Law of International Trade

The above problem question requires examination of several legal issues ranging from formation of contracts to questions of jurisdiction and international contract terms. The facts can be simplified as follows: Dear John Plc sells goods, in this case filters, to Vera Rose Pty Ltd. Having purchased the filters Vera Rose, a company which specialises in reselling mining equipment, enters into a contract to sell them to Venture Devils Inc. One of the first issues which strike the reader is the fact that goods are advertised for sale FOB Rotterdam while the contracting parties enter into a CIF contract. Both FOB and CIF can be generally described as non-mandatory standard contract terms which are also known as Incoterms.

[1] In order to ensure consistent application Incoterms are published by the International Chamber of Commerce, the latest version of Incoterms entered into force on 1 January 2000 and it is now available in 31 languages. Taking into account the fact that rights and obligations of sellers and buyers are determined by the contract in which they enter the difference between CIF and FOB is a crucial one. FOB stands for “free on board,”

[2] as established in Stock v Inglis

[3] the seller’s duty is to deliver goods on board the ship while the buyer is required to nominate the vessel and make his nomination known to the seller. In addition to the above an FOB buyer has a duty to cover the cost of freight and insurance.

Obligations arising under FOB contracts can be juxtaposed with duties undertaken by the parties trading under the CIF term. CIF stands for “cost, insurance and freight,” in this type of contract the seller must arrange carriage and insurance and supply goods which correspond with the contract description.

[4] Once these requirements are satisfied the seller must then forward to the buyer the following documents: a bill of lading, an insurance policy and a commercial invoice. On some occasions additional documents, such as for example a certificate of quality or a certificate of origin, may also be required. The buyer is obliged to accept the documents presented to him by the seller and receive the goods at their destination, in addition to this he is also responsible for custom duties and any import licenses which may be needed. As far as the contract between Dear John (the seller) and Vera Rose (the buyer) is concerned it is clear that Vera Rose prefers to trade on CIF terms. If the filters were sold FOB Rotterdam, as advertised by Dear John, the responsibilities of the seller (Dear John) would be less onerous than under the CIF contract, for instance Dear John would be obliged to merely load the goods on to the vessel rather than deliver them to a port in another country. On the facts as presented it is difficult to determine whether the contract concluded between Vera Rose and Venture Devils was a CIF contract, nonetheless the judgement in Smyth & Co. Ltd v Bailey Son & Co. Ltd may be of some assistance. In the course of his judgement Lord Wright described the CIF term as a “type of contract which is more widely and more frequently in use than any other contract used for the purposes of sea-borne commerce.” Thus, due to lack of evidence to the contrary it will be presumed that Vera Rose and Venture Devils traded on the basis of the CIF term. Finally, it is important to remember that choice of contract not only affects legal obligations of the seller and buyer but also it has a significant impacts on the passing of property, risk and cost; therefore in FOB contracts property and risk pass at the time when goods cross the ship’s rail while in CIF contracts documents are tendered in return for the payment of the price at which point property passes to the buyer.

[5] The contract between Dear John Plc and Vera Rose Pty Ltd The law governing legal agreements is of paramount importance to all international private law contracts. In England provisions pertaining to the choice of law and choice of jurisdiction clauses can be found in the Contracts (Applicable Law) Act 1990. The Act gives effect to the Convention on the Law Applicable to Contractual Obligations otherwise known as the Rome Convention. The scope of the Rome Convention is determined by Article 1(1), in accordance with this provision the Convention applies to contractual relationships which involve a “choice between laws of different countries.” The contracting parties are free to choose the law applicable to their contract and in accordance with Article 3(1) their choice will be enforeced whenever possible. We are not told whether the contract concluded between Dear John and Vera Rose contained the choice of jurisdiction and/or choice of law clause. In the absence of such provisions courts try to infer the intention of the parties from the circumstances relevant to the case: Article 4. Article 4(1) provides that a contract should be governed by the law of the country with which it appears to be most closely connected. The closest connection is determined by looking at the “characteristic performance” of the contract, in Hogg Insurance Brokers Ltd v Guardian Insurance Co Inc

[6] characteristic performance was defined as “performance for which payment is due.” Article 4(2) sets out the factors which are relevant to determining characteristic performance, however it should be stressed that the provisions of paragraph 2 do not apply to contracts of carriage of goods.

