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Flashcards in FOB Contracts Deck (38):

FOB: Main Features

Free On Board

- Duties of seller end when seller puts the goods on board the vessel - at this point, goods the becomes responsibility of buyer - This means that an FOB seller can't sell goods 'afloat'.

- Normally(!), it is the buyer who nominates the vessel that will carry the goods - normally not the seller's duty to find shipping space; just needs to bring goods to port at own cost and load on to vessel

- Not seller's duty to INSURE goods nor to pay FREIGHT - these are duties of the BUYER - often seller will pay, but stated on invoice as separate item - not lump sum - seller will seek reimbursement - pays for them 'on behalf of the buyer'.


- ‘FOB Liverpool’, means that Liverpool is the port of shipment, not the port of destination.

- Parties are of course free to depart in some respects from these standards - it is flexible and there are many types.


Scottish & Newcastle International Ltd v. Othon Ghalanos Ltd [2008]

LORD MANCE (H of L) - 3 essential features of an FOB contract

(1) The way the price is quoted by the seller (i.e. not lump sum)

(2) The form in which the contract terms are stated - e.g. 'FOB Liverpool' - port of desitnation.

(3) Seller's shipment duty - ends at loading goods.

Here, contract for cider - seller in Scotland to a buyer in Cyprus.
“Delivery, Cost & Freight, Limassol”.
Shipment was to be at Liverpool.
Buyer in Cyprus negotiated the freight with the carrier, then informed seller of this agreement, and instructed seller to contract carrier's agent in England - requested that seller pay freight and seek reimbursement after as separate item.
Seller shipped goods and paid freight - goods arrived in Limassol - buyer collected, but failed to pay contract price.
Seller sued in England - question was did English courts have jurisdiction? - Depedned where goods were delivered.
Buyer argued goods delivered in Cyprus.

No - goods delivered in Liverpool.
It was FOB - in an FOB contract, THE DELIVERY POINT IS THE PORT OF SHIPMENT - so English courts did have jurisdicton.
Price was not a lump sum price as the freight was stated as a separate item; thus this could not have been a CIF contract.
No question of the seller buying goods afloat – the parties had agreed that the seller must actually ship the goods.
It was the buyer who had negotiated the freight with the carrier.


Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954]

(Classification of FOB contracts)

Justice DEVLIN identified 3 types:
Key question:
Who has contract of sale with the carrier?

- where it is duty of buyer to nominate vessel, make shipping arrangements + pay
- seller puts good on board vessel + obtains bill of lading on terms usual in the trade.
- if seller takes out b/l in SELLER's own name, contract of carriage directly with seller, until seller delivers b/l to buyer.
- but if seller takes out b/l in BUYER's name, contract of carriage will be with buyer

(2) FOB TYPE 2 - seller makes shipping arranagements
- seller makes shipping arrangements and obtains b/l in his own name
- seller has contract with carrier, until delivers b/l to buyer - then buyer bound by it as if he has made contract with carrier.
- 'FOB with additional services'
- e.g. The El Amria and The El Minia

(3) FOB TYPE 3 - buyer makes shipping arrangements (as in the case itself)
- Buyer makes shipping arrangements - nominates vessel, pays etc.
- Seller only has to take goods and put them on board
- The shipper (party transporting goods from seller's warehouse to the carrier) delivers goods to the carrier, the carrier gives shipper a 'MATE'S RECEIPT'
- Shipper gives it back to seller who then gives it to buyer's agent ("the forwarding agent"), in the country of origin, who then takes out b/l in the BUYER's name.
- Mate’s receipt is a document that serves as a receipt confirming the type and quantity of goods that have been delivered to the carrier - the forwarding agent will need to complete it and return it to carrier, for b/l to be issued, telling them who it should be made out in favour of.
- B/L will then be in buyer's name; contract of carriage with buyer.


