Judgments - Scottish & Newcastle International Limited (Respondents) v Othon Ghalanos Limited (a company incorporated in Cyprus) (Appellants)

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30.  The proforma and final invoices also contained a set of four boxes with printed headings contemplating their use to show (i) the “Vessel/flight no. and date", (ii) “Port/airport of loading", (iii) “Port/airport of discharge” and (iv) “Place of delivery". These (with some exceptions as regards the first two boxes in the proforma invoices) were completed by entering in box (i) the relevant vessel’s relevant shipment date, in box (ii) Liverpool and in both of boxes (iii) and (iv) Limassol.

31.  Ghalanos’s primary case, on this basis, was that Limassol was the contractually agreed place of delivery under the sale contract. Mr Richard Lord QC for Ghalanos suggested that this case gained support from the fact that Ghalanos would not in practice be able to inspect the goods until after their arrival in Cyprus and from the provision for payment 90 days after arrival. None of these submissions has in my opinion any force. The standard printed heading to box (iv) refers to the place of delivery in the context of transport arrangements which could well involve an element of through or mixed transport, whereby goods discharged from a vessel or aircraft at one place might well be on-carried for delivery at another final destination. As completed with the word Limassol, the invoices merely confirmed that the transport arranged went no further than the discharge port of Limassol. That Ghalanos would not in practice inspect until after arrival in Cyprus adds nothing. It is a commonplace of international sales. The agreement for payment only 90 days after arrival was no more than a relaxed payment regime with no significance in relation to the place of delivery.

32.  In the alternative to their primary case, Ghalanos submit that the contract was on terms providing for delivery CFR Limassol and that “whilst the focus of a fob contract is the place of shipment….the focus of a c&f or cfr/cif contract is the place of discharge". In relation to a CFR (or C&F) contract, Ghalanos maintain that delivery should be regarded as occurring, at earliest, when the shipping documents were forwarded to and/or received by Ghalanos.

33.  Rix LJ took a different view of the general nature of the contract. He considered that “the contract contemplated by the parties differed very little from a form of FOB contract, although it was expressed to be CFR". I agree and would if anything go further. It was to all intents and purposes an FOB contract, although, at Ghalanos’s request, the sum of the agreed FOB price and the freight which S&N prepaid on Ghalanos’s behalf led to the description CFR being applied, in the final invoices in particular.

34.  There is considerable flexibility both within and between categorisations such as FOB, CFR (or C&F), CIF and ex-ship: see e.g. The Parchim [1918] AC 157 (PC) and The Gabbiano [1940] P 166, 173-4. The editors of Benjamin’s Sale of Goods (7th Ed.) (2006) observe at para. 20-001 - quoting Devlin J in Pyrene v. Scindia [1954] 2 QB 402, 424 - that the FOB contract has become “'a flexible instrument', so much so that no really satisfactory definition of such a contract is possible". It embraces (a) cases where the buyer arranges and nominates the ship, but the seller ships and takes the bill of lading in his own name as consignor, (b) cases where the seller arranges shipment and takes the bill in his own name as consignor and (c) cases where the buyer arranges and nominates the ship, and the seller ships but the buyer is named in the bill as consignor: Benjamin para. 20-003. Further, in cases (a) and (b), the seller may be either the only party to the bill of lading or acting as agent for the buyer as a (more or less undisclosed) principal: see Benjamin para. 20-008 and East West Corp. v. DKBS AF 1912 A/S [2003] EWCA Civ 83, [2003] QB 1509, para. 34. In either of cases (a) and (b) the seller may of course prepay the freight, and recoup himself by invoicing the buyer.

35.  However, there are three general differences between FOB and C&F contracts:

(i)  First, an FOB contract specifies a port or a range of ports for shipment of the goods. A C&F contract specifies a port or ports to which the goods are consigned.

(ii)  Secondly, an FOB contract requires shipment (whether by or on behalf of the seller or the buyer) of the goods at the port (or a port within the range) so specified; i.e. the seller cannot buy afloat: see Benjamin para. 20-009. In contrast, under a C&F contract responsibility for shipment rests on the seller, and this can be fulfilled by the seller either shipping goods or acquiring goods already afloat after shipment, and moreover shipment can be at any port (unless the contract otherwise provides).