The relevant provisions can be found in paragraph 4 of Article 4 which provides: “where the country in which the carrier has his principal place of business is also the country where the goods were loaded or discharged, or the principal place of business of the consignor at the time the contract is concluded, it is presumed that the contract is most closely connected with that country.” Taking into account the fact that the identity of the carrier is unknown and there is no information concerning the choice of law clauses the legal problems arising in this question will be analysed in the light of English law. The reader is told that Ashley is concerned about the price increase which resulted from the changes in interests rates. It is submitted that in this particular case any advice given to Ashley will depend on whether Dear John’s standard terms and conditions have been successfully incorporated into the contract. In the vast majority of cases the buyer is not aware of standard terms at the time of making an offer.

Moreover, it should be stressed that in order to be effective acceptance must be “unconditional and unqualified”

[7] and therefore “acceptance” which introduces new terms is not an acceptance but a counteroffer. In Schmitthoff’s Export Trade the authors expressed a view that the same principles should be applicable to the incorporation of the seller’s general conditions, however due to practical considerations this is not always the case. Furthermore, the courts will be less likely to adhere to the strict legal principles if there is evidence that the parties have already acted on their agreement.

[8] Ashley’s case is complicated by the fact that he has not seen the footer. At present there is no reported case law concerning incorporation of standard terms and conditions in electronic communication, however the decision in Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd

[9] gives some indication as to the views which might be taken by the courts in the future. In Poseidon Freight Forwarding the parties communicated with each other using fax machines, standard terms were printed on the back of documents and the claimant did not notice them. The court held that the terms could not be relied on due to lack of a reasonable notice. Another issue which may prove to be decisive is the fact that Ashley emailed a confirmation.

The principles established by the common law are clear: as long as an agreement is signed it is legally binding irrespective of whether it has been read or understood.[10] It is possible that the confirmation email send by Ashley could constitute a “signature.” In some cases it may be possible to incorporate terms and conditions into a contract without the need for a signature, however there is an important condition which must be satisfied: “the more unusual a clause is, the greater the notice which must be given of it.”[11] The clause allowing for interest rate adjustments is reasonable and the price increase was not excessive considering the interest rate fluctuations. However, some doubts remain as to whether Ashley was given sufficient notice of the terms, on the other hand it can be argued that he was careless not to scroll all the way down his email message; furthermore, the terms would be more likely to be binding if they were well established as a customary trade practice.[12] On the basis of the above evaluation it appears that standard terms and conditions have been incorporated into the contract although more information would be needed in order to provide reliable legal advice. Ashley is also concerned about late delivery. If the filters were delivered late Vera Rose would be entitled to damages, according to the decision in Hadley v Baxendale[13] damages are calculated by estimating the difference in the value of goods at the time when delivery was due and the time when the goods were actually delivered.[14] Although it would not be possible for Vera Rose to claim compensation for the closure of Venture Devils mines Vera Rose could claim for loss of a sub-sale if as a result of late delivery Venture Devils purchased the filters elsewhere. However, in order to be entitled to damages Vera Rose would have to prove that the loss was sustained in “the usual course of events,” in other words Dear John would have to be aware that Vera Rose is a dealer or that the company intended to resell the filters.[15] Finally, accurate legal advice cannot be given without careful examination of the contract. Conditions and warranties are particularly important, the contract may contain liquidated damages clauses, a clause which states that delivery time is a warranty (unlikely!) or, on the contrary, a clause which provides that time is of the essence. The contract between Vera Rose Pty Ltd and Venture Devils Inc The above discussion of the choice of law clauses applies in equal measure to the contract concluded between Vera Rose and Venture Devils. The difference between this and the previous case scenario is that communication between the parties was not confined to two different countries which may in turn may have a significant impact on the law applicable to the contract.