The El Amria and The El Minia [1982]

Example of Type 2 FOB contract (within the Pyrene classification)

Sale of onions - seller was member of trade association for onions - the Association had a contract of carriage with the carrier - seller (as a member thereof) thus also had contract with carrier
However, in this case, seller took out a b/l when goods shipped; later delivered it to the buyer - Buyer used b/l to receive goods at destination - but onions arrived beaten.
Buyer bought action in tort of negligence against carrier, in England.
Clause in contract of carriage specified that Egyptian courts had exclusive jurisdiction.
Buyer argued he was not party to this contract so clause did not apply to him.

C of A held; NO
This was FOB Type 2 - buyer became party to the contract when the bill of lading was transferred to him.
Buyer was therefore bound by that contract with the carrier, and therefore this jurisdiction clause was binding on them, so could not proceed with claim in England.


Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954]

(On Type 3 FOB)

In a Type 3 FOB contract, although the seller is not a party to the b/l contract (contract of carriage), is there is any other contract between the seller and the carrier?

Here, goods were damaged in the process of loading - in FOB, once seller has put goods 'on board' vessel, they are 'free' from risk - here, good damaged before they'd 'crossed the ship's rail'. - On the quay.
So risk was still with seller.
Seller claimed against carrier.
Carried relied on limitation clause in contract of carriage.
Seller argued that it did not apply to him, as in Type 3 FOB, b/l in buyer's name only.

Held; YES - seller not party to it...
BUT held; there was nevertheless a relationship between the seller and the carrier at the point when seller had delivered the goods to the carrier and received the mate's receipt - this was an IMPLIED CONTRACT, and the TERMS therein were the SAME as the terms of the bill of lading contract.
Thys, limitation clause applied also to seller.

Thus, in aType 3 FOB , there is initially an implied contract between the seller and the carrier and then, once b/l issued, then a contract between the carrier and the buyer, on the b/l - which the seller is not party to.


NV Handel Ny J. Smits Import-Export v English Exporters (London) Ltd [1957]

Seller had agreed to ‘do their best’ to secure shipping space for a cargo to be delivered FOB Rotterdam, but failed to nominate a ship.
Held; mere fact that seller was burdened with the limited obligation of 'doing their best to secure shipping space' did not prevent contract from being on FOB terms.
= Further judicial recognition given to the flexibility of the FOB contract.

Parties can adjust the FOB contract to suit their needs - however, there *IS* still such a thing as an FOB contract with its own essential features.
Thus a contract which lacks those essential features will not be classified by the courts as an FOB contract.
Conversely, a contract which has got those essential features will be classified as an FOB contract and there will be consequences flowing from that classification.


Seller's duties in an FOB contract

- Must put goods on board the vessel that are in conformity with the contract of sale.
- Delivery on board the vessel nominated by the buyer is equivalent to delivery of the goods to the buyer.

- This is different to the nature of the duty in CIF contracts - though an FOB seller may have documentary duties, fulfilling them is not a substitute for their physical duty to put the goods on board the vessel.

-In Classic FOB, seller not bound to reserve shipping space - this is BUYER's duty
- In practice, often seller does anyway as they are better placed - but especially with small parcels destined for individuals
- But in such cases, seller is said to do so 'only as a favour to the buyer'; not as a matter of contractual duty (or possibly even acting as an agent of the buyer)


Wimble, Sons & Co v. Rosenberg [1913]

Where the FOB seller delivers goods to the carrier, that delivery is deemed to be delivery of the goods to the buyer.


Russian Co-operative Society Ltd v Benjamin Smith & Sons (1923)

FOB seller is also under a duty to ensure that he gets the goods to alongside the ship with sufficient time to complete loading within the shipment period.

Here, the seller was only able to get the goods to the ship 15 minutes before the expiry of the shipment period.
Held to be breach of seller's duty to deliver the goods.


Scottish & Newcastle International Ltd v. Othon Ghalanos Ltd [2008]

(On seller's duty to deliver goods)

Liverpool / Limassol case.
Delivery of the goods by the seller to the carrier at Liverpool, was deemed to be the point of delivery of the goods to the buyer, even though the buyer was in Cyprus.
Thus, in an FOB contract the seller’s duty in respect of the goods is to deliver the goods ON BOARD THE VESSEL.

