Casebook Vol 1 International Sales

2014LAWCOMM 406 International Sales & Finance Part 1: International Sales Paul Myburgh Elsabe Schoeman DISTRIBUTION WARNING NOTICE: This casebook is available only to students enrolled in LAWCOMM 406 at The University of Auckland. You may not sell, alter or further reproduce or distribute any part of the casebook to any other person. CONTENTS Part 1: INTERNATIONAL SALES ...................................................................................................... 1 Sale of Goods (United Nations Convention) Act 1994..................................................................... 3 1 APPLICATION OF CISG........................................................................................................... 4 ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001) ............................... 5 RHOMBERG GMBH V OTT, SCHWEIZERISCHES BUNDESGERICHT, SWITZERLAND, 11 DECEMBER 2000 ................................................................................................................................................ 7 2 CONTRACT FORMATION AND INTERPRETATION .................................................................... 8 MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH11 UNITED STATES 7 DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS]................................................................ 11 BUNDESGERICHTSHOF, VIII ZR 304/00, GERMANY, 9 JANUARY 2002 (POWDERED MILK CASE) . 14 3 PARTIES’  OBLIGATIONS....................................................................................................... 16 3.1 Parties’  Obligations  at  Common  Law ............................................................................ 16 PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402 .............................................. 16 BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA) ..................................................... 18 COMPTOIR   D’ACHAT   ET   DE VENTE DU BOERENBOND BELGE S/A V LUIS DE RIDDER LIMITADA (THE JULIA) [1949] AC 293 (HL) .................................................................................................... 26 BERGER & CO INC V GILL & DUFFUS SA [1984] AC 382 (HL) ......................................................... 30 SCOTTISH & NEWCASTLE INTERNATIONAL LTD V OTHON GHALANOS LTD [2006] EWCA CIV 1750 ...................................................................................................................................................... 37 PROFINDO PTE LTD V ABANI TRADING PTE LTD [2013] SGHC 10 ................................................. 48 3.2 Parties’  Obligations  under  the  CISG .............................................................................. 56 BUNDESGERICHTSHOF, VIII ZR 159/94, GERMANY, 8 MARCH 1995 (NZ MUSSEL CASE) ............. 60 SMALLMON V TRANSPORT SALES LTD [2011] NZCA 340.............................................................. 66 TRIBUNALE BUSTO ARSIZIO, ITALY, 13 DECEMBER 2001 (PLASTIC BAGS CASE)........................... 81 LANDGERICHT, FRANKFURT (MAIN), GERMANY, 11 APRIL 2005 [2-26 O 264/04] (USED SHOES CASE) ............................................................................................................................................. 82 SOCIÉTÉ FRANCO-AFRICAINE DE DISTRIBUTION TEXTILE V MORE AND MORE TEXTILFABRIK GMBH ........................................................................................................................................... 85 3.3 4 Incoterms 2010............................................................................................................ 87 PASSING OF RISK ................................................................................................................ 88 ST. PAUL GUARDIAN INSURANCE CO V89 NEUROMED MEDICAL SYSTEMS & SUPPORT, GMBH UNITED STATES 26 MARCH 2002 FEDERAL DISTRICT COURT [NEW YORK] ...................................................................................................................................................... 89 BEDIAL SA V PAUL MUGGENBURG & CO GMBH, CÁMARA NACIONAL DE APELACIONES EN LO COMERCIAL, SALA C, ARGENTINA, 31 OCTOBER 1995 ................................................................. 92 OBERLANDESGERICHT OLDENBURG, 2 U 54/98, GERMANY,92 22 SEPTEMBER 1998 (SMOKED SALMON CASE).............................................................................................................................. 92 1 .....................97........................... 94 THE TANG HE [2000] 4 HKC 701 ...TRIBUNALE DI APPELLO DI LUGANO.. 100 RODER ZELT..................UND HALLENKONSTRUKTIONEN GMBH V ROSEDOWN PARK PTY LTD [1995] 17 ACSR .......................... VIII ZR 100/11....... RECHTBANK VAN KOOPHANDEL.... 158 2 .................00193........................................................... 12. 131 7 BREACH......................... CANCELLATION AND REMEDIES ..................................................... DISTRICT COURT (MICHIGAN) ...................................................................................... 139 SHUTTLE PACKAGING SYSTEMS V JACOB TSONAKIS INA SA 2001 U.................. 130 BUNDESGERICHTSHOF............................................ 15 JANUARY 1998 (COCOA BEANS CASE) ..... SWITZERLAND................ 142 DOWNS INVESTMENTS V PERWAJA STEEL [2001] QCA 433 ......................... CHAMBRE COMMERCIALE.................................................................................................................. 132 EGO FRUITS SARL V LA VERJA..................... 9981 .. 94 CARLOS FEDERSPIEL & CO SA V CHARLES TWIGG & CO LTD [1957] 1  LLOYD’S  REP  240 .. 130 VITAL BERRY MARKETING NV V DIRA-FROST NV................................... 110 6 FRUSTRATION ....... 24 MARCH 1999 (VINE WAX CASE) ........ GERMANY......................................... 129 MALAYSIA DAIRY INDUSTRIES PTE LTD V DAIREX HOLLAND BV. HASSELT......................................................................  COUR  D’APPEL  DE GRENOBLE. SECONDA CAMERA CIVILE................................................. GERMANY...S.......................................... 140 DELCHI CARRIER SPA V ROTOREX CORP (1995) 71 F3D 1024 ................................................. 93 5 PASSING OF PROPERTY ... 26 SEPTEMBER 2012 (CLAY CASE) ....... RECHTBANK’SHERTOGENBOSCH...................... 147 BUNDESGERICHTSHOF..................................................................... VIII ZR 121/98............................... Certificates about Contracting States — A certificate signed by the Secretary of Foreign Affairs and Trade.SALE OF GOODS (UNITED NATIONS CONVENTION) ACT 1994 An Act to give effect to the provisions of the United Nations Convention on Contracts for the International Sale of Goods BE IT ENACTED by the Parliament of New Zealand as follows: 1. the contents of any such declaration— shall be conclusive evidence for all purposes of the matters stated in the certificate. have effect in place of any other law of New Zealand relating to contracts of sale of goods to the extent— (a) That the law is concerned with any matter that is governed by the Convention. in respect of any specified day or period. Convention to have force of law — The provisions of the Convention shall have the force of law in New Zealand. Act to bind the Crown — This Act shall bind the Crown.— (a) A State is a Contracting State: (b) A declaration made under the Convention is effective in respect of a State and. “Convention” means the United Nations Convention on Contracts for the International Sale of Goods done at Vienna on the 11th day of April 1980. 6. Short Title and commencement — (1) This Act may be cited as the Sale of Goods (United Nations Convention) Act 1994. and (b) That the application of the law is not expressly permitted by the Convention. SCHEDULE: UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS The States Parties to this Convention Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order. 3. Convention to be a code — The provisions of the Convention shall. 4. 5. 3 . a copy of the English text of which is set out in the Schedule to this Act. in relation to contracts to which it applies. (2) This Act shall come into force on a date to be appointed by the Governor-General by Order in Council. 2. or by a Deputy Secretary of Foreign Affairs and Trade. Interpretation — In this Act. Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States. if so. stating whether or not. except as otherwise expressly provided in this Convention. SPHERE OF APPLICATION Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention. at any time before or at the conclusion of the contract. it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage. (d) of stocks.Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social. Article 3 (1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between. investment securities. neither knew nor ought to have known that the goods were bought for any such use. or from information disclosed by. In particular. vessels. unless the seller. Have agreed as follows: 1 APPLICATION OF CISG PART I. Article 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services. shares. (e) of ships. the parties at any time before or at the conclusion of the contract. (c) on execution or otherwise by authority of law. family or household use. negotiable instruments or money. (b) by auction. or (b) when the rules of private international law lead to the application of the law of a Contracting State. 4 . hovercraft or aircraft. economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade. SPHERE OF APPLICATION AND GENERAL PROVISIONS CHAPTER I. Article 2 This Convention does not apply to sales: (a) of goods bought for personal. (f) of electricity. However. Instead. inside sales and marketing office. governed by.  …   Plaintiff is a Delaware corporation having its primary place of business in Santa Clara County. In particular. at all relevant times.” which were included with each Purchase Order.” The buyer’s address as shown on each of the Purchase Orders is in San Jose. California. its corporate headquarters. California. public relations department. Defendant shipped all orders to Plaintiff’s headquarters in California. Defendant suggests that the terms of shipment are governed by a document entitled “PMC-Sierra TERMS AND CONDITIONS OF SALE. Canada. principal warehouse. subject to article 12. It is undisputed that Defendant directed Plaintiff to purchase Defendant’s products through Unique. Article 6 The parties may exclude the application of this Convention or. Unique sent invoices to Plaintiff. British Columbia. and most design and engineering functions were located in Burnaby. dated January 28. which are considered the control center of its network switchers. Plaintiff’s Complaint focuses on five purchase orders.