents and their relationships to the principals will often affect the contract they make. Thus, what the businessman may see as a single transaction tends to appear to the lawyer as a complex of contracts, each with its own parties and incidents but all related to the central contract of the sale of goods. Documents of title Most of these contracts will take the form of, or involve the issue of, some significant document such as a bill of lading, an insurance policy or a bill of exchange. In many cases legal rights relating to the goods, to their insurance, to their carriage or to payment for them can be transferred simply from one party to another by the delivery, or endorsement and delivery, of these documents. This documentary transfer of legal rights plays a large part in overcoming the problems inherent in the international sale transaction. Dispute resolution If a dispute arises on the contract it may be necessary to decide whether an English court has jurisdiction to hear the case and, if it has, whether it should apply English law or the law of another country. The law relating to these questions is known as the Conflict of Laws (or Private International Law) and is obviously very relevant in the area of international trade.

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2. INTERNATIONAL SALES CONTRACTS A. INCOTERMS 2010 Rules for any mode of transport: ExWorks (EXW) The seller fulfils his obligations by having the goods available for the buyer to pick up at his premises or another named place. Buyer bears all risk and costs starting when he picks up the products at the seller’s location until the products are delivered to his location. Seller has no obligation to load the goods or clear them for export. Free Carrier (FCA) The seller delivers the goods export cleared to the carrier stipulated by the buyer or another party authorized to pick up goods at the seller’s premises or another named place. Buyer assumes all risks and costs associated with delivery of goods to final destination including transportation after delivery to carrier and any customs fees to import the product into a foreign country. Carriage Paid To (CPT) Seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods to the named place of destination but is not responsible for procuring insurance. Carriage and Insurance Paid To (CIP) Seller clears the goods for export and delivers them to the carrier or another person at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods and procuring minimum insurance coverage to the named place of destination. Delivered at Terminal (DAT) Seller clears the goods for export and bears all risks and costs associated with delivering the goods and unloading them at the terminal at the named place of destination. Buyer is responsible for all costs and risks from this point forward including clearing the goods for import at the named country of destination.

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Delivered at Place (DAP) Seller clears the goods for export and bears all risks and costs associated with delivering the goods to the named place of destination not unloaded. Buyer is responsible for all costs and risks associated with unloading the goods and clearing customs to import the goods into the named country of destination. Delivered Duty Paid (DDP) Seller bears all risks and costs associated with delivering the goods to the named place of destination ready for unloading and cleared for import. Rules for sea and inland waterway transport: Free Alongside Ship (FAS) Seller clears the goods for export and delivers them when they are placed alongside the vessel at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward. Free on Board (FOB) Seller clears the goods for export and delivers them when they are on board the vessel at the named port of shipment. Buyer assumes all risks/cost for goods from this moment forward. Cost and Freight (CFR) Seller clears the goods for export and delivers them when they are on board the vessel at the port of shipment. Seller bears the cost of freight to the named port of destination. Buyer assumes all risks for goods from the time goods have been delivered on board the vessel at the port of shipment. Cost, Insurance, and Freight (CIF) Seller clears the goods for export and deliver them when they are on board the vessel at the port of shipment. Seller bears the cost of freight and insurance to the named port of destination. Seller’s insurance requirement is only for minimum cover. Buyer is responsible for all costs associated with unloading the goods at the named port of destination and clearing goods for import. Risk passes from seller to buyer once the goods are on board the vessel at the port of shipment. In each case the description denotes the extent of the seller's liability and by implication the point at which property and hence risk pass to the buyer.

B. FOB (“Free On Board”) contracts 4

Definition: a shipping term that indicates that when a company purchases goods, the supplier is responsible for the goods, and therefore pays the cost of shipping and insurance, until the goods reach a specified location Cowasjee v Thompson (1845), per Lord Brougham: ‘It is proved beyond all doubt, indeed it is not denied that when goods are sold in London ‘free on board’, the cost of shipping then falls on the seller, but the buyer is considered the shipper’ Classic Fob Stock v Inglis – there was a contract for sugar, which was sold to Inglis under a Fob contract. The ship sank and the sugar was destroyed. Inglis claimed on their insurance policy but the insurers stated that the risk had not yet passed, and so they could not rely on the policy. Held, that in Fob contracts, risk passes on delivery, which is when goods are placed onto the ship. Therefore, Inglis had an insurable interest. Extended Fob Pyrene v Scindia Navigation – a fire tender was being lifted onto a vessel by a crane. Before it crossed the ship’s rail, it was dropped and damaged. Pyrene sought to sue for £966 to repair the tender, but Scindia Navigation attempted to limit their liability to £200, under Article 4(5) HV. A bill of lading was issued after the incident. The contention is that the rules are incorporated into the contract of carriage only if a bill of lading had been issued. Held by Devlin J that the HV Rules applied to the contract and that the defendant could limit their liability to £200.

Duties placed on the seller S32 SGA 1979 5

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Delivery to carrier.

(1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea transit.

Wimble v Rosenberg – the seller (Wimble) sold rice to the buyer (Rosenberg). The buyer asked the seller to select a ship for carriage. The ship sank less than a day into its voyage. The buyer would normally have obtained insurance once the ship was named, but the ship sank before this could happen. Held, that s32(3) SGA applied. The seller had to obtain insurance and the court also held the buyer to be in breach by refusing to pay. Duties placed on the buyer Bunge v Tradax [1981] – the buyer (Bunge) had to nominate a ship and give the seller (Tradax) 15 days’ notice. The notice of the ship’s arrival was given 5 days late. Tradax avoided the contract for breach of condition and sold the goods elsewhere, for a lower price. They sued Bunge for the difference. Held, that the clause was a condition of the contract, as certainty and time are of the essence in international sales contracts. Agricultores Federados Argentinos v Ampro – goods were supposed to be shipped between the 20th and 29th of September. The buyer (Ampro) nominated a ship but it was delayed. The buyer nominated a second vessel that could be loaded on the 29 th, but only if the seller (Agricultores) paid overtime to the stevedores. The seller refused and avoided the contract. The second vessel was efficient and it was fit for usage, therefore Agricultores wrongfully repudiated the contract. Any extra cost, however, was to be placed on the buyer.

