Case Study
Introduction
The main issue raised in this case scenario entails the seller’s duties to the buyer. The seller is not held liable if he has properly carried out his physical and documentary duties. The buyer is entitled to seek remedy where the seller fails to fulfill his part of the contract.
Rejection of the Bill of Lading by Xu
The seller’s duties under CIF sales include physical duties and documentary duties (Sassoon et al, 2012). Physical duties under the Sale of Goods Act 1979 include the sale of goods of satisfactory quality. The buyer may reject the goods promptly and claim damages if they are not of satisfactory quality. The satisfactory quality is in terms of fitness for purpose. Section 13 of the Sale of Goods Act stipulates that the goods should be in line with the description in which they are sold. Where the goods do not match the seller’s description, the seller will be in breach of an implied condition. The English courts have expanded the scope of ‘description’ to include various interpretations in line with the conditions stipulated under section 13 of the Sale of Goods Act. Bowes v Shand (1877) established that the date of shipment and name were part of the description. An important point to note is that the CIF contract does not mandate the seller to tell the buyer the names of the ship. Thus, the change of name is irrelevant in CIF contracts, unlike in FOB contracts which compel the seller to do so (Sassoon et al, 2012).
With regard to documentary duties, the seller is supposed to tender all relevant documents to the buyer, including the bills of lading, which accurately stipulate that the shipment has occurred within the timeframe agreed in the contract of sale, invoice, insurance policy, and other documents (Sassoon et al, 2012). In the case of Procter & Gamble [1988], Kerr J held that the buyer can reject documents if there is inaccuracy in their contents. Upon rejection, he can refuse to pay the price.
There is no absolute duty on the seller to ensure that a bill of lading arrives before the goods (Carr & Stone, 2005). Furthermore, in the absence of agreement to the contrary, a purchaser is not entitled to all the bills in a set (Sassoon et al, 2012).
The contract of carriage provides for the carrier to deliver goods to the holder of an appropriately endorsed bill of lading (Sassoon et al, 2012). This is irrespective of the capacity in which the holder holds the bill. The carrier will be liable for breach of contract if he fails to deliver the goods to the holder. The carrier is not expected to investigate into the relationship between the buyer and the seller (Pejovic, 2006). Leggart LJ in Kuwait Petroleum Corporation v O & D Oil Carriers [1994] held that delivering goods without producing the bill of lading amounts to a breach of contract even in situations where the delivery is made to the party entitled to possession.
The carrier is not supposed to make delivery of goods before presenting an original bill of lading. However, in SA Sucre Export v Northern River Shipping Ltd (1994), it was ruled that the carrier may make delivery without presentation of a bill of lading if he proved beyond reasonable satisfaction that the person demanding delivery was entitled to possession of the goods and that there is a reasonable explanation to what happened to the bill of lading.
What might be regarded as taking reasonable steps to ensure a bill arrives as soon as practicable is a matter of fact depending on the circumstances (Todd, 2003). Modern banking practice requires all bills in a set. The contract by Chen stipulated that the goods would be sold CIF to Xu, ‘cash against documents’ in China. The bill of lading is often given in sets of three identical parts, each of them reflecting an original document (Pejovic, 2006). The facts of the case indicate that Xu was only given one bill of lading. There is no indication that he received other important documents such as insurance document or invoice. The buyer is entitled to reject the documents where others are missing. Nonetheless, the seller may rectify the defect within an agreed time and present another good tender, which does not allow the buyer to reject. If Chen did not supply all the relevant documents to Xu, Xu is entitled to reject the bill of lading. However, Chen may seek some time to tender all relevant documents.
Xu’s Remedies
The conventional obligation of the seller to deliver under section 27 of the Sale of Goods Act 1979 is commuted under the CIF contract into duties to procure, ship and adopt the shipment of, conforming goods, and to provide the buyer with direct rights against the carrier and the insurer. As was established by Lord Wright in the case of Smyth & Co Ltd v Bailey Son & Co Ltd (1940), the seller has an obligation to tender proper shipping documents in fulfillment of the contract. With regards to a CIF contract, conflicts may emerge, even in the middle of the transaction or contract (Todd, 2003). This indicates the significance of the documentary obligations in relation to the sellers.