(b) the effect which the contract may have on the property in the goods sold. Plaintiff purchases component parts from a number of manufacturers. at which time Plaintiff tendered payment to Unique either in California or in Nevada. Plaintiff asserts that acceptance of each of its purchase orders was expressly conditioned upon acceptance by Defendant of Plaintiff’s “Terms and Conditions. derogate from or vary the effect of any of its provisions. which is an authorized distributor of Defendant’s products in North America. from Defendant. Plaintiff purchases application-specific integrated circuits (“ASICs”).  United  States  District  Judge:  …  The  Complaint  in  this  action  alleges  claims  based  in  tort   and contract. Defendant also maintains an office in Portland. Determining Defendant’s “place of business” with respect to its contract with Plaintiff is critical to the question of whether the Court has jurisdiction in this case. Plaintiff contends that Defendant failed to provide it with electronic components meeting  certain  designated  technical  specifications. Defendant asserts that. Plaintiff produces network switchers. ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001) JAMES WARE. Four of the five purchase orders were submitted to Defendant through Unique as directed by Defendant. The validity [and] performance of this [purchase] order shall be governed by the laws of the state shown on Buyer’s address on this order. Defendant is also a Delaware corporation. a type of electronic component used to connect multiple computers to one another and to the Internet. The Parties do not identify any single contract embodying the agreement pertaining to the sale. was sent by fax directly to Defendant in British Columbia. and that Defendant processed the order in British Columbia. where many of its engineers are based.” Paragraph 19 of Defendant’s Terms and conditions provides “APPLICABLE LAW: The contract between the parties is made. Alternatively. 2000. and shall be construed in accordance with the laws of the 5 . Defendant’s products are sold in California through Unique Technologies. Plaintiff does not dispute that one of the purchase orders. and that Defendant honored purchase orders solicited by Unique. Paragraph 20 of Plaintiff’s Terms and Conditions provides “APPLICABLE LAW. Article 5 This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. Upon delivery of the goods. Unique is located in California. Oregon. was with [Defendant’s] facilities in Portland. Chrysler Motors Corp. To the contrary.” Furthermore. among other countries. 1 (1)(a). which expressly states that the contract does not “allow Distributor to create or assume any obligation on behalf of [Defendant] for any purpose whatsoever. 2d § 14J (1957) (“One who receives goods from another for resale to a third person is not thereby the other’s agent in the transaction. Stansifer v.S.” 15 U.2d 59.C. Defendant’s corporate headquarters.” 15 U. Plaintiff has produced no evidence of consent by Defendant to be bound by the acts of Unique. To the extent that representations were made regarding the technical specifications of the ASICs.. and consent by the other so to act. inside sales and marketing office. and Plaintiff knew that Defendant was Canadian. Oregon. Plaintiff supports its position with the declaration of Anthony Contos.   …   Plaintiff asserts that Unique acted in the United States as an agent of Defendant.S. U. Plaintiff contends that. which shall be deemed to be the proper law hereof . while Unique may distribute Defendant’s products. Plaintiff’s claims concern breaches of representations made by Defendant from Canada.” The Court concludes that these contacts are not sufficient to override the fact that most if not all of Defendant’s alleged representations regarding the technical specifications of the products emanated 6 . Plaintiff’s dealings with Unique do not establish Defendant’s place of business in the United States.Province of British Columbia and the laws of Canada applicable therein. The CISG applies “to contracts of sale of goods between parties whose places of business are in different States . 1973) (holding that nonexclusive distributor was not agent of manufacturer where distributorship agreement expressly stated “distributor is not an agent”). and those specifications were not satisfied by the delivered goods. Indeed. .”). . principal warehouse.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text. Restatement of the Law of Agency.” … The Convention on Contracts for the International Sale of Goods (“CISG”) is an international treaty which has been signed and ratified by the United States and Canada. Art. …  The  CISG only applies when a contract is “between parties whose places of business are in different States.S.S.C. having sent one purchase order directly to Defendant in Canada by fax.” Restatement of the Law of Agency. Canada. Accordingly. the place of business is that which has the closest relationship to the contract and its performance. Defendant cites the distributorship agreement with Unique. The CISG was adopted for the purpose of establishing “substantive provisions of law to govern the formation of international sales contracts and the rights and obligations of the buyer and the seller. 1 (1)(a).A. § 1 (1957). Plaintiff provides no legal support for this proposition. pursuant to Article 10 of the CISG.C.. who states that Plaintiff’s primary contact with Defendant “during the development and engineering of the ASICs at issue . App. Defendant’s “place of business” having the closest relationship to the contract at issue is the   United   States. California. 2d. and that Plaintiff’s contacts with Unique establish Defendant’s place of business in the U. . Article 10 of the CISG provides that “if a party has more than one place of business. when the States are Contracting States. . a distributor of goods for resale is normally not treated as an agent of the manufacturer. Art. British Columbia. Unique is not even mentioned in the Complaint. 487 F. Plaintiff does not allege that Unique made any representations regarding technical specifications on behalf of Defendant. To the contrary. . It is further undisputed that during the relevant time period. 15 U. .C. Moreover. Defendant cannot claim jurisdiction under the CISG. the products in question are manufactured in Canada.” U.S. the relevant agreement is that between Plaintiff and Defendant. If this requirement is not satisfied. 10.S. App. However. Plaintiff has failed to persuade the Court that Unique acted as the agent of Defendant. Agency results “from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control. It is undisputed that Plaintiff’s place of business is Santa Clara County. at 52 (1997). the Court finds that Unique is not an agent of Defendant in this dispute. public relations department.” 15 U. App. and most of its design and engineering functions were located in Burnaby.. . App. 64-65 (9th Cir. Art. Plaintiff’s Vice President of Finance and Administration. for the purposes of this contract. RHOMBERG GMBH V OTT. cl.S. VI. subject to Article 12.. the Court finds that Defendant’s place of business that has the closest relationship to the contract and its performance is British Columbia. Const.C. absent express exclusion of the CISG.”) Thus.   Plaintiff’s Motion to Remand is DENIED. For these reasons.” 15 U. and the laws of the United States which shall be made in pursuance thereof. SCHWEIZERISCHES BUNDESGERICHT. 1996 S. In doing so. The fact that the buyers intended to purchase the kitchen for their family use was not taken into consideration by the Court.C. the buyers realized that the kitchen was not of the expected brand. U. 6. and all treaties made. 1 et seq.). since both parties had their place of business in Contracting States. In contrast. therefore. the contract at issue in this litigation is between parties from two different Contracting States. Canada. (B. Accordingly. it delivered a fitted kitchen manufactured by its own firm. the Court rejects Plaintiff’s contention that the choice of law provisions preclude the applicability of the CISG. Plaintiff has not identified any specific representation or correspondence emanating from Defendant’s Oregon branch. (International Sale of Goods Act ch. This contract therefore implicates the CISG. Defendant asserts that merely choosing the law of a jurisdiction is insufficient to opt out of the CISG. they asked the seller to take back the kitchen against reimbursement of the deposit paid. such as “the California Commercial Code” or the “Uniform Commercial Code” could amount to implied exclusion of the CISG. Article 6 of the CISG provides that “the parties may exclude the application of the Convention or. Defendant’s choice of applicable law adopts the law of British Columbia. and it is undisputed that the CISG is the law of British Columbia. the choice of law provisions in the “Terms and Conditions” set forth by both Parties reflect the Parties’ intent to “opt out” of application of the treaty. art. the Supreme Court held that the lower Court had appropriately established that the contract was governed by CISG. Although the seller was aware of the fact the buyers were only interested in a kitchen of that specific brand.) Furthermore. 236. Plaintiff directly corresponded with Defendant at Defendant’s Canadian address. The seller objected and brought an action against the buyers to recover the outstanding purchase price. The Supreme Court confirmed the Appellate Court decision. …  Plaintiff  next  argues  that. under the authority of the United States. under general California law. the choice of law clauses at issue here do not evince a clear intent to opt out of the CISG. the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG.from Canada. and California is bound by the Supremacy Clause to the treaties of the United States. 11 DECEMBER 2000 A Swiss couple consulted an Austrian kitchen manufacturing company in order to buy a fitted kitchen of a specific brand. Consequently. even if the Parties are from two nations that have adopted the CISG. the Court ruled that no contract has been validly concluded because the parties were in disagreement as to the exact nature of the goods to be sold. The Court finds that the particular choice of law provisions in the “Terms and Conditions” of both parties are inadequate to effectuate an opt out of the CISG. 2 (“This Constitution. For example. