International Trade and Carriage of Goods

Baris Soyer, Andrew Tettenborn, Baris Soyer, Andrew Tettenborn

• Publisher: Informa Law from Routledge
• Year: 2016
• ISBN:
  9781317290469
• Edition: 1
• Topic: Diritto
• Subtopic: Teoria e pratica del diritto

This book consists of edited versions of the papers delivered at the Institute of International Shipping and Trade Law's 11th International Colloquium, held at Swansea Law School in September 2015. Featuring a team of contributors at the top of their profession, both in practice and academia, these papers have been carefully co-ordinated so as to ensure to give the reader a first class insight into the issues surrounding international sale and carriage contracts.

The book is set out in three parts:

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• Part I offers a detailed and critical analysis on emerging issues and unresolved questions in international sales and the carriage contracts affected to facilitate such sales.

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• Part II critically and thoroughly analyses the legal issues that often arise in the context of security over goods, letters of credit and similar documents.

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• Part III is dedicated to a critical and up-to-date discussion on matters concerning cargo insurance in this context.

With its breadth of coverage and high-quality analysis, this book is vital reading for both professional and academic readers with an interest in international trade and carriage of goods.

Part 1
Contemporary Issues in International Sale Contracts

Chapter 1
What is a reasonable contract of carriage for CIF/CIP purposes? – section 32(2) of the Sale of Goods Act 1979

Ruth Hosking^*

1.1 Introduction

Section 32(2) of the Sale of Goods Act 1979 sets out a seller’s duty to make a reasonable contract of carriage for the goods being sold. This provision is, as one commentator eloquently put it, ‘little known and seldom applied’.¹ It has attracted very little judicial consideration and hardly any academic commentary. This chapter seeks to examine the provision, including its legislative and case law history, and consider the extent to which it might be capable of being successfully used by buyers.

1.2 The statutory framework

Section 32(1) of the Act provides:

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 delivery of the goods to the buyer.

Section 32(2) of the Act then provides, with reference to the cases contemplated by subsection (1),² that:

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 the 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.

Under both classic CIF and CIP contracts, the sellers are required to send the goods to the buyer and are contractually bound to make a contract of carriage. However, the provisions of s. 32(2) apply even where the seller is not contractually required to make a contract of carriage – where it is merely ‘authorised’ but not ‘required’ to send the goods to the buyer.³

1.3 The legislative history of the provision

Section 32(2) of the Act is identical to the same provision in the Sale of Goods Act 1893. That Act⁴ was itself a codifying Act in that it drew on established common law principles: see for example the pre-Act case of Clarke v Hutchins⁵ where it was decided that it was the duty of the seller ‘to do whatever was necessary to secure the responsibility of the carriers for the safe delivery of the goods, and to put them into such a course of conveyance, as that in case of a loss the [buyer] might have his indemnity against the carrier’.⁶

More than seven decades later, in 1885, in Pointin v Porrier⁷ the court applied the seller’s duty as set out in Clarke v Hutchins,⁸ albeit using a slightly different formulation, namely that the seller ‘must take reasonable precautions to insure safe delivery, and if it does not, and in the case of the loss the defendant has no indemnity against the carrier, it cannot be said to have been a proper delivery’.

In 1888 Sir Mackenzie Chalmers produced the first draft of the Sale of Goods Bill. Clause 40(2) of that Bill included a provision that ‘In order that delivery to a carrier may operate as delivery to the buyer, the seller must entrust the goods to the carrier on such terms as may be usual for making the carrier responsible to the buyer for the safe custody and carriage of the goods.’ The language of ‘usual terms’ was amended to ‘reasonable steps’⁹ in the 1890 Bill and further amended to ‘reasonable terms’ in the 1892 version of the Bill. The other, and arguably more important, change between the draft Bill and the 1893 Act was that the reference to ensuring the carrier’s responsibility for the safekeeping of the goods was deleted and a duty to conclude a reasonable contract of carriage put in its place. Which leaves the question: what is a reasonable contract of carriage?

1.4 The reasonableness test

The question of reasonableness is to be determined by the circumstances prevailing at the time of performance, namely the time when the goods are shipped and not when the contract was made: Tsakiroglou & Co Ltd v Noblee Thorl GmbH.¹⁰ It is a question of fact in each case whether a contract is reasonable in accordance with s. 32(2) of the Act: see The Rio Sun.¹¹

English lawyers are familiar with other statutory provisions which include a reasonableness test, the best known of which is s. 11 of the Unfair Contract Terms Act 1977. However, the reasonableness test in s. 32(2) of the Act is not expressly set out in the Act and appears (on the basis of the little case law available) to involve three steps or stages: (1) the contract must be on usual terms; (2) the contract must be appropriate to grant sufficient protection to the goods while in transit; and (3) the contract must give the buyer protective rights against the carrier.¹²

1.4.1 Contract on usual terms

The terms of the contract of carriage must be usual for the trade concerned. What is usual in the trade is to be considered ‘mercantilely reasonable’.¹³ Other cases have referred to this duty as being a duty to procure a contract of carriage which is ‘reasonable and usual’¹⁴ or one which does not contain ‘unreasonable or unusual’ terms.¹⁵ As Rix J said in The Northern Progress:¹⁶

A proper contract of affreightment or bill of lading is one which will inter alia provide for the carriage of the goods to the contractual destination, contain no deviation clauses other than those which are usual and customary, and generally be in a form which is ‘reasonable and acceptable in the trade’ or ‘usual and customary’… These duties are reflected in s. 32(2) of the Sale of Goods Act 1979.