But this duty is not merely to hand the goods over to the carrier at the port of shipment - It is actually the seller’s duty to put the goods on board the vessel. (Seems inconsistent with Wimble, Sons & Co v Rosenberg)
SELLER'S DUTY IN RELATION TO THE GOODS IS ONLY TO PUT THE GOODS ON BOARD THE VESSEL - THAT IS THE ONLY PLACE OF DELIVERY THEY MUST COMPLY WITH, IN ENGLISH LAW - so if buyer requests to pick up the goods from seller's warehouse, seller entitled to say no.

Significance: if delivery on board the vessel becomes impossible or illegal then contract may be discharged on the grounds of frustration - then seller not bound to deliver the goods anywhere else - will not be in breach of contract for refusing to deliver them somewhere else.


Maine Spinning Co. v. Sutcliffe & Co. (1918)

Govt. refused to grant seller export licence, without which, seller could no longer legally load goods on board vessel.
Buyer offered to collect goods from seller's warehouse - seller refused.
Buyer claimed breach of contract.

Held; NO - seller not liable because delivery on board the vessel is a provision for the BENEFIT OF BOTH PARTIES.
Thus, buyer alone could not waive delivery on board the vessel - neither could waive requirement without consent of the other.
So seller not in breach for refusing to deliver somewhere else.

Underpinned by commercial reasons
- e.g. tax advantage for export of good - would have been reflected in price of goods - but if delivering on land, seller will not get tax advantage but still accepted lower price.
- May be okay for seller to sell abroad, but not to a domesic competitor.



Cohen & Co. v Ockerby & Co Ltd (1917)

Suggested that an FOB buyer may be entitled to elect to take delivery at some place – e.g. the seller’s warehouse, unless the seller can show commercial reasons why delivery should not take place some place other than on board the vessel.

In English law, starting point = buyer not entitled to elect to take delivery somewhere else.
Australia, starting point = buyer entitled to take delivery somewhere else, unless seller can justify why it shouldn’t happen using commercial reasons.
But won’t award damages to the buyer.


Meyer v. Sullivan (1919)

US approach - gone further than Australia.
Award damages to buyer - FOB seller in breach of contract for refusing to deliver goods at his own warehouse.

Here, was had been declared - made it impossible to put goods on board vessel.
Buyer said he'd collect them at seller's warehouse, but seller refused.
Held; seller in breach, buyer entitled to damages.
Thus, US approach the most extreme, UK approach the most favourable to seller - Australian approach in the middle.


GAFTA 49, Clause 13

Sometimes, contract will contain provisions dealing with events which prevent delivery on board the vessel - common with trade associations stadard term contracts:
e.g. this one, commonly used, used to state that where delivery on board became impossible, seller could give notice cancelling contract.

After Bunge SA v Nidera BV, this clause has been amended as of September 2017 - where there is a prohibition, the party affected can give notice not cancelling, but suspending delivery for 21 days - after this time, if ban is still in place for a further 14 days seller can then cancel.
So the situation that arose in Bunge v Nidera wouldn't arise again.


Bunge SA v Nidera BV [2015]

Here, sale of Russian wheat on GAFTA terms - delivery 23-30 August - but on 5th August, Russian govt. announced ban on export of wheat from 15 August - 31 December.
9th August: Seller gave notice cancelling contract, because would be impossible to deliver in the contractual period.
Buyer argues this was repudiatory breach -
that seller has acted precipitately by cancelling on the 9th - something could have caused govt. to lift ban before shipment period, meaning contract would be possible again.
Held; YES - seller in breach - but nothing happened to change govt.'s mind - so buyer only got nominal damages - way clause 13 drafted meant buyer could only give notice when ban actually had effect on contract - on 9th August, it did not yet prevent seller putting goods on board.

Decision is unsatisfactory and not practical to have to wait to the actual time of delivery, when you know already it will be impossible to deliver at the time.
Clause 13 now amended (Sept 2017).


Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954]

(On seller's duties)

In a classic FOB contract, the seller is not only bound to put the goods on board the vessel, but is also bound to obtain a bill of lading on terms that are usual in the trade.

Where the form/kind of bill of lading is specified in the contract, that is what the seller must deliver.

(Or in a Type 3 FOB, a mate's receipt).


Green v. Sichel (1860)

In the perforance of his duty to tender a bill of lading on terms that are usual in the trade, the FOB seller is NOT bound to prepay the freight in order to obtain a bill of lading.
So if buyer has made arrangements which require that the freight should be prepaid and, as a result the seller is not able to obtain the bill of lading without paying for the freight, the buyer must arrange for the freight to be paid so the bill of lading can be given to the seller (such an arrangement may just be getting seller to pay, subject to reimbursement at a later date).


D. H. Bain v. Field & Co. (1920)

Court here criticised the idea that the FOB seller is not under a duty to arrange shipping space.
Said that in cases of small parcels of goods, the buyer will not have an agent at the port of shipment, and that when seller makes the shipping arrangements for the buyer, it is difficult to agree with a view that the seller is doing so only as a friendly gesture to the buyer or as agent of the buyer.
In other words, since the commercial practice is that the seller is the one who makes these arrangements, the law should catch up with this reality and hold that the duty to arrange shipping space is actually the seller’s contractual duty; not merely doing a favour for the buyer or acting as his agent.


Yelo v. SM Machado [1952]

Court went even further than D. H. Bain v. Field & Co. (1920)
Here, actually held it to be FOB where seller undertook to find shipping space, even though there was no express provision to that effect.
But this view is not the dominant view -
prevailing view is still that, in making shipping arrangements, the FOB seller is doing it as a friendly gesture for the buyer or is acting as an agent of the buyer.


Duties of the Buyer




Bunge & Co v. Tradax England [1975]


The nomination is not effective if it is not possible or it is not lawful for the seller to put the goods on board that vessel.
Buyer must:
- Nominate the ship, then
- Notify the seller of his nomination to enable seller to take goods alongside the ship and load them WITHIN THE TIME stiuplated by the conttract.

e.g. if master of ship says there's no space, buyer has breached duty make an effective nomination - in which case:
Seller is entitled to bring a claim for breach of contract against the buyer when the nomination is not effective.


JJ Cunningham Ltd v Robert A Munro & Co Ltd (1922)

(On making an effective nomination)

Another authority summing up buyer's duty to make an effective nomination + provide effective shipping instructions.

“Iduty of the purchaser to provide a vessel at the appointed place at such a time as would enable the vendors to bring the goods alongside the ship and to put them over the ship’s rail so as to enable the purchasers to receive them within the appointed time...the usual practice under such a contract is for the buyer to nominate a vessel and to send notice of her arrival to the vendor, in order that the vendor may be in a position to fulfil his part of the contract”.


Henderson & Glass v Radmore & Co (1922)

Held; in the absence of an express notice provision in the contract of sale, the buyer’s duty was would be to “name the vessel and give shipping instructions reasonably in time to enable the sellers to send forward the goods so that they could be shipped in accordance with the instructions”.

Cite alongside Bunge v Tradax and JJ Cunningham v Robert A Munro.


Soufflet Negoce v Bunge SA [2010]

Will seller be in breach of contract if they insist that ship needs to be cleaned or repaired before loading (thereby delaying shipment period), if buyer disagrees?

Contract: shipment b. 9th - 22nd October.
Buyer nominated vessel; send notice of readiness on 22nd at 5pm.
Under contract, buyer had right to extend shipment period.
On 22nd, seller's surveyor inspected ship - not clean due to residue of coal - seller refused to load the barley bound for buyer.
23rd - had been cleaned - now ready - but seller refused, on basis it was outside contractual shipping period.
Had buyer made an ineffective nomination?