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG.S. Art. or which shall be made. a few days after delivery. Yet even assuming that a 7 . the Request for Attorney’s Fees is also DENIED. and in view of Defendant’s Terms and Conditions which would apply the CISG.B. Although selection of a particular choice of law. derogate from or vary the effect of any of its provisions. Moreover. App. Canada and the United States. Both the First and the Second Instance Courts dismissed the seller’s claim. even Plaintiff’s choice of applicable law generally adopts the “laws of” the State of California.C. Plaintiff relies on all of these alleged representations at length in its Complaint. A dispute arose when. shall be the supreme law of the land. …   For   the   foregoing   reasons. As to the merits. SWITZERLAND. usages and any subsequent conduct of the parties. due consideration is to be given to all relevant circumstances of the case including the negotiations. the buyers were entitled to set it aside on the ground of a mistake on their part in accordance with the domestic law governing defects of consent. unless otherwise agreed. (2) If the preceding paragraph is not applicable. including witnesses. (2) The parties are considered. reference is to be made to his habitual residence.valid contract was concluded. Article 9 (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. and regularly observed by. regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to. GENERAL PROVISIONS Article 7 (1) In the interpretation of this Convention. It may be proved by any means. Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirements as to form. having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract. statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or. (3) In determining the intent of a party or the understanding a reasonable person would have had. in conformity with the law applicable by virtue of the rules of private international law. 8 . in the absence of such principles. the place of business is that which has the closest relationship to the contract and its performance. (b) if a party does not have a place of business. parties to contracts of the type involved in the particular trade concerned. Article 10 For the purposes of this Convention: (a) if a party has more than one place of business. any practices which the parties have established between themselves. 2 CONTRACT FORMATION AND INTERPRETATION CHAPTER II. Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. even if it is irrevocable. article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer. such as one 9 . or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. by virtue of the offer or as a result of practices which the parties have established between themselves or of usage. if no time is fixed. due account being taken of the circumstances of the transaction. PART II. Article 13 For the purposes of this Convention ``writing’’ includes telegram and telex. if. Article 15 (1) An offer becomes effective when it reaches the offeree. an offer cannot be revoked: (a) if it indicates. Article 17 An offer. Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. The parties may not derogate from or vary the effect of this article. may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers.Article 12 Any provision of article 11. within a reasonable time. unless the contrary is clearly indicated by the person making the proposal. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. (2) However. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. is terminated when a rejection reaches the offeror. Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) An offer. whether by stating a fixed time for acceptance or otherwise. including the rapidity of the means of communication employed by the offeror. (3) However. even if it is irrevocable. FORMATION OF THE CONTRACT Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. the offeree may indicate assent by performing an act. An oral offer must be accepted immediately unless the circumstances indicate otherwise. acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or. that it is irrevocable. (3) Additional or different terms relating. Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions. payment. (2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. Article 23 A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect. limitations or other modifications is a rejection of the offer and constitutes a counter-offer. begins to run from the moment that the offer reaches the offeree. a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance. Article 22 An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. place and time of delivery. without undue delay. telex or other means of instantaneous communication. the period is extended until the first business day which follows. the acceptance is effective at the moment the act is performed. If he does not so object. 10 . if he does not have a place of business or mailing address. provided that the act is performed within the period of time laid down in the preceding paragraph. among other things.relating to the dispatch of the goods or payment of the price. the late acceptance is effective as an acceptance unless. Article 20 (1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or. unless the offeror. Article 24 For the purposes of this Part of the Convention. to his habitual residence. objects orally to the discrepancy or dispatches a notice to that effect. Article 21 (1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect. from the date shown on the envelope. quality and quantity of the goods. if no such date is shown. (2) However. extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. an offer. without notice to the offeror. A period of time for acceptance fixed by the offeror by telephone. declaration of acceptance or any other indication of intention ``reaches’’ the addressee when it is made orally to him or delivered by any other means to him personally. to the price. the terms of the contract are the terms of the offer with the modifications contained in the acceptance. However. if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror. (2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time. to his place of business or mailing address or. without delay. Magellan and Salzgitter continued to negotiate in an effort to resolve the remaining conflicts between their respective forms. Contemplating an ongoing business relationship. On March 4 Magellan sent Salzgitter a draft LC for review. They then came to agreement as to the remaining contractual issues. relying on Riess’s assurances that all remaining details of the deal were settled. and with an agreement to issue a letter of credit (“LC”) to Salzgitter as Magellan’s method of payment. Magellan memorialized those terms.” Although Magellan preferred to wait until all of the minor details (the remaining conflicting terms) were ironed out before issuing the LC.manufactured according to Magellan’s specifications . Germany and maintains an Illinois sales office.  Senior  United  States  District  Judge:  …   Offers. Latvia). with proposed pricing. in two February 15 purchase orders. mainly with respect to vessel loading conditions. Salzgitter wrote back on March 8 proposing minor amendments to the LC and stating that “all other terms are acceptable. signing and returning the approved price amendments to Riess the same day. Arthur had the $ 1. apparently accepting Magellan’s memorialized terms except for two “amendments” as to prices. Riess visited Arthur four days later on March 26 and threatened to cancel the steel orders if Magellan did not open the LC in Salzgitter’s favor that day. While those fine-tuning negotiations were under way.2 million LC issued later that same day.from a Ukrainian steel mill.000 tons as the quantity being purchased. Counteroffers and Acceptance Magellan is an Illinois-based distributor of steel products. But the general terms and conditions that were attached to those confirmations differed in some respects from those that had been attached to Magellan’s purchase orders. By letter dated January 28. On February 19 Salzgitter sent its pro forma order confirmations to Magellan. agreed on 4. Essentially Salzgitter demanded that the LC be amended to permit the unconditional 11 . Accordingly.585 metric tons of steel bars. Dneprospetsstal of Ukraine (“DSS”). and added $5 per ton over Salzgitter’s numbers to effect shipping from Magellan’s preferred port (Ventspills. On February 15 Magellan accepted Salzgitter’s price increases. Salzgitter is a steel trader that is headquartered in Dusseldorf. Salzgitter then responded on February 17. Salzgitter continued to press for its immediate issuance.  Shadur.MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH UNITED STATES 7 DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS] Milton  I. Arthur consented. as well as the other material terms previously discussed by the parties. Salzgitter began to press Magellan to open its LC for the transaction in Salzgitter’s favor. Magellan provided Salzgitter with written specifications for 5. Riess asked for Magellan’s “acceptance” of those two price increases by return fax and promised to send its already-drawn-up order confirmations as soon as they were countersigned by DSS. Salzgitter responded two weeks later (on February 12 and 13) by proposing prices $5 to $20 per ton higher than those Magellan had specified. dispute resolution and choice of law. In January 1999 Magellan’s Robert Arthur (“Arthur”) and Salzgitter’s Thomas Riess (“Riess”) commenced negotiations on a potential deal under which Salzgitter would begin to act as middleman in Magellan’s purchase of steel bars . On March 22 Salzgitter sent amended order confirmations to Magellan. Post-Acceptance Events Three days later (on March 29) Arthur and Riess engaged in an extended game of “fax tag” initiated by the latter. the parties agreed that Convention law would apply to the transaction. and the rest was under production.” specifically 810 ILCS 5/2-716) because Magellan is “unable to ‘cover’ its delivery commitments to its customers without unreasonable delay” (Complaint  P42). Formation of a contract under either UCC or the Convention requires an offer followed by an acceptance (see Convention Pt. At the same time. performance. Because the transaction involves the sale and purchase of steel — “goods” — the parties acknowledge that the governing law is either the Convention or the UCC. breach and damages. II).” On April 1 Magellan requested that the LC be canceled because of what it considered to be Salzgitter’s breach. Despite that clean slate. 