According to the judgement in Brinkibon Ltd v Stahag Stahl und Stahlwarehandels GmbH[16] “a contract is formed when acceptance is communicated by the offeree to the offeror. If it is necessary to determine where a contract is formed … this should be at the place where acceptance is communicated to the offeror.” The ratio of this case applies to the so-called instantaneous communication methods, in this case faxes. The question states that the contract was concluded by an email send from Jakarta to the Venture Devils branch in San Francisco and this implies that the contract should be governed by foreign law. However, legal problems encountered in this question will be approached as if that the Venture Devils Contract contained a clause opting for the application of English law. Vera Rose, the seller, suffered a loss of profit due to rejection of the goods by Venture Devils, the buyer. The company is seeking advice as to whether it has a claim and, if so, is it against the carrier or Dear John Plc. In England and Wales the sale and supply of goods is governed by the following legislation: the Sale of Goods Act 1979 (the Act amended the Sale of Goods Act 1893), the Supply of Goods and Services Act 1982 and the Sale and Supply of Goods Act 1994. According to section 14 Sale of Goods Act 1979 the buyer has a right to reject to the goods if they are not of satisfactory quality.

Moreover, in Mash & Murrell Ltd v Emanuel Ltd[17] Diplock J. stressed that in sale contracts involving international carriage, such as for example CIF or FOB, there is an implied warranty that goods will arrive at their destination in a satisfactory condition; the seller is also impliedly guaranteeing that the goods will be capable of withstanding the demands of transportation. Venture Devils claimed the filters were “unusable” and therefore they promptly rejected them. The filters were inspected within 24 hours which means they have been rejected within a “reasonable time” and the seller was immediately informed. A CIF buyer has a right to reject the goods even if he receives the documents prior to the arrival of the goods; in fact the right to reject the goods cannot be exercised prior to the arrival of the goods or before the buyer has a chance to examine them.[18] Unfortunately for Vera Rose a CIF seller cannot re-send the goods if they are found not to conform with the contract description.[19] In other types of contract, e.g. FOB, the second tender is allowed as long as the goods arrive within the time agreed in the contract. In any case the filters arrived on time and most likely Vera Rosa would not have had time for a second tender even if such a right existed. Consequently, assuming that Venture Devils had reasonable ground to reject the filters Vera Rose will not have a good claim. Potential claim against Hucklebuck Plc Hucklebuck Plc is an English company and therefore it is likely that its principal place of business is located in England. This assumption, combined with the knowledge that cargo was discharged in Welshpool, strongly indicates towards the closed connection with England. Consequently, the contract concluded between Vera Rosa and Hucklebuck Plc will be analysed in the light of English law: Article 4(4) the Rome Convention.

The next issue which must be determined is the legal identity of the carrier, in the article Who is Carrier? Shipowner or Charterer Christopher Giaschi said: “In all cargo cases one of the first things the person handling the claim must do is decide who is potentially liable as a carrier of the goods.”[20] The confusion should be attributed to the fact that many modern vessels are chartered rather than owned by the carrier and in addition to this there are different types of charterparties, the main ones are: voyage charter, time charter and bareboat charter also known as charter by demise. A detailed discussion of problems arising in charterparties is beyond the scope of this paper, however it should be stressed at this point that the distinction between the legal and actual carrier would have a substantial impact on the advice given to Vera Rose. Similarly, if Hucklbuck was a freight forwarder acting as a carrier it would also affect Vera Rose’s claim.

The facts presented in the question are insufficient to determine how or by whom the damage was caused. The filters were delivered directly to the warehouse which means they may have been transported using multimodal containerised transport methods. Modern transport methods make it very difficult to determine the exact point of damage, e.g. in this particular case damage might have occurred while the goods were in charge of the road haulier. It should be stressed that the right to sue arising under the bill of lading used to be determined by the indorsements contained in the bill and closely linked with the passage of property.[21] Following the implementation of the Carriage of Goods by Sea Act 1992 (which repealed the Bills of Lading Act 1855) the property no longer has to pass before the holder of the bill of lading can claim a right to sue. The most important provisions from Vera Rose’s point of view are those contained in section 2(2)(b), the section allows the seller to sue the carrier once the bill of lading is returned to him as a result of rejection of the goods by the buyer.