Under the terms of the CIF contract, the seller has an obligation to provide an accurate bill of lading (Sassoon et al, 2012). This duty is a condition under the stipulated contract. Failure to provide an accurate bill of lading results into a breach of the obligation under CIF terms. The buyer has a right to reject the documents and seek remedies for defective documents. The remedies for a purchaser under CIF include recovery of foreseeable damages or loss and repudiation of the contract. In this case, Xu needs to show that the bill of lading is defective if he has to reject it and refuse to pay for the goods.
Kwei Tek Choa v British Traders and Shippers established that incorrect documents such as the bill of lading are a breach of a contractual term. Nonetheless, it is not possible to claim remedies where the Bill of Lading shows the true date elsewhere. This was exemplified in the case of Panchaud Freres SA v Establishments General Grain (1970). Bunge Corp v Tradax [1981] also provided that the most important stipulations in the bill of lading involve stipulations of time and place of shipment.
The case under study does not indicate whether the bill of lading was inaccurate with regards to the time of delivery. In James Finlay & Co Ltd v N.V. Kwik Hoo Tong H. M. (1929), the court held that the buyer is entitled to reject a bill of lading which contains an inaccurate date of shipment, whether fraudulently or innocently. Thus, Xu may reject the goods if the date of shipment on the bill of lading was inaccurate. The seller has an implied obligation to ensure that the bill of lading is dated accurately on the shipment date.
In relation to the duty of the seller to provide an accurate bill of lading, Chen may have provided an accurate bill of lading in relation to the date of shipment. If that is so, Xu would be bound to accept the document as accurate. As discussed, courts are merely interested in whether the date of shipment corresponds with the date on the bill of lading. Otherwise, there is no ground for rejection of the goods.
According to section 35 of the Sale of Goods Act 1979, the buyer indicates his acceptance of the goods when, upon delivery of the goods to him, he acts in any manner inconsistent with the ownership of the seller. The Act also requires the seller to reasonably examine the goods to ascertain whether they conform to the contract. Xu’s acceptance of the bill of lading and payment of the purchase price was an act inconsistent with the ownership of Chen. Xu became the owner of the goods. Thus, he cannot repudiate the contract because he accepted the goods.
Remedy in damages lies where, if there were no error on the bill of lading, the buyer would have had to accept it (Todd, 2003). Xu did not make it a term of contract that Li should have nothing to do with the goods so that had the original bill been presented, he would probably have had to accept it. There is no right to damages for Xu in the circumstances. A purchaser cannot rely on an error which is discoverable on the face of the bill of lading applying Panchaund Freres case.
Any amendments to a bill of lading without the consent of the carrier and/or persons who owned it will render the bill invalid (Safeway, n.d; Todd, 2003)). An improperly amended bill may cease to be a bill of lading at all so far as the law is concerned. A bill of lading states the date and place of shipment and describes the goods in terms of their value, quality, quantity, condition, identification marks, dimensions and weight. A correct bill of lading contains the names of the parties involved in the contract. In The Albazero [1977], Roskill LJ held that even the amendment of shorthand form contracts such as CIF requires the implied or express agreement of the parties involved. Where there is need for amendment of a bill of lading, an amendment made by only one party to the contract is not binding on the parties involved. Any amendments to the bill of lading need to be accomplished by both parties, and the amended copies of the contract provided.
Wang amended the original bill of lading without the consent of Xu who is party to the contract. This implies that the amendment of the bill was improper and thus rendering it invalid. Xu may have been entitled to reject the improperly amended bill on the ground that it is no Bill of Lading at all. It was established in Kwei Tek Chuo v British Traders and Shippers that the buyer may reject documents which are not in order and treat it as a repudiatory breach by the seller.