12 . Magellan’s Claims Complaint Count I posits that — pursuant to the Convention — a valid contract existed between Magellan and Salzgitter before Salzgitter’s March 30 ultimatum. It is enough that Magellan has alleged facts that a factfinder could call an offer on the one hand and an acceptance on the other. That relief is invoked under the Illinois version of the Uniform Commercial Code (“UCC. Salzgitter replied that it was too late to modify the specifications: DSS had already manufactured 60% of the order. Under the facts alleged by Magellan. even a brief glance at the Convention’s structure confirms what common sense (and the common law) dictate as the universal elements of any such action: formation. as under Illinois law (or the common law generally). Magellan requested minor modifications in some of the steel specifications. this opinion looks to Convention law. Hence that attempted ukase is said to have amounted to an anticipatory repudiation of that contract. Pleading Requirements [T]he specification of the pleading requirements to state a claim for breach of contract under the Convention truly poses a question of first impression. (3) breach by defendant and (4) resultant injury to plaintiff. Although analysis of offer and acceptance typically involves complicated factual issues of intent —issues not appropriately addressed on a motion to dismiss — this Court need not engage in such mental gymnastics here. Magellan first claims entitlement to relief for breach of contract. entitling Magellan to relief for its breach. Salzgitter returned the LC and has since been attempting to sell the manufactured steel to Magellan’s customers in the United States. That being the case. Count II seeks specific performance of the contract or replevin of the manufactured steel. on the very next day (March 30) Magellan’s and Salzgitter’s friendly fine-tuning went flat. and Salzgitter does not now dispute that contention. (2) performance by plaintiff. Perhaps unsurprisingly in light of what has been recited up to now. In those terms it is equally clear that Magellan’s allegations provide adequate notice to Salzgitter that such an action is being asserted. the components essential to a cause of action for breach of contract are (1) the existence of a valid and enforceable contract containing both definite and certain terms. also pointing out the need to conform Salzgitter’s March 22 amended order confirmations to the terms of the parties’ ultimate March 26 agreement. Hence under the Convention. Salzgitter screeched an ultimatum to Magellan: Amend the LC by noon the following day or Salzgitter would “no longer feel obligated” to perform and would “sell the material elsewhere.  …   Count I: Breach of Contract Choice of Law As stated earlier.substitution of FCRs for bills of lading — even for partial orders — and Magellan refused to amend the LC. In that respect Convention Art. And at the very least. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations. Convention Art. 13 . for the first element of a contract: offer and acceptance. 18(a) requires an indication of assent to an offer (or counteroffer) to constitute its acceptance. As for the third pleading element — Salzgitter’s breach — Complaint P38 alleges: Salzgitter’s March 30 letter (Exhibit G) demanding that the bill of lading provision be removed from the letter of credit and threatening to cancel the contract constitutes an anticipatory repudiation and fundamental breach of the contract. Magellan’s request for specific performance implicitly confirms that it remains ready and willing to pay the price if such relief were granted. Such an “indication” may occur through “a statement made by or other conduct of the offeree”. 14(1)). Art. For that purpose “[a] proposal is sufficiently definite if it indicates the goods and expressly or implicitly makes provision for determining the quantity and the price” (id. Although that expectation was then frustrated by the later events in February and then in March. Supp.. Next. In this instance Magellan alleges that it sent purchase orders to Salzgitter on February 15 that contained the material terms upon which the parties had agreed.. (2) If time allows. at 1238). the proposal constitutes an offer (id. Certainly an offer could be found consistently with those facts. quantity and price. which in contract terms equated to further offers and counteroffers. the second pleading requirement for a breach of contract claim — performance by plaintiff — was not only specifically addressed by Magellan but can also be inferred from the facts alleged in Complaint P43 and from Magellan’s prayer for specific performance. And Salzgitter’s February 17 response to the purchase orders did propose price changes. Moreover. 19(1) goes on to state that “[a] reply to an offer which purports to be an acceptance but contains additions. 789 F. the other party may declare the contract avoided. Those terms included identification of the goods. Magellan’s performance obligation as the buyer is simple: payment of the price for the goods. So much. then. limitations or other modifications is a rejection of the offer and constitutes a counter-offer. later requesting the LC’s cancellation only after Salzgitter’s alleged breach. Hence that response can be seen as a counteroffer that justified Magellan’s belief that its acceptance of those new prices would form a contract. It would be difficult to imagine an allegation that more clearly fulfills the notice function of pleading.. 8(2)). 14(1) a “proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.” That provision reflects the common law’s “mirror image” rule that the UCC has rejected (see Filanto. the requisite contractual joinder could reasonably be viewed by a factfinder as having jelled on March 26. if the indications of the proposer are sufficiently definite and justify the addressee in understanding that its acceptance will form a contract. 72 addresses the concept of anticipatory breach: (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract. 25 states in relevant part: A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract. Art. a jury could find consistently with Magellan’s allegations that the required indication of complete (mirrored) assent occurred when Magellan issued its LC on March 26. Convention Art.Under Convention Art. But Convention Art. Magellan issued its LC in satisfaction of that obligation.” So. the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. g. Under UCC § 2-716(1) a court may decree specific performance “where the goods are unique or in other proper circumstances.  … BUNDESGERICHTSHOF.  …   Conclusion It may perhaps be that when the facts are further fleshed out through discovery. Lastly. and  it  is  ordered  to  file  its  Answer  to  the  Complaint  on  or  before  December  20. notwithstanding 14 . 9 JANUARY 2002 (POWDERED MILK CASE) A German seller and a Dutch buyer entered into several contracts for the sale of powdered milk. 46(1) provides that a buyer may require the seller to perform its obligations unless the buyer has resorted to a remedy inconsistent with that requirement. But Convention Art. 4th 294 (1983)). 28 conditions the availability of specific performance: If. And in pleading terms. Basically courts now determine whether goods are replaceable as a practical matter--for example. whether it would be difficult to obtain similar goods on the open market (see generally Andrea G..  1999. one party is entitled to require performance of any obligation by the other party. Uniform Commercial Code § 2-716: 11 (3d ed. coupled with Magellan’s allegation that the bill of lading requirement was an essential part of the parties’ bargain.L. 26 A. that provision would appear to make specific performance routinely available under the Convention. But in the current Rule 12(b)(6) context. Saltzgitter’s insistence upon an amendment of that requirement would indeed be a fundamental breach. 1997)). Nadel. Magellan’s claims against Salzgitter will indeed succumb either for lack of proof or as the consequence of some legal deficiency. Simply put. Given the centrality of the replaceability issue in determining the availability of specific relief under the UCC. in accordance with the provisions of this Convention. that looks to the availability of such relief under the UCC. a pleader need allege only the difficulty of cover to state a claim under that section. a court is not bound to enter judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.” Count II: Specific Performance or Replevin Convention Art. That being the case. Here Magellan has pleaded that Salzgitter’s March 29 letter indicated its pre-performance intention not to perform the contract. Magellan  has  done  that.R. Anderson.” UCC § 2-716 was designed to liberalize the common law. The letters of confirmation sent by the buyer contained a standard term stating that. As such. 4A Ronald A. Specific Performance of Sale of Goods Under UCC § 2-716. Magellan has easily jumped the fourth pleading hurdle — resultant injury.” That provision’s Official Commentary instructs that inability to cover should be considered “strong evidence” of “other proper circumstances.That plain language reveals that under the Convention an anticipatory repudiation pleader need simply allege (1) that the defendant intended to breach the contract before the contract’s performance date and (2) that such breach was fundamental. GERMANY. e. Salzgitter’s motion as to Counts I and II is denied. which rarely allowed specific performance (see. Annotation. Complaint P40 alleges that the breach “has caused damages to Magellan. The contracts were concluded by telephone and subsequently confirmed in writing by both parties. VIII ZR 304/00. any complaint adequate to provide notice under the UCC is equally sufficient under the Convention. either expressly (Art. The Court of Appeal (Oberlandesgericht Dresden. and therefore the resulting burden of proof issues had to be solved according to the applicable domestic law (i.2000) partially granted the claim. the packaged powdered milk was shipped to Algeria and to Aruba/Netherland Antilles. The seller’s letters of confirmation contained a term according to which the sale was to be governed exclusively pursuant to the seller’s standard terms and contrary statutory conditions or standard terms of the buyer were expressly excluded. however. the evaluation of such a conflict must proceed. The Algerian customer lamented the non-conformity of the goods and therefore the buyer’s customers met twice with the buyer and the seller. in performing the contract. Thus. 1998. After processing. seeing as both buyer’s and seller’s standard terms were not applicable to the contract as far as non-conformity was concerned. since the parties. The buyer resold the milk to an Algerian and a Dutch company. 7(1) CISG) for the seller. since it would be contrary to the principle of good faith (Art. generally accepted in scholarly opinions. As far as the burden of proof is concerned. conflicting standard terms only do not become part of the contract. however. the admission of liability expressly made in writing by the seller was to be considered a matter excluded by the scope of CISG (Art. As to the battle of the forms. the Court furthermore confirmed that. to assume that only those terms of the buyer’s standard conditions more favorable to the seller would apply. the liability of the seller for damages suffered (or to be suffered) should be at all times limited to the invoiced amount for the delivered goods. 23. German law). by letter dated August 24.any duty of the seller to pay back the purchase price. had shown that such a conflict was not to be considered a material modification of their agreement (Art. however. Upon delivery. from a systematic interpretation of all the rules involved.e. The Supreme Court agreed with the lower Court in finding that the partial conflict of the parties’ standard terms (battle of the forms) could not lead to a failure of the entire contract. 