Thus, irrespective of the fact that on arrival of the goods at their destination the bill of lading ceases to play a function of a transferable document of title the seller can sue the carrier as a lawful holder of the bills of lading once the documents are returned to him. Consequently, Vera Rose could sue the carrier provided there is a reason to suspect he did cause the damage. Potential claim against Dear John Plc Vera Rose should have inspected the consigned at the first opportunity, it is not certain whether they have or have not performed this task. The question states that Vera Rose accepted the filters on the “without prejudice” basis, which Vera Rose’s staff may have interpreted as “without inspection” basis. Just like Venture Devils Vera Rose had a right to reject the goods but this right may have been lost when the filters were forwarded to Venture Devils. Vera Rose attempted to resell the goods and by doing so implied that it had no intention of exercising its rights, consequently it may now be estopped from rejecting the goods particularly if rejection would cause injustice to other parties.[22] Moreover, in Bigge v Parkinson[23] the court held: “Where a person undertakes to supply provisions, and they are supplied in cases hermetically sealed, but turn out to be putrid, it is no answer to say that he has been deceived by the person from whom he got them.” This leads to a conclusion that Vera Rosa may be unable to show a good claim in an action against Dear John. BIBLIOGRAPHY Books Chuah, J.C.T, Law of International Trade, Lodnon: Sweet & Maxwell, 2001. D’Arcy, Leo, ed, Schmitthoff’s Export Trade: The Law and Practice of International Trade, London: Sweet & Maxwell, 2000. Wilson, John, Carriage of Goods by Sea, Pearson – Longman, 2001. Legal articles Brown, I, Acceptance in the Sale of Goods, [1988] J.B.L. 56. Macdonald, E, The Duty to Give Notice of Unusual Contract Terms, [1988] J.B.L. 375. Cases Bigge v Parkinson (1862) 7 H & N 955. Brinkibon Ltd v Stahag Stahl und Stahlwarehandels GmbH [1983] 2 A.C. 34. Chellaram & Co. v China Ocean Shipping Co [1991] 1 Lloyd’s Rep. 493. Chevron International Oil Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 W.L.R. 401. Hadley v Baxendale [1854] 156 E.R. 145. Hogg Insurance Brokers Ltd v Guardian Insurance Co Inc [1997] 1 Lloyd’s Rep. 412. J Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461. L’Estrange v Graucob Ltd [1934] 2 K.B. 394. Mash & Murrell Ltd v Emanuel Ltd [1961] 1 All E.R. 485. Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India; The Kanchenjunga [1990] 1 Lloyd’s Rep. 391. Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd’s Rep. 53. Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep. 388. Smyth & Co. Ltd v Bailey Son & Co. Ltd [1940] 3 All E.R. 60. Stock v Inglis (1884) 12 Q.B.D. 573. Statutes and Conventions 1893Act amended the Sale of Goods Act 1979Sale of Goods Act 1980Rome Convention on the Law Applicable to Contractual Obligations 1982Supply of Goods and Services Act 1990Contracts (Applicable Law) Act 1994Sale and Supply of Goods Act Internet sources https://www.iccwbo.org/incoterms/id3042/index.html https://www.admiraltylaw.com/papers/Carrier.htm 1

[1] https://www.iccwbo.org/incoterms/id3042/index.html

[2] Chuah, J.C.T, Law of International Trade, Lodnon: Sweet & Maxwell) 95; D’Arcy, Leo, ed, Schmitthoff’s Export Trade: The Law and Practice of International Trade, London: Sweet & Maxwell) 15.

[3] (1884) 12 Q.B.D. 573.

[4] Smyth & Co. Ltd v Bailey Son & Co. Ltd [1940] 3 All E.R. 60.

[5] Chuah 108 – 140.

[6] [1997] 1 Lloyd’s Rep. 412.

[7] D’Arcy 54.

[8] D’Arcy 59.

[9] [1996] 2 Lloyd’s Rep. 388. [10] D’Arcy 63. L’Estrange v Graucob Ltd [1934] 2 K.B. 394, Chellaram & Co. v China Ocean Shipping Co [1991] 1 Lloyd’s Rep. 493. [11] J Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461. [12] Chevron International Oil Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 W.L.R. 401. [13] [1854] 156 E.R. 145. [14] Chuah 144 – 145. [15] Chuah 144 – 145. [16] [1983] 2 A.C. 34. [17] [1961] 1 All E.R. 485. [18] D’Arcy 94 – 97. [19] D’Arcy 94. [20] https://www.admiraltylaw.com/papers/Carrier.htm [21] See s 1 of the Bills of Lading Act 1855. [22] Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd’s Rep. 53, Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India; The Kanchenjunga [1990] 1 Lloyd’s Rep. 391. [23] (1862) 7 H & N 955.

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