(iii)  Thirdly, and as a result, a C&F contract involves (subject to any special terms) an all-in quote by the seller, who carries the risk of any increase (and has the benefit of any reduction) in the cost of carriage. In contrast, under an FOB contract, although the seller may contract for and pay the freight, the buyer carries the risk (and has the benefit) of any such fluctuation.

36.  So viewed, it is clear that the present contract was and should be regarded as being in all essential respects an FOB contract. All the indicia of an FOB contract are present. Shipment was required to be made by S&N at one of two ports of shipment contractually specified by the buyer. Indeed, Ghalanos went further and specified in the contract the shipping line and Liverpool shipping agents, with whom S&N were to arrange for carriage to Cyprus. There was no question of buying afloat, and S&N never offered or agreed an all-in price. On the contrary, Ghalanos had made an agreement on the freight rate with the line’s Cyprus agents which the sellers were to invoke when arranging carriage; further, the sale contract specified that the invoices should show the FOB price separately from such freight, and required proforma invoices showing only the FOB prices, with final invoices showing the total FOB value and whatever freight was paid separately. The price was in other words to be FOB, with the actual freight rate to be added in the final invoices, once it was ascertained.

37.  S&N had no commercial interest in the goods after shipment. The bills of lading were to be and were (a) made out to the buyer as consignee and (b) non-negotiable, and were to be forwarded to the buyer “immediately after shipment". Risk and property therefore both passed on shipment: Sale of Goods Act 1979 s.18 Rule 5(1) and (2), ss.19(2) and 20(1). Here, the goods were not deliverable to the order of the seller or his agent, so there was no reservation of any right of disposal within s.19(2).

38.  As to delivery, Rix LJ in the Court of Appeal (para. 21) noted that s.61 of the Sale of Goods Act defines this as meaning (unless the context or subject-matter otherwise requires) “voluntary transfer of possession from one person to another". Rix LJ referred to s.32 as dealing expressly with the concept in the present context of an international sale of goods involving carriage by sea, and concluded (para 23) that delivery under the present contract was thus prima facie effected on shipment, together with the transfer of title and risk. S.32(1) and (2) read:

“(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.”

39.  Mr Lord submits that Rix LJ failed to appreciate the limited scope of application of s.32(1) and (2) in relation to documentary sales of goods involving bills of lading. Mr Lord points out that Benjamin at para. 8-014 states that s.32(1) does not apply where the carrier is the servant or agent of the carrier, citing in support inter alia Dunlop v. Lambert (1839) 6 Cl & F 600 and The Albazero [1977] AC 774. He suggests that in “a typical cif contract” the carrier is the seller’s agent, “because the carrier is engaged by the seller (on his own behalf) and not the buyer". However, I need say nothing about the position under a typical CIF (or CFR) contract, because the present contract belongs for reasons already indicated to a different category.

40.  Both Dunlop v. Lambert and The Albazero concerned the extent to which a consignor can claim damages against a carrier in circumstances where the consignor did not retain either property or risk. Both cases contain statements affirming that the principles in s.32 may apply to documentary sales involving bills of lading where the consignor retains property and risk. In Dunlop v. Lambert Lord Cottenham LC said at p.620 that:

“It is no doubt true as a general rule, that the delivery by the consignor to the carrier is a delivery to the consignee, and that the risk is after such delivery the risk of the consignee….And it is still more strongly so if the goods are sent by a carrier specially pointed out by the consignee himself, for such carrier then becomes his special agent.

But though the authorities all establish the general inference I have stated, yet that general inference is capable of being varied by the circumstances of any special arrangement between the parties, or any particular mode of dealing between them.”

At both pp. 620 and 621 Lord Cottenham mentioned that the consignor might have paid the freight in terms indicating that this did not conclude the question for whom the carriage was being undertaken. He also gave, as two examples where the “general inference” was varied, cases where the consignor by agreement retained the risk until delivery, but added that in “an infinite variety of circumstances, the ordinary rule may turn out not to be that which regulates the liabilities of the parties.”