In Finnish Cellulose Union v Westfield Paper Co Ltd¹⁷ the court had to determine whether the inclusion of an FAA Current War Risk Clause contained in a contract of carriage was usual. In doing so, Lord Caldecote reviewed carriage contracts in the trade in question and found on the evidence that in the trade, the identical clause, or one like it, had been widely used since the outbreak of the Second World War and that save for this case and in the case of one other shipment, no question had been raised concerning the clause. He opined that he would have expected ‘some objection to have been taken to the clause, if it was so unusual or unreasonable as to make a bill of lading containing it defective as a shipping document, under a c.i.f. contract’.¹⁸

However, Lord Radcliffe in Tsakiroglou & Co Lt v Noblee Thorl GmbH¹⁹ opined for a broader meaning of ‘reasonable’, as follows:

In my opinion there is no magic in the introduction of the formula ‘customary or usual route’… the natural way to answer this question is to find out what is the usual thing in the same line of business. Various adjectives or phrases are employed to describe the point of reference. I can quote the following from judicial decisions: recognized, current, customary, accustomed, usual, ordinary, proper, common, in accordance with custom or practice or usage, a matter of commercial notoriety, and, of course, reasonable. I put ‘reasonable’ last because I think that the other phrases are at bottom merely instances of what it is reasonable to imply having regard to the nature and purpose of the contract.²⁰

Clearly there is a connection between what is reasonable and what is usual in the trade. But the question of what is a reasonable contract of carriage is broader than simply asking what is a usual contract of carriage, and this is where the further two steps or stages of the reasonableness test under s. 32(2) of the Act come into play.

1.4.2 Contract must be appropriate to grant sufficient protection to the goods while in transit

The seller is taken to possess reasonable knowledge of the characteristics of the goods they are selling and must therefore ensure that the contract of carriage provides for the taking of any necessary precautions to preserve them during the transit. As Bingham J said in The Rio Sun:²¹

In considering the cargo, the sellers were, in my view bound to possess reasonable knowledge of the characteristics of the goods they were selling and ensure that their contract of affreightment provided, whether expressly or by virtue of the duty lying on the shipowner, for the taking of any necessary precautions to preserve the goods during the voyage in question.

When procuring the contract of carriage, the seller is entitled to assume that the duration of the transit will not be longer than that which is usual, taking into account ordinary vicissitudes. However, if they procure a contract of carriage which takes a longer route than usual, it does not automatically follow that the seller is in breach by failing to procure a reasonable contract of carriage. In Tsakiroglou & Co Ltd v Noblee Thorl GmbH,²² in determining that a longer route than usual was a reasonable one within the meaning of s. 32(2) of the Act, Lords Reid and Radcliffe relied on the fact that there was no evidence that the longer voyage ‘would be prejudicial to the condition of the goods or would involve special packing or stowing’.²³

In BC Fruit Market Ltd v National Fruit Co,²⁴ a Canadian case, the seller sold cabbages to be shipped on a heated train car but the bill of lading tendered failed to provide that the goods were to be carried on a heated train car, and when they arrived they were frozen. The buyer refused to take delivery of the cabbages and the seller sought to sue for the price. The Alberta Supreme Court held that the duty implied by the word ‘reasonable’ in the Act was one to provide the buyer with a contract of carriage by which:

[the carrier] would be bound to protect [the goods] from frost while in transit because that would clearly be the only contract which would be reasonable having regard to the nature of the goods and the other circumstances of the case.²⁵

There is, however, no need for the seller to procure a contract of carriage which stipulates exceptional, specialist or extraordinary measures need to be taken.²⁶

1.4.3 Contract must give the buyer protective rights against the carrier

In Hansson v Hamel & Horley Ltd²⁷ (a case looked at in more detail below) the House of Lords held that a CIF seller ‘has to cover the buyer by procuring and tendering documents which will be available for his protection from shipment to destination… When documents are to be taken up the buyer is entitled to documents which substantially confer protective rights throughout.’²⁸

The document procured by the seller must make the buyer a party to the contract concluded by the carrier and as a minimum must give the buyer title to sue in contract by virtue of s. 2(1)(a) of the Carriage of Goods by Sea Act 1992, although merely giving title to sue is unlikely to be sufficient to satisfy the reasonableness test. However, it is highly unlikely to require that the contract of carriage procured by the seller has to provide the buyer with a remedy or claim against the car...