Duties of the seller Duties of the buyer To place the goods on the ship, which To give effective shipping instructions has to be nominated or designated by in due time – see Bunge v Tradax 6

the buyer

and Agricultores Federados Argentinos v Ampro To bear expenses up to the point of To bear expenses (after shipment) shipment To obtain such shipping documents To pay the price (on tender of the as are required by the terms of the documents) contract To check, pack, mark and deliver the To obtain any necessary licence goods To obtain all the relevant licenses – suddenly imposed duties are still on the seller To ship the goods at the appropriate time within the shipment period specified in the contract To perform the duties imposed by s32 SGA 1979 – see Wimble v Rosenberg Passing of property S17 SGA 1979 – property passes when the parties intend for it to pass 17

Property passes when intended to pass.

(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) 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.

S19 SGA 1979 – property in unascertained goods cannot pass before shipment 19

Reservation of right of disposal.

(1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him.

Carlos Federspiel v Charles Twigg – this is an illustration of the difference between a domestic sale under commercial law and an international sale under INCOTERMS. There was an Fob contract for unascertained goods. The correct number of goods is crated up and 7

placed alongside the ship at the port. The buyer nominated the ship. In a domestic sale, the goods would have been ascertained. However, in international trade Fob contracts, goods only become ascertained once they get loaded onto the ship (“irrevocably loaded onto the ship”) Passing of risk See Stock v Inglis J & J Cunningham v Robert A Munro – there was a sale of bran under a Fob contract. Buyer (Munro) nominated a ship and seller (Cunningham) transported the bran to the ship to be loaded into lighters (small vessels). The ship could not load for 14 days and the bran became mouldy in the lighters. Held, the buyer was entitled to reject the goods under s14 SGA 1979 – implied condition as to quality. Risk of deterioration would pass to the buyer upon notification of the ship’s readiness to load. Remedies Seller Action for price Action for damages

Buyer Rejection of goods or of documents Damages for non-delivery or for defective delivery

Termination

C. CIF (“Cost Freight Insurance”) contracts Definition: A CIF contract is an agreement to sell goods at an inclusive price covering cost of goods, insurance and freight

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Ross Smyth v TD Bailey, Son and Co [1940], per Lord Wright: ‘A type of contract which is more widely and more frequently in use than any other contract used for purposes of sea-borne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out under CIF contracts’ Arnhold Karberg v Blythe, per Scrutton J (KB case): contract for sale of documents rather than for sale of goods However, see quote below: Arnold Karberg v Blythe, per Warrington LJ (CA case): “Incidentally I desire to say that I entirely agree with Bankes L.J. in the remarks he has made about the statement made by Scrutton J., that such a contract as this is a contract for the sale of documents. I need not say that it is with much deference that I express my disagreement with a statement of that sort made by a judge with such extensive knowledge of commercial matters as Scrutton J., but it seems to me that it is not in accordance with the facts relating to these contracts. The contracts are contracts for the sale and purchase of goods, but they are contracts which may be performed in the particular manner indicated by that passage from the judgment of Hamilton J. which I have just read; in particular that the delivery of the goods may be effected first by placing them on board ship, and secondly by transferring to the purchaser the shipping documents.” Typical arrangement of a Cif contract a. Seller gets goods to ship and loaded on board b. Here, the seller is the shipper c. What the shipper gets in return is a bill of lading d. The BOL is not sent to the buyer directly – will be given to the carrier or the seller’s bank e. Bank can keep hold of those documents until the buyer’s bank sends the money f. Sales of documents (in relation to goods) g. Sale of goods (to be performed by delivery of documents)

Duties placed on the seller S13 SGA 1979

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Sale by description.

(1) Where there is a contract for the sale of goods by description, there is an implied [F1term] that the goods will correspond with the description.

[F2(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.] (2) If the sale is by sample as well as by description it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description. (3) A sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer. (4) Paragraph 4 of Schedule 1 below applies in relation to a contract made before 18 May 1973.

[F3(5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 11 of that Act). ]

Manbre Saccharine v Corn Products – this was a Cif contract for starch, including war risks insurance. The seller (Corn Products) shipped the correct quantity of starch, but some were packed in different quantities. The ship sank and, knowing this, Corn Products tendered a BOL, saying that the buyer (Manbre) was covered under insurance policies. The buyer refused to pay for the goods because the ship had sunk before the BOL was made out. At trial they also argued that the goods did not correspond to the contract, as some had been packaged differently. Held by McArdle J, that the obligation of a seller in a Cif contract is to deliver documents rather than goods. However, the documents had to match the goods. The buyer could therefore reject the documents and therefore also the goods. Duties of the seller To ship goods, which conform to the terms of the contract To procure and tender proper shipping documents (invoice, BOL, policy of insurance)

Duties of the buyer To pay the price against other documents To perform other contract duties (such as: specify destination, take delivery, unload, provide an import licence)

Packaging and description in the contract – s13 SGA 1979, see Manabre Saccharine v Corn Products Insurance plan and policy

Passing of property Most CIF contracts are for unascerta...