2(a) CISG). and after a sample inspection by the buyer which gave no negative results. a warranty clause contained in the seller’s standard terms stated that the buyer should inspect the goods immediately upon delivery and note any complaints on the delivery note. 19(1) and (3) CISG). The buyer commenced an action for damages against the seller. the seller acknowledged that a specified quantity of the milk did not meet the contractual requirements and that the buyer had warranty claims as to that quantity. the liability of the seller for lack of conformity was governed by CISG. the Court confirmed the principle according to which the burden of proof is a matter generally governed by CISG. 75 CISG. The Court pointed out that in the case at hand. the result would not change even applying the minority doctrine of the “last shot”. ordering the seller to pay damages according to articles 74.10. Meanwhile also the Dutch customer complained about the non-conformity of a certain amount of milk and obtained damages from the buyer. 15 . part of the milk delivered to Algeria turned out to have a rancid taste. In the case at hand. the seller denied any liability as to further claims. but only became apparent after processing. with reference to its standard terms. Thereupon. whose standard terms were sent after the buyer’s. Moreover. defects that were not noticeable at the time of delivery could only be claimed before the printed expiration date. in an application of the “knock out” doctrine. 4 CISG). 79(1) CISG) or impliedly (Art. The First Instance Court dismissed the buyer’s complaint. alleging that the nonconformity of goods was caused by a defect that already existed at the time of the passing of risk. in order to achieve an amicable solution. S. if freight has to be paid in advance this method may be the most convenient. Sons & Co.o.. As I have said. I.b. as the ship to be loaded under the contract of sale. payment was in fact made in advance.D.D.o. to the Government of India (which acted in this matter through a department known for short as. In such a case the seller discharges his duty by putting the goods on board.D.b. Bahr Behrend & Co. 1951. and freight brokers for the defendants. one of the defendants’ vessels.D. through the fault of the ship.) for delivery f.   London.S. Sometimes the buyer engages his own forwarding agent at the port of loading to book space and to procure the bill of lading. I. Under the contract of sale the property had not then passed to I. and of the dock company’s or mate’s receipt. v. and further expressly provided that freight was to be engaged by the buyer. it was agreed that the property did not pass till delivery over the ship’s rail. The contract of carriage in this case was made in the office of Bahr Behrend & Co.1 Parties’ Obligations at Common Law PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402 DEVLIN J: read the following judgment: This case raises questions of interest and importance upon the interpretation of the Hague Rules and their applicability to a f. and the seller’s to put the goods on board for account of the buyer and procure a bill of lading in terms usual in the trade. An instruction came to Bahr Behrend from I. contract has become a flexible instrument. …   The   contract   of   sale   provided   for   delivery   f.S.o. The plaintiffs sold a piece of machinery.b. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least those of which she is notified. etc. the contract of carriage comes into existence at an earlier point of time. when space often has to be booked well in advance. for they are both agents for I. a fire tender. and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer. nominated the Jalazad. In such a case the seller is directly a party to the contract of carriage at least until he takes out the bill of lading in the buyer’s name. as in a c.o.B.D. Ld. The damage to the tender cost £966 to repair and the plaintiffs sue for that sum. and before it was across the rail it was. and a note by Bahr Behrend dated March 29.i. Bahr Behrend check the items on it from a return made out by the cargo superintendent after shipment and then sign and issue the bill 16 ..b. made all the arrangements for the carriage of the goods. contract. records that the shipment was booked per the Jalazed. inspection certificate.o. London. getting the mate’s receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. dropped and damaged.3 PARTIES’ OBLIGATIONS 3. In the special circumstances of this case and because of delay in shipment. but on the terms that that should not affect the seller’s obligations as to delivery. The ordinary practice is for I.S. Payment was to be made twenty-one days after delivery and after receipt of certain documents for which the contract called. seller. While the tender was being lifted on to the vessel by the ship’s tackle. and it is only in this type. to prepare a bill of lading (the defendants have a special form for Government of India shipments) and to send it to Bahr Behrend.. and through their agents. such as invoice. The f. Rosenberg & Sons [1913] 3 K. I think. to arrange for the shipment of these goods among other cargo. In what counsel called the classic type as described.b. that any doubt can arise about the seller being a party to the contract. for example.   the   price   including   dock   and   harbour dues and port rates to be paid by the seller.D.S.f. contract. It is worth noting that the problem which I have to consider does not arise as a matter of course in every f. The present case belongs to this third type. in Wimble. the buyer’s duty is to nominate the ship. Under present conditions. who was to give due notice to the seller when and on board what vessel the goods were to be delivered. 743.S. Sometimes the seller is asked to make the necessary arrangements. of lading on behalf of the defendants generally some days after the ship has sailed, dependent on the volume of the cargo to be dealt with. It is the practice in the Port of London for all loading to be done by the port authority at the ship’s expense. The whole charge, therefore, for loading from alongside is paid by the ship and covered by the freight; in this case, it included the cost of lighterage from the dock to the ship’s side. On April 7 Bahr Behrend, on behalf of I.S.D., notified the plaintiffs that space had been engaged, and instructed them to dispatch the goods to arrive alongside the vessel. The question at once arises: if, as the plaintiffs contend, there is no contractual relationship between them and the defendants, how do they get these goods on board? If the ship sails off without loading the goods the plaintiffs are in breach of their contract of sale. Have they no redress against the ship? Mr. Megaw argues that they would have none, and that vis-a-vis the sellers the ship in loading acts as a volunteer. This seems to me to be a position which none of the three parties would have accepted for a moment. Let me look at the situation first from the standpoint of the shipper, I.S.D. In the ordinary case, such as I have been considering above, where the shipper takes out a bill of lading or an insurance policy, he has at the time of the contract himself got the property in the goods; the question whether he contracts for the benefit of subsequent owners depends on proof of his intention at the time of contracting. But where, as in this case, he has not got the property at the time of the contract, and does not intend to acquire it before the contract begins to operate, he must act as agent. He cannot intend otherwise; the intention is inherent in the act; he must either profess agency or confess himself a wrongdoer. For if the shipowner lifts the seller’s goods from the dock without the seller’s authority he is guilty of conversion to which the shipper, by requiring him to do it, makes himself a party. Let me look at it now from the standpoint of the ship. If the shipowners were sued for conversion they would surely have redress against the shipper. A person who requests a carrier to handle goods must have the right to deal with them or it would not be safe to contract with him. A shipowner cannot be supposed to inquire whether the goods he handles do or do not belong to the shipper who entrusts them to his care; if the goods are not the shipper’s there must be implied a warranty of authority by him that he has the right to contract with regard to them. Then from the standpoint of the seller, if his goods are left behind, and it is said to him: “You made no contract with the ship; what else did you expect?” he would answer, I think, that he naturally supposed that all the necessary arrangements had been made by the shippers. In brief, I think the inference irresistible that it was the intention of all three parties that the seller should participate in the contract of affreightment so far as it affected him. If it were intended that he should be a party to the whole of the contract his position would be that of an undisclosed principal and the ordinary law of agency would apply. But that is obviously not intended; he could not, for example, be sued for the freight. This is the sort of situation that is covered by the wider principle; the third party takes those benefits of the contract which appertain to his interest therein, but takes them, of course, subject to whatever qualifications with regard to them the contract imposes. It is argued that it is not reasonable to suppose that the seller would submit to the terms of a contract whose detail he does not know and which might not give him the sort of protection of which he would approve. I do not think that as a matter of business this is so. Most people board a bus or train without considering what protection they will get in the event of an accident. I see nothing unreasonably imprudent in a seller assuming that the buyer, whose stake in the contract is greater than his, would have obtained whatever terms are usual in the trade; if he were legally minded enough to inquire what they were, the answer would be that by statutory requirement the contract was governed  by  the  Hague  Rules.  … 17 BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA) FARWELL L.J.: The first question in this case is whether a contract for hops “c.i.f. to London, terms net cash,” but without the words “against documents,” means that the price is to be paid against documents, or after the buyer has had the opportunity of inspecting the goods. Hamilton J. has held, and I agree with him, that “terms net cash” adds nothing to the contract to pay: it means only “no credit and no deductions by way of discount or otherwise.” The neat question, therefore, remains, whether the fact that the contract is c.i.f. is by itself sufficient to import “payment against documents,” or, in other words, whether a contract which does not contain those words is to be read as a contract which does contain them. Now, apart from rectification, with which we are not concerned in this case, there are three ways only in which a provision not expressed in a written document can be added to it. The first is where the words used are elliptical; the second is usage, including in that term the law merchant, whereby, under certain limitations, terms may be added to or phrases may be explained and construed in a written document; and the third is necessary implication as explained in The Moorcock, and Hamlyn & Co. v. Wood & Co., where Lord Esher says: “The Court has no right to imply in a written contract any such stipulation, unless, on considering the terms of the contract in a reasonable and business manner, an implication necessarily arises that the parties must have intended that the suggested stipulation should exist. It is not enough to say that it would be a reasonable thing to make such an implication. It must be a necessary implication in the sense that I have mentioned.” The words of the contract here, namely, “The parties of the second part shall pay for the said hops at the rate of ninety (90) shillings sterling per 112 lbs., c.i.f. to London,” are obviously elliptical so far as “c.i.f.” is concerned, and on construction mean that the 90s. is to include cost insurance and freight, which are to be provided by the seller on behalf of the buyer, but they express no time or term of payment: payment is dealt with in the next sentence - “terms net cash” and here is the natural and usual place to add “against documents” or the like, if the parties so intend. But Hamilton J. himself says that “net cash” does not mean “against documents,” and I can find nothing in the whole of the words read together, or in any of them read separately, from which any such meaning can be extracted on any rules of construction known to the law. It is in my opinion equally impossible to add any term by usage. Usage must be proved by evidence, or must have been so often proved as to be part of the law merchant, and to be the subject of judicial knowledge (see Gibson v. Small); but here no evidence was tendered, nor was it suggested, that there was any usage or law merchant. It is common ground that in the majority of c.i.f. contracts the words “cash” or “bills” or the like “against documents” are expressly inserted, and this very fact is almost conclusive that there is no usage or law merchant, for usage implies a term outside the written document, and is prima facie negatived by finding an express clause usually inserted in written documents of the class in question. The clauses usually inserted in a particular form of written contract are quite distinct from clauses not so inserted but added by usage or law merchant: the usage or law merchant dispenses with the express insertion. The omission from a contract of a clause usually inserted in contracts of that class is evidence of the intention of the parties that such clause shall not apply, not that it shall: nor can the Court infer from the express insertion of a particular clause in most of the contracts of a particular class any usage justifying the addition of such a clause to a contract of that class in which it is not inserted. If Hamilton J. had ruled that there was any usage, so often proved that he had judicial knowledge of its existence, to the effect that a c.i.f. contract always implied “cash against documents,” whether so expressed or not, I should probably have deferred to his great knowledge and experience in commercial cases, but he has not done so, nor has counsel suggested that any such usage has ever been proved, and they could hardly be ignorant of its existence, if it had any; in the absence of any such usage the judge cannot mero motu add to the law merchant, as to which Foster J. says in Edie v. East India Dock Co., “Much has been said about the custom of merchants. But the custom of merchants, or law of merchants, is the law of the kingdom and is part of the common law. People do not sufficiently distinguish between customs of different sorts. The 18 true distinction is between general customs, (which are part of the common law), and local customs (which are not so). This custom of merchants is the general law of the kingdom, part of the common law”; and Wilmot J. says, “The custom of merchants is part of the law of England; and Courts of law must take notice of it, as such. There may indeed be some questions depending upon customs amongst merchants, where, if there be a doubt about the custom, it may be fit and proper to take the opinion of merchants thereupon; yet that is only where the law remains doubtful. And even there, the custom must be proved by facts, not by opinion only; and it must also be subject to the control of law.” Indeed in the Court below the respondents’ counsel argued on the construction of the words “net cash,” and did not suggest that “c.i.f.” could be construed as including “payment against documents.” This reticence is important when the question is as to the existence of usage - a matter that could hardly be unknown to the counsel of experience who argued this case. There remains, therefore, only the third ground. At common law the delivery of goods by the seller and acceptance and payment by the buyer are regarded as concurrent acts, the buyer being entitled to a reasonable opportunity for inspection before he accepts and pays. It is thus expressed by Rolfe B. in Startup v. Macdonald: “Now, it may be observed, that in every contract by which a party binds himself to deliver goods, or pay money, to another, he in fact engages to do an act which he cannot completely perform without the concurrence of the party to whom the delivery or the payment is to be made. Without acceptance on the part of him who is to receive, the act of him who is deliver or to pay, can amount only to a tender. But the law considers a party who has entered into a contract to deliver goods or pay money to another, as having, substantially, performed it, if he has tendered the goods or money to the party to whom the delivery or payment was to be made, provided only that the tender has been made under such circumstances that the party to whom it has been made, has had a reasonable opportunity of examining the goods, or the money, tendered in order to ascertain that the thing tendered really was what it purported to be. Indeed, without such an opportunity an offer to deliver or pay does not amount to a tender.” The general rule, therefore, is payment against inspected goods; and this is simple enough where both parties and the goods are together in the same place. But when goods are shipped from across seas, the contract becomes complicated by the fact that the delivery, although not complete until acceptance, commences on a c.i.f. contract on shipment, and the property passes, subject to certain qualifications not necessary now to consider, when the goods are shipped; if the seller fails to ship, or ships goods not according to contract, the breach by him is committed there and then: Parker v. Schuller; Crozier, Stephens & Co. v. Auerbach. But the buyer’s acceptance and duty to pay is not on shipment. The c.i.f. contract usually provides for payment against documents, a practice convenient for both parties, as the bill of lading enables financial dealings on the credit of the goods to be carried out before the arrival of the goods; but no one has ever suggested that on a c.i.f. contract, silent as to time of payment, the buyer is bound to pay on shipment of the goods. The result must therefore be that the ordinary rule of law is not displaced, namely, payment against examined goods. It is said that this cannot be so, because under the contract in common form “c.i.f. payment against documents” the buyer has to unload and warehouse the goods at his own expense; whereas the seller would have to bear such expense if he has to afford the buyer an opportunity of inspection before payment can be required. But this is only to state the different consequences flowing from two contracts expressed in different terms: there is no such necessity for any implication as to justify the Court in altering the usual incidence of burdens under a contract silent as to this particular burden; and actual physical necessity is not suggested, and would indeed be disproved by the fact that in this very case such inspection before payment has been given by the sellers in one case at any rate during the existence of this contract. I do not suggest that the conduct of the parties under the contract is admissible as evidence of the construction of the contract; I think that it is not (although it would be so in a suit to rectify on the ground of common error); but it is admissible to shew that there is in fact no such impossibility as to render the contract impossible of performance without the addition of the terms suggested. In my opinion Lord Blackburn’s statement in Ireland v. Livingston throws no light at all on the question  before  us,  and  I  cannot  follow  the  reasoning  of  Hamilton  J.  in  this  case  …  .  I  will  assume  that   19 and never came into question in Parker v. In this particular. The duty on A. the right of antecedent (though not of subsequent) inspection before payment is thereby waived. sitting as a judge without a jury for the trial of commercial cases in the King’s Bench Division. has dismissed. The question there related solely to the duty of the seller and the place where the performance of the contract by him was to be carried out. [VAUGHAN WILLIAMS LJ concurred. the purchasers. but in the absence of express contract it is at his option. if the goods are accepted. the option would at once cease because inspection would have been rendered impossible. if the buyer accepts it. he must. the contract is in fact often so carried out. or. at the rate of 90s. and. which Hamilton J.i. The basis of my judgment is that the buyer has a common law right (now embodied in the Sale of Goods Act) to have inspected goods against payment. but no one suggests that the buyer’s duty to pay arises on such shipment. c.i. contract there are words.” or the like. his judgment was in my opinion right.i.J (dissenting): This is an appeal of the plaintiffs in the action against the judgment of Hamilton J.f. not at the seller’s.i. The action before him comprised a claim of the plaintiffs for damages for breaches of two contracts. to waive the option.. and a counter-claim of the defendants for breaches of the same contracts. his duty depends on the terms of the contract. It is said that this decision will upset mercantile practice. with the conflicting contentions of the litigants thereon. has the option of choosing between two alternative rights: he may accept symbolical delivery or actual delivery. and. and