41.  In The Albazero Lord Diplock explained the common law approach underlying s.32 in terms of bailment, saying at pp.841-2 that:

“The question who stood in relation of bailor to carrier and so was entitled to sue him for the full value of the goods lost or the full amount of the damage could only arise where the consignor and consignee were different persons. In such a case the presumption was that the bailor was the person named as consignee and that in delivering possession of the goods to the carrier the consignor was acting and purporting to act as agent only for a designated principal - the consignee.”

He added that a consignor could make with the carrier a “special contract” - one entered into on his own behalf and not as agent for the consignee - but that, where the consignor was selling to the consignee, the question whether or not he had done so would often be a matter of inference from the terms of the contract of sale.

42.  The application of the common law principle described by Lord Diplock was also contemplated by Lord Hobhouse of Woodborough in Borealis AB v. Stargas Ltd. (The Berge Sisar) [2001] UKHL 17, [2002] 2 AC 205, when he said at para. 18:

“The bill of lading acknowledges the receipt of the goods from the shipper for carriage to a destination and delivery there to the consignee. It therefore evidences a bailment with the carrier who has issued the bill of lading as the bailee and the consignee as bailor".

Commenting on this dictum in East West Corporation v. Dampskibsselskabet AF, 1912, Aktieselskabet [2003] EWCA Civ 83, [2003] QB 1509, paras. 34-35, I said:

“34. …This was said in a context where the named consignees were FOB buyers: cf pp. 215, 216, paras. 7 and 10. In such a context, a shipper may readily, indeed normally, be regarded as acting as agent for a named consignee in making the relevant bill of lading contract: cf Albacruz v. Albazero (The Albazero) [1977] AC 774, 786A-B, per Brandon J. The goods will then have been from the outset bailed by the consignee, acting through the agency of the consignor, to the carrier. But this is only the first of three categories identified by Brandon J in a close analysis of the authorities, which later received approval in the House of Lords [1977] AC 774, 842H, per Lord Diplock, with whose speech all other members of the House agreed. The other categories were: (2) cases where the consignor in delivering the goods to the carrier was acting as principal on his own account, with property and risk remaining in him during the carriage; and (3) cases where the consignor was held entitled to sue, whether or not the property and risk in the goods was in him at any material time, on the ground that the consignor had made a ‘special contract’ with the carrier, and that, because of this, the carrier could not dispute the consignors’ title to sue. …..

35. …It is clear both from Brandon J’s definition of the three categories and from Lord Diplock’s speech [1977]

AC 774, 842C-843A that (a) whether a consignor has contracted with the carrier on behalf of an named consignee or on his own behalf (i.e. whether the case falls within the first or second category) depends upon an analysis of the terms, e.g. of any contract for sale, agreed between the consignor and consignee, which would normally be quite unknown to the carrier, while (b) the question whether the case falls within the third category (i.e. is one where, whatever the position regarding property and risk, the consignor has made a ‘special contract’ with the carrier) involves an analysis of the relationship between the consignor and carrier. Thus, in circumstances where a consignor was acting on his own behalf in shipping the goods, or at all events reserving the right vis-à-vis the consignees to deal with and redirect the goods, Lord Brandon’s analysis in The Aliakmon [1986] AC 785, 818 was that: “The only bailment of the goods was one by the sellers to the shipowners.” See also Carver on Bills of Lading, para. 7-038, footnote 47 and Benjamin’s Sale of Goods, 6th ed (2002), para 18-057.”

43.  In the most recent (7th) edition of Benjamin at para. 18-065, Sir Guenther Treitel points to possible difficulties about Lord Hobhouse’s invocation of the common law principle on the particular facts of The Berge Sisar. These do not affect the general distinction drawn in the East West Corporation case between situations where, on the one hand, a seller ships goods on the buyer/consignee’s behalf and, on the other hand, a seller acts on his own behalf, whether because he retains property and risk or simply because he reserves rights to deal with and redirect the goods, for example against the event that the buyer defaults in taking up and paying for the goods against the documents.

44.  None of the latter features exists in the present case. Here the bills of lading were, under the sale contract between S&N and Ghalanos to be, and were, non-negotiable. They were made out to Ghalanos as consignees. The sale contract required them to be forwarded “immediately after shipment by registered and express mail” to Ghalanos. S&N were to arrange and “prepay” on behalf of Ghalanos freight at a rate negotiated by Ghalanos. The price and freight were not payable by Ghalanos against transfer of the bills, but 90 days after each vessel’s arrival in Cyprus. S&N were to have no actual or potential right or interest in the goods or the bills of lading after shipment.