Wang is acting on behalf of the carrier and the carrier may therefore be responsible for his actions under the rules of agency. According to section 2 of Carriage of Goods by Sea Act 1992, the purchaser of goods may sue the carrier by virtue of the carrier being the lawful holder of the bill of lading. It is implied that the carrier’s holding of the bill of lading transfers to and vests in him the rights of suite under the contract of carriage as if he was party to the contract of sale. Where the carrier, as the seller’s agent, acts beyond the scope of his actual authority under the contract of agency, the seller enjoys immunities from liabilities.
In an agency, the agent is obligated to act in the best interests of the principal within an agent’s authority (Atiyah, 2005). Practically, the agent is supposed to exercise due diligence and skill while negotiating transaction terms on behalf of the principal with third parties to the greatest advantage of the principal. Where there is a conflict of interest between two principals, the agent will opt for the principal who appointed him. Thus, if the agent makes full disclosure of the interests to his principal and obtains the consent of the principal, the agent assumes the authority to act for the principal. Failure to fully disclose the interests to the principal amounts to a breach of the fiduciary duty of the agent. Consequently, the principal will not be held liable where the agent acted beyond the scope of his authority (Atiyah, 2005).
In the circumstances of the case, Wang was aware of the fact that Xu did not intend to purchase any goods from Li. Wang, however, failed to inform Xu that Chen in fact had purchased the goods from Li. Wang’s conduct shows his intent to deceive Xu that the goods were never purchased from Li. Wang is probably liable for deceit on this ground. With regard to the agency relationship, Wang acted in the best interests of his principal. Wang’s intention was that his principal gets the greatest advantage from the terms of transaction with Xu. However, he may be held personally liable for the tort of deceit because he did not inform his principal that Xu did not intend to purchase any goods from Li. Nevertheless, the ownership of the goods had passed to Chen and Wang can argue that he made the statement because Chen was then the true owner of the sugar and not Li.
Conclusion
Xu may reject the bill of lading on grounds that it is invalid. He may thus repudiate the contract and seek refund of the purchase payment. Alternatively, he may accept and the goods and pursue damages for the breach of contract. Xu may also seek damages for the tort of deceit by Wang.
References
Atiyah, P. S. (2005). The sale of goods. Pearson Education.
Bowes v Shand (1877) 2 App Cas 455.
Bridge, M. D. (n.d). Documents and CIF Contracts. University of Nottingham.
Bunge Corp v Tradax [1981] 1 WLR 711.
Carr, I. & Stone, P. (2005). International Trade Law. New York: Routledge Cavendish.
James Finlay & Co Ltd v N.V. Kwik Hoo Tong H. M. [1929] 1 K.B 400.
Kwei Tek Chao v British Traders and Shippers Ltd. [1954] 2 Q. B. 459.
Kuwait Petroleum Corporation v O & D Oil Carriers (The Hounda) [1994] 2 Lloyd’s Rep. 541 at 550 to 552, 556 (English CA).
Panchaud Freres SA v Establishments General Grain (1970), 1 Lloyd’s Rep. 53.
Pejovic, C. (2006). Legal Issues Arising from Delivery of Goods Without a Bill of Lading: Case Study of Some Asian Jurisdictions. PPP god, 45(160): 1-20.
Procter & Gamble [1988] 2 Lloyd’s Rep 21 at p 23.
SA Sucre Export v Northern River Shipping Ltd. (The Sormovskiy) [1994] 2 Lloyd’s Rep. 266.
Safeway. Bill of Lading, Part 373. Retrieved from: http://suppliers.safeway.com/usa/forms/bill_of_lading_document.pdf
Sassoon, D. M., Lorenzon, F., Skajaa, L., Baatz, Y., & Nicoll, C. (2012). CIF and FOB contracts
(Vol. 5). Sweet & Maxwell.
Smyth & Co Ltd v Bailey Son & Co Ltd [1940] 3 All ER 60, 67-8
The Albazero [1977] AC 774, 809.
The Carriage of Goods by Sea Act 1992.
The Sale of Goods Act 1979.
Todd, P. (2003). Cases and materials on international trade law. Sweet & Maxwell.
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