Held; NO - nomination NOT ineffective, as still possible for seller to load goods on board the vessel.
Buyer's duty was merely to present the ship in readiness to load - requires no more than it being lawful for loading to happen - once goods cross ship's rail - goods at buyer's risk - so buyer's own choice to take risk of his barley being damages.
Thus, seller had committed breach of contract by refusing to load.


Requirements for buyer's nomination of ship to be EFFECTIVE

- e.g. a ship with no refrigeration equipment is not suitable for a cargo of chilled goods; likewise a general cargo vessel would not be suitable for the carriage of crude oil

(2) The ship must have the requisite administrative clearance to enter the port of shipment and take delivery of the goods.

(3)The ship’s crew and management must be competent for the loading and processing of the cargo.

(4)The named ship must not belong to an enemy of the country of shipment

(5) The ship’s ability to arrive on time for delivery to take place.


Richco International v Bunge and Co ("The New Prosper") [1991]

Held; a seller is entitled to reject a nominated vessel which does not comply with the port’s load restrictions.
The buyer's duty to nominate an effective ship is one of strict performance.
Thus, did not matter here that it would have been impossible for the buyer to nominate an effective vessel that complied with the contract because no vessel could load the amount of goods in question while complying with the restrictions of the port to be used in the contract.


Hecht, Pfeiffer (London) Ltd v Sophus Berendsen (London) Ltd (1929)

As a general principle, it is the nominating buyer’s duty to select a ship actually capable of taking delivery of the cargo.


Compagnie de Renflouement de Recuperation et de Travaux Sous-Marins V S Baroukh et Cie v W Seymour Plant Sales & Hire [1981]

RE buyer's duty to make an effective nomination, the ship must be physically suitable for the task at hand.

Here, sale of a large quantity of scrap left over from building works that had taken place on a harbour.
Both buyer and seller had an interest in making sure the ship was efficiently filled – due to the way freight was to be paid (not relevant here), it would otherwise have meant that the buyer would have to pay for deadfreight – i.e. empty space.

MUSTILL J held there was an “implied term of the contract that the vessels tendered by the buyers would be reasonably fit to receive cargo...and to accommodate the cargo in a reasonably efficient manner”.


Ian Stach Ltd v Baker Bosley Ltd [1958]

Buyer's duty relating to shipment also includes giving sufficient notice to the seller of the time and location of the delivery.

Where the contract specifies an alternative place of shipment then it is the right and duty of the buyer to select the specific place of shipment.

Buyer’s nomination must be in accordance with contract in relation to time and shipment.


JJ Cunningham Ltd v Robert A Munro & Co Ltd (1922)

(Shipment period)

Up to the buyer to select the time WITHIN the shipment period for when the goods are actually to be loaded.

Gods to be shipped ‘during October’.
Seller took goods to the port of shipment on the 14th October, when the buyer had not yet nominated the vessel.
The buyer was only able to nominate the vessel on the 28th October, by which time, the goods had deteriorated at the port.

Held; in nominating the vessel on the 28th October, the buyer had not committed any breach of contract; it was his right to do so.
Held; in bringing the goods to the port at an earlier date, the seller was taking a risk.
Therefore the risk of the deterioration of the goods was a risk that the seller must bear.


Bunge & Co v. Tradax England [1975]

Qualification of rule in JJ Cunningham Ltd v Robert A Munro & Co Ltd - that buyer can select any time within shipment period...

Held; if the buyer makes a nomination towards the end of the shipment period and does not give the seller sufficient time to load the goods within the specified shipment period then that constitutes a breach of contract, thereby entitling the seller to refuse to load the goods.

Here, deliver of 15,000 tonnes of soya bean - buyer needed to give sellers at least 15 days' notice of ship's readiness to load.
Notice given 4 days late.
Sellers treated contract as repudiated.
Judgment for sellers.

Note, this was a repudiatory breach NOT because notice gievn late, but because notice gievn after the last date on which it could legitimately have been given for seller to be still be able to perform their side of the contract in time.