45.  The only factor that, it may be suggested, takes the present case outside s.32 and outside the analysis of the position in bailment in the statement by Lord Diplock in The Albazero (paragraph 41 above) is that S&N accept that they incurred liability as principals to the carriers for the freight, which, as between S&N and Ghalanos, S&N were requested to “prepay” on Ghalanos’s behalf. But this factor could mean (at most) that S&N were party to a special contract with the carriers, and could have claimed damages in respect of any breach of that contract, e.g. involving loss or damage to the goods. In relation to Ghalanos, S&N may still have been acting as an agent, rather than a principal, in shipping the goods and/or in holding the bills of lading received upon shipment. An analysis, according to which S&N, when contracting personally with the carrier, were also contracting on behalf of Ghalanos was not suggested below, though there could have been much to say for it (cf also Bowstead & Reynolds on Agency (18th ed.) para. 9-006). But, assuming that S&N alone were party to the carriage contract, everything still indicates that S&N ceased as regards Ghalanos to have any interest in the goods upon shipment and held the bills of lading issued upon shipment on behalf of Ghalanos, with the corresponding obligation to forward them to Ghalanos immediately. The bills symbolise the goods, and possession of the goods was on this basis held by S&N for and on behalf of Ghalanos as from shipment.

46.  This conclusion is consistent with general principle. “The legal relationship of bailor and bailee of a chattel can exist independently of any contract": Morris v. Martin Ltd. [1966] 1 QB 716, 731, per Diplock LJ, and East West Corporation, para. 24. A bailee may owe duties in bailment not merely to his immediate bailor, but also to a third party owning or having an immediate proprietary interest in the goods, certainly where the bailee is on notice that such a third party exists: East West Corporation, paras. 25-27 and cf generally Palmer on Bailment (2nd ed.) chaps. 15(II) and 20. Cases of sub-bailment are only one example. In East West Corporation bills of lading were made out by the shippers to Chilean banks or order and delivered to the banks, who were acting vis-a-vis the shippers purely as agents (to collect on behalf of the shippers the price payable by buyers at destination). Under the Carriage of Goods by Sea Act 1992 the contractual rights of suit evidenced by the bills of lading were transferred to the banks. However, the shippers retained an immediate possessory interest in the goods, entitling them to hold the carriers responsible as bailees accordingly: East West Corporation, paras. 27 and 37-39.

47.  Here, there is every reason, in view of the nature and terms of the sale contract, to regard S&N as bailing the goods to the carriers on behalf of Ghalanos, even if Ghalanos were not party to any contract which S&N made with the carriers. The carriers could not reasonably suggest that they thought that S&N were the only persons likely to own and be at risk in respect of the goods on or from shipment. The fact that the bills were non-negotiable and made out to Ghalanos as consignees were clear contrary indications. Ghalanos would be bound by the terms of the bills of lading qualifying the carriers’ liability in respect of the goods and their carriage: The Pioneer Container [1994] 2 AC 324. If the bills of lading had been taken out and held by S&N in their own interests (e.g. pending payment of the price), then delivery of the bills to Ghalanos as the named consignees could have been required before Ghalanos acquired any possessory interest. But that sheds no light on the present case, where S&N made the shipment and held the bills throughout for Ghalanos.

48.  In these circumstances, under the principles contained in the Sale of Goods Act, Rix LJ was in my opinion correct to treat delivery of possession of the goods as well as property and risk in respect of them as having taken place upon shipment. It follows that delivery of the goods took place upon shipment in every sense that can conceivably be relevant under article 5(1)(b) of the Judgments Regulation and that the appeal should be dismissed on that basis alone.