here I can find neither. to summarize the statement of the learned judge. I should have ventured to think the case a reasonably simple one.” which bear out the conclusions at which I have arrived. The material terms of the two contracts.a course hitherto adopted in the majority of c. but I fail to see any difficulty in parties who desire it adding “against documents” to their contracts . sterling per 112 lbs. In the great majority of cases. a document before he can require payment does not impose on B. Then it is said that Parker v. just as it would be in the case of acceptance of the goods themselves without inspection. a duty to accept such document as equivalent to goods. it suits both buyer and seller better to give and accept symbolical delivery by the bill of lading. to be shipped by the defendants. Schuller is an authority against the appellants. In my opinion. and it is needless for me to repeat them here at length. or Hull. in order to make clear the reasoning of my judgment. Schuller. contracts. pay for the goods on such acceptance. We are here concerned with the duty of the buyer. So far as regards the claim of the plaintiffs. Each of the contracts in question is a contract for the sale of foreign hops of specified quality. It is sufficient. partly typewritten and partly printed.f. No one doubts that the seller’s breach of a c. If the goods were lost at sea. if he has a right to inspect such goods before accepting and paying for them. and to be paid for by the plaintiffs. but I prefer to rest my judgment on the general grounds above stated.] KENNEDY L. and very ill-drawn. as the 20 . No point arises. that case has no bearing on the present. from whom I have the misfortune to differ. and but for the contrary opinion of the other members of this Court. Liverpool. are carefully stated by Hamilton J.f. to tender to B. contract does not contain the words “cash against documents. especially in the clause referring to refusal to pay “for any hops delivered and accepted hereunder. in other words. the sellers. In my opinion the appeal should be allowed and judgment entered for the plaintiffs. in the opening portion of his judgment. and the existence and exercise of this option explain why in cases where the c. But I fail to follow the consequence said by the learned judge to ensue. of course. contract arises on failure to ship. and the buyer would be bound to pay against documents. from the Pacific Coast to Sunderland. terms net cash.as a matter of usage the seller is bound to tender the bill of lading to the buyer when it arrives.f. and this cannot be taken away from him without some contract expressed or implied. But this is no evidence of usage for the buyer to accept in all cases. because the delivery of the bill of lading is a symbolical delivery of the goods. B. to London. if that commercial contract is to be performed strictly according to its tenor. raises in my mind a doubt of the correctness of my own. This is not a case. in the circumstances. I think. 34 of the Sale of Goods Act. as it has been treated throughout the argument.f. 28 and s. (b) the provisions of s. But this offer was rejected by the plaintiffs. immaterial. The plaintiffs’ case is that the price was not to be paid until they had been given an opportunity of inspecting the shipment. for the sake of peace. I should have been content to adopt that judgment as it stands. the defendants.learned judge states. which. to make the plaintiffs the reasonable and businesslike concession of attaching to the shipping documents certificates of quality of the Merchants’ Exchange at San Francisco. The plaintiffs’ — that is the appellants’ — argument. or Hull. I do not think that the comment that the terms might have been more fully expressed helps one way or the other as to the interpretation of the contract as it stands. as he hoped he might add. contract. as they allege. therefore. But for the differing opinion of Vaughan Williams L. according to the true interpretation of these contracts. under the documents which contain the contracts. of a contract the terms of which present ambiguity or conflict. But he has given a reasoned judgment to which I can discover no answer in the argument of the appellants’ counsel. The Court. In regard to the wording of the contract. has in the present case to decide what are the true conditions of the right of the seller to payment under a c. 1893. The dispute between the parties is as to the conditions under which. although this will involve a much longer judgment than I should otherwise have thought necessary or justifiable.” of such words as “against documents. Liverpool. of course. There is no contrariety between “cost freight and insurance. apart from a reference to certain subordinate and subsidiary printed clauses to which I shall advert after dealing with the main question. offered. right that I should deal with the case in my own way. net cash against documents. But. they relieved the defendants from the obligation to tender. in everyday use: examples of both can be found within the covers of modern law reports (see. Vaux & Sons.” Both the fuller and the shorter form are. it must be settled by the interpretation of the document according to established principles of mercantile law. the price is to be paid. or other competent authority. Parker v.” or “in exchange for documents”. Hamilton J. which could not be given until after its arrival in this country. hangs upon considerations arising from (a) the absence. and they have themselves broken these contracts so far as regards this particular shipment. net cash” and “cost freight and insurance. whether they arrived or not. and. as a matter of grace. therefore. and indeed it was not disputed on the argument before us.J. I believe. All that can be said is that. respectively. C. if they are wrong in that contention. I agree with Hamilton J. If any implication is necessary.. the law. carried on business at Sunderland. has unhesitatingly decided in favour of the defendants.. Limited. desires to give such business efficacy to the transaction as must have been intended at all events by both parties. the fact is. the condition of payment not being expressly stated except in so far as the words “net cash” negative payment by acceptance and the allowance of deduction or discount. against tender of the shipping documents. as stated by Bowen L. which was for all practical purposes the same as that which appears from the Law Reports to have been put forward by them unsuccessfully in the Court below. and believing as I do that this appeal affects a large and important branch of import business. after the words “net cash. Schuller and 21 . Possibly the explanation of this arrangement is that Messrs. who assigned their interest under the contracts to the plaintiffs. that the plaintiffs in the correspondence clearly expressed their intention not to take delivery of the 1909 shipment (which is that to which this litigation is confined) except upon the terms of payment for which they now contend. In his opinion it was unnecessary to refer to authorities as to the meaning of the terms “cost freight and insurance.i. it is. are now standing upon their rights. the original purchasers. in his judgment in The Moorcock.J. and Farwell L.” because those terms are now well settled and. well understood. upon the question of the calculation of freight being to London. as it seems to me.J. for example. while the shipment was to Sunderland. in respect of the buyer’s right to have delivery in exchange for the price and to have an opportunity to examine goods tendered for acceptance. who are business men. The defendants contend that the plaintiffs’ obligation was to pay for the hops. and the parties. Before litigation began. Anyhow. Imperial Ottoman Bank.J. whenever it is the intention of the parties that the property should pass. in the absence of special agreement. The application of the principles and rules of the common law. 1893. a tender of delivery entitling the vendor to payment of the price must. s. at his own cost. contract that the vendor shall. 1893. Under the Sale of Goods Act. as setting forth the relative rights and duties of seller and buyer in the ordinary course of procedure under a c. referred to by Hamilton J. Maclean). I do not recollect hearing it suggested until I listened to the argument of the plaintiffs’ counsel in this case that the value of that opinion. At the port of shipment — in this case San Francisco — the vendor ships the goods intended for the purchaser under the contract.f. his delivery of the goods to the carrier is. either conditionally or unconditionally. net cash” or a contract “cost freight and insurance. But the vendor.” But Lord Blackburn’s opinion was delivered in the House of Lords forty years ago. and the particular contract in that case contained the words “payment by acceptance on receiving shipping documents. Maclean. although it is probable. be a tender of possession. 32.f. payment by acceptance” may not imply “against documents” in each case. in Sanders v. Livingston. and. is necessarily incapable of physical delivery. and Cotton L. is not yet in a position to demand payment from the purchaser. — and the present litigation certainly vindicates its expediency — that the fuller form is the more common. The well-known passage in the opinion of Lord Blackburn (then Blackburn J. contract? By tender of the bill of lading. I should think. must be carried out in order to fulfil its terms.” says Bowen L.i. and by virtue of s. in the absence of contractual stipulation to the contrary. for the statement itself is obiter. by such shipment the goods are appropriated by the vendor to the fulfilment of the contract. I think. according to the express terms of s.i. and available for his use. so far as I am aware. How is such a tender to be made of goods afloat under a c. now embodied in the Sale of Goods Act. in Mirabita v. and under s. 18. and the property in the goods has passed to the purchaser.Sanders v. as consignee. speaking for myself.f. Possession of the bill of lading places the goods at the disposal of the purchaser. The goods are at the risk of the purchaser. “while in the hands of the carrier. the bill of lading by the law merchant is universally recognized as its symbol. contract. and.. contract as that before us is and. however. and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo. to the business transaction embodied in the c. It passes unconditionally where the bill of lading is made out in favour of the purchaser or his agent or representative. against which he has protected himself by the stipulation in his c.i. The bill of lading in law and in fact represents the goods. step by step. as the case may be. Let us. just as 22 . provide him with a proper policy of marine insurance intended to protect the buyer’s interest. if the goods should be lost in transit. it has. 32 the delivery of the goods to the carrier — whether named by the purchaser or not — for the purpose of transmission to the purchaser is prima facie to be deemed to be a delivery of the goods to the purchaser. accompanied in case the goods have been lost in transit by the policy of insurance. how according to those principles and rules the transaction specified in such a c. During this period of transit and voyage. in which a great master of the commercial law stated the course of business in the performance of a cost freight and insurance contract as very usual and well understood. contract appears to me to be decisive of the issue between these parties. is made out in favour of the vendor or his agent or representative: see the judgments of Bramwell L.f.) in Ireland v.f.J. for the purpose of better securing payment of the price.i. leave out of sight altogether for the present all question of usage or judicial recognition of usage. “A cargo at sea. never before this case been suggested that a contract “cost freight and insurance. Property in the goods passes by such indorsement and delivery of the bill of lading. 