Agricultores Federados Argentinos Coperativa Ltda v Ampro SA [1965]

At COMMON LAW, the FOB buyer who has made a nomination of a vessel is entitled to withdraw that nomination and replace it with a substitute nomination, PROVIDED THAT there is still sufficient time to allow the goods to be loaded in accordance with the contract.

This is a COMMON LAW right.

Buyer also has a COMMON LAW right to withdrew a defective notice and issue a good one.


Cargill UK Ltd v Continental UK Ltd [1989]

If buyer exercises their common law right to make a substitute nomination, it must still be a valid one, in the sense that it complies with all the requirements of the contract.

Here, contract required buyer to give seller notice of 8 clear days before vessel estimated to arrive at port.
Buyer gave notice nominating Vessel A - was a good notice - but then realised it wouldn've come on time, so withdrew and nominated Vessel B as a substitute.
But the second notice was within less than 8 days of Vessel B's arrival.

C of A held; although buyer had right to give a second substitute notice, here, the second nomination was invalid, because it did not comply with the notice requirement.


Ramburs Inc v Agrifert SA [2015]

If the CONTRACT gives buyer the right to make a substitute nomination (so contractual right, not common law right), the buyer CAN exercise it, must still comply with all the other contractual requirements.

Here, shipment between 15th - 31st March.
Contract required buyer to give seller notice of vessel's ETA within 10 days of shipment - contract also gave buyer right to substitute nomination.
20th March - buyer sent notice nominating Vessel A - due to arrive 26th/27th March.
On 26th March, buyer withdrew nomination and nominated Vessel B, estimating it would arrive on 28th March.
Seller rejected substiution because it did not give them 10 days before last contractual date of shipment (31st March)

Held; buyer in breach of contract since susbtitute nomination (whilst within rights to make one) did not comply with contract in relation to notice.


Modern Transport Co Ltd v Ternstrom and Roos (1924)

An FOB buyer can withdraw a defective / invalid notice of nomination and replace it with a good one, as a CONTRACTUAL RIGHT as well (note in Agricultores Federados, said buyer has this right as a common law right too).

Here, buyer had nominated vessel to load goods at the wrong port - defective - buyer withdrew and made a second nomination of the same ship, but this time correct port.
Held; second nomination was valid because buyer had right to withdraw the defective notice and issue a correct one.


Is the buyer still entitled to withdraw a nomination if the seller had already acted upon the first nomination?


Cases seem to suggest that the buyer is entitled to withdraw it as the buyer isn’t able to know whether or not the seller has acted on it - if so, seller at a detriment, by having to act on two nominations, they are likely to suffer loss as a result.

But suggested by Benjamin that if seller has suffered loss by relying on the first nomination, then the buyer’s right to withdraw that nomination and make a substitute one must be subject to a right of the seller to claim compensation for the loss he has suffered, in acting on the first nomination.
Just an academic suggestion, and not the position of the law.


Sale of Goods Act 1979, s.28

Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods.

As with CIF contracts, the parties to an FOB contract have also departed from this general position!
In FOB, payment is normally at the point of delivery of documents, not the goods.
The will be the Bill of Lading or, in Type 3 FOB, the Mate's Receipt.
+ Any other docst the particular contract requires.


Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015]

As with CIF contracts, the FOB buyer has TWO RIGHTS OF REJECTION (documetns and goods).
But one key difference:
Whereas in CIF, buyer can only reject goods once they have been delivered, in FOB, the buyer can reject the goods DURING LOADING, AT THE PORT OF SHIPMENT (NOT DESTINATION!).

Here, goods required surveyor's certificate.
Loading began on 1st November.
On 2nd November, buyer asked to suspend loading whilst surveyor inspected - showed goods to be defective.
Buyer rejected goods on this basis.
Seller argued that buyer could not rely on a defective DOCUMENT (the certificate) to reject the GOODS.

Held; FOB buyer has the right to reject the goods and had the right to do so AT THE PORT OF SHIPMENT.
If the parties wanted to exclude the right to reject the goods at this point, then they must use clear and unambiguous terms in the contract to do so.
Here, there was nothing clear in the contract which excluded the buyer’s right to reject the goods.