49.  It thus becomes unnecessary to consider what the position might have been after the passing of property and risk on shipment if S&N had not only made a special contract with the carriers but had also, for some reason (e.g. to secure payment of the price), retained symbolic possession of the goods through the bills of lading until these were forwarded to and/or received by Ghalanos. I will however say something about the position on this hypothesis. Mr Lord’s primary submission was that the “place of delivery” under article 5(1)(b) would then be (i) nowhere, (ii) the place of shipment, Liverpool, (iii) the place where the documents were transferred, (iv) the place where the goods happened to be when the documents were transferred (at least if that was within the territory or territorial waters of a Member State) or (v) the place of destination, Cyprus. It might, he suggested, be necessary to consider referring to the European Court of Justice the question what is the correct approach under a documentary sale such as the present.

50.  For reasons already indicated, I see no basis for possibility (v). Possibility (i) arises, in Mr Lord’s submission, from the nature of a documentary sale, under which delivery takes place in more than one sense and may therefore take place in more than one place. It is true that article 5(1)(c) itself contemplates that article 5(1)(b) may not apply. However, the most obvious reason for article 5(1)(c) is that not all contracts are for the sale of goods or provision of services, and still less for the delivery or goods or the provisions of services in any Member State. Article 5(1)(a) thus covers for example a contract for the sale of goods for delivery in South Africa. It would seem surprising however if there was no place of delivery at all within article 5(1)(b) even though all the places identified under possibilities (ii), (iii) and (iv) lay within Member States.

51.  In its recent decision in Color Drack GmbH v. Lexx International Vertriebs GmbH (Case C-386/05) [2007] I.L.Pr. 35, the European Court of Justice explained the aim of Regulation EC 44/2001 as being to enable a claimant “to identify easily the court in which he may sue and the defendant reasonably to foresee before which court he may be sued” (paras. 19, 20, 32 and 33) and the origin of article 5(1)(b) as an exception to the original rule reflected in article 5(1)(a):

“By that provision (article 5(1)(b)), the Community legislature intended, in respect of sales contracts, expressly to break with the earlier solution under which the place of performance was determined, for each of the obligations in question, in accordance with the private international rules of the court seised of the dispute. By designating autonomously as ‘the place of performance’ the place where the obligation which characterises the contract is to be performed, the Community legislature sought to centralise at its place of performance jurisdiction over disputes concerning all the contractual obligations and to determine sole jurisdiction for all claims arising out of the contract.” (para. 39)

52.  Article 5(1)(b) takes a very simple contractual model. It directs attention to a place of physical delivery of goods. The physical obligation by way of delivery which characterises an essentially FOB contract such as the present is clearly shipment. That involves an easily identifiable physical delivery at an easily identifiable place. It is on and at shipment that the goods have to be of the contractual quantity and quality as well as fit for carriage to destination (ss. 2, 14, 15 and 30 of the Sale of Goods Act), and it is then that the risk of any subsequent loss, damage or problem passes to the buyer (ss.18 rule 5 and 20(1)). The transfer of documents may under some FOB sales give rise to a notional passing of possession in the goods: cf e.g. Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 QB 459, 486. But it would be highly undesirable that the place of delivery for the purpose of article 5(1)(b) should be understood in a way which could mean that it varied according to an analysis of which of the types of FOB contract identified in paragraph 34 above was involved. The place where possession passes, or where either the shipping documents or the goods are when it passes, is generally irrelevant under FOB contracts and under this particular contract. Further, any place with which such events might be associated could not be regarded as either easy to identify or reasonably foreseeable.

53.  That shipment identifies the place of delivery with which FOB contracts are naturally associated is illustrated by a number of passages in Benjamin. In the chapter on FOB contracts, para. 20-014 headed “Place of delivery” reads:

“An f.o.b. contract will normally indicate the port of shipment, either by naming it or by stating which party has the right to name it. The place of delivery may also be stated more narrowly, as a particular wharf within a port. An f.o.b. contract which contains no indication at all as to the place of delivery may be void for uncertainty.”

In considering the duty to obtain and tender shipping documents at paras. 20-020 to 20-027, Benjamin also observes (in para. 20-026) that

“There is no necessary connection between delivery and passing of property, and a seller may perform his duty to deliver by shipping the goods without at the same time unconditionally appropriating them to the contract so as to pass the property.”

In relation to the governing law of an FOB contract, Benjamin also identifies (para. 25-010)

“the observable tendency in the relatively few authorities to treat the country of shipment as the place of performance by delivery on board the ship and to regard the contract as governed by the law of that place in the absence of any countervailing considerations".

 
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