28 of the Sale of Goods Act. It passes conditionally where the bill of lading for the goods. Macdonald. Let us see. as under the common law (an exposition of which will be found in the judgments of the members of the Exchequer Chamber in the old case of Startup v. only “prima facie deemed to be a delivery of the goods to the buyer”. plainly cannot be relied on for the respondents as an actual decision in their favour.i.J. wholly depended upon the insertion of “against (or “in exchange for”) shipping documents” after the statement of the mode of payment by cash or by acceptance. Two further legal results arise out of the shipment. and until after an opportunity of examining them. in which the goods may chance to be. Landing and delivery can rightfully be given by the shipowner only to the holder of the bill of lading. Either the seller must surrender to the purchaser the bill of lading. This is. so unreasonable as to be absurd. if the plaintiffs’ contention is right. as held by Brett L. one of two things must happen. perhaps. as the bill of lading with its accompanying documents comes forward by mail. and carries with it not only the full ownership of the goods but also all rights created by the contract of carriage between the shipper and the shipowner. contract. the essential and peculiar advantage which the buyer of imported goods intends to gain under the c. The plaintiffs’ assertion of the right under a cost freight and insurance contract to withhold payment until delivery of the goods themselves. But this involves a manifest 23 . is. cannot possibly be effectuated except in one of two ways. In the first place. in that case.i. the vendor must himself retain the bill of lading. an option of a time of payment is not a term which can be inferred. which applies to this class of contract the same principle as was expounded by Bowen L. in the case of seaborne goods. indeed. in the case of shipments from a distant port.” for which we have the great authority of Lord Esher. take this constructive delivery and pay against it the price of the goods. and accompanied in case of loss by the policy of insurance. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof. It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse. 7th ed. alternatively. Very relevant on this point is the language of Brett L. may be either actual or constructive: see Chalmers’ Sale of Goods Act. I think. the purchaser obtains the privilege and absolute power of profitably dealing with the goods days or weeks. and himself store the goods on quay (if the rules of the port permit). Maclean. Therefore. 140. months. there must. the bill of lading. as the bill of lading carries with it an absolute power of disposition. if there is a duty on the vendor to tender the bill of lading. remains in force as a symbol. floating or fixed. He said: “The stipulations which are inferred in mercantile contracts are always that the party will do what is mercantilely reasonable”.f. But. where the contract itself is silent. the duty of the purchasers to pay against the shipping documents. in The Moorcock. if he pleased. until complete delivery of the cargo has been made on shore to some one rightfully claiming under it. So far as I am aware. “mercantilely reasonable” that the purchaser should be held bound to make the agreed payment when delivery of the goods is constructively tendered to him by the tender of the bill of lading.under similar circumstances the property would pass by an actual delivery of the goods. p.” Such delivery. in his judgment in Sanders v. 62 to be “voluntary transfer of possession from one person to another. without receiving payment. under such a contract as the present. or warehouse the goods.f. and.J. there is no authority for the inference of an option as to times of payment to be found either in the law books or in the Sale of Goods Act. for such time as may elapse before the purchaser has an opportunity of examining them. what is there in the ‘cost freight and insurance’ contract which compels him to do so? Why may he not insist on an option of waiting for a tender of delivery of the goods themselves after having had an opportunity of examining them after their arrival?” There are. does not need the application of that doctrine of the inference in mercantile contracts that each party will do what is “mercantilely reasonable. Secondly. I venture to think. For thereunder. But then I understand it to be objected on behalf of the plaintiffs: “Granted that the purchaser might. if it be the duty implied in the c. before the arrival of the goods themselves. which. as Bowen L.i. in the absence of a special agreement in the contract of sale. whereunder the delivery can be obtained.J. or. or. several sufficient answers to such a proposition. in truth. the delivery of the bill of lading operates as a symbolical delivery of goods. it is. it seems to me. and. that the vendor shall make every reasonable exertion to send forward and tender the bill of lading as soon as possible after he has destined the cargo to the particular vendee. contract according to the construction which I put upon it.” The meaning of “delivery” under the Sale of Goods Act is defined by s. either drawn originally in his favour or indorsed to him. as the learned draftsman of the Act and its editor remarks in his note to this section.J.J. has pronounced. 1893. be a corresponding duty on the part of the purchaser to pay when such tender is made. himself land and take delivery of the goods. in my judgment. as expressly stipulated in the contract. “The purchaser was to have a policy of insurance.J.violation of the express terms of the contract “90s. 1. established principles and rules of law to a c. if the plaintiffs’ contention were to prevail.” It is noticeable that in the course of the argument in Tregelles v.f. as I hold that a similar view is the true view also in regard to s. r. the judgment of the Court of Appeal (A. they are found to be not goods in accordance with the contract. In Parker v. the goods were at the time of loss. or from recovering damages for breach of contract if they prefer that course. within the jurisdiction. 1 (e). The contract was in every essential point identical with the contract in the present case. But. It was a simple c.” and earlier in the same argument Wilde B. my own view as to s. that when the parties have entered into a c. let me test the soundness of the plaintiffs’ contention that according to the true meaning of this contract their obligation to pay arises only when delivery of the goods has been tendered to them after they have had an opportunity of examination. covered by the insurance. sub-s. against documents. The vendor tenders the bill of lading. by applying.” The parties have in terms agreed that for the buyer’s benefit the price shall include freight and insurance. As to s. sub-s. The breach alleged by the plaintiffs in the indorsement upon the writ of summons and in the affidavit in support of their application was the non-delivery of the goods themselves to the buyers in Liverpool. which is usually considered as equivalent to the goods. But. asked. Suppose the goods to have been shipped. on examination after their arrival. become thereby precluded from rejecting the goods if.. Finally. “If the meaning is ‘to be delivered at Harburgh. “You have the bill of lading and the policy of insurance. and at whose risk. and Romer L.J. I ask myself.) in the case of Parker v.f. So far I have tested the validity of the appellants’ contention that under a simple c. without mention of payment against documents.. 2. such efficacy as must have been intended by the parties to it as business men. contract. No one suggests that the plaintiffs.. The seller’s answer. contract so as to give it in the language of Bowen L.. observes. 28 and 34 of the Sale of Goods Act. per 112 lbs. a few words in regard to ss. the main question in the present case. 1 (e).f. the vendor must be saddled with the further payment of those charges at the port of discharge which ex necessitate rei would be added to the freight and insurance premium which alone he has by the terms of the contract undertaken to defray. far from saying that the view which is suggested in the course of the judgment of Hamilton J. I have only to add as to this. or alleged breach. the goods sold being goods to be shipped from Germany to Liverpool.” is not one which could be supported. Schuller cannot. the bill of lading taken. contract they have “otherwise agreed.’ what necessity is there for insurance?” The contract in that case was a contract in the fuller form. and the insurance for the benefit of the buyer duly effected by the seller. and for his benefit nothing beyond freight and insurance. to issue a writ and serve the defendant to an action in contract. who had affirmed an order giving the plaintiffs leave under Order XI. L. I am. in truth. Smith M.i. 34. The judge in 24 . there is no difficulty. 28 is that the section is satisfied by the readiness and willingness of the seller to give possession of the bill of lading.i.i. to whom from the moment of shipment the property has passed. altogether apart from authority.i.. who was a foreigner out of the jurisdiction. namely. “I will not pay because I cannot have delivery of and an examination of the goods”? But it is just this which is necessarily involved in the contention of these plaintiffs. contract the seller is entitled to payment only against delivery of the goods themselves and after examination of the goods. be reconciled with this contention of the present appellants. with notice of the writ.J. but it does not seem to me that that affects the value of those observations as to the relative rights of the buyer and seller. Suppose the goods then during the ocean transit to have been lost by the perils of the sea. namely. 34.f. The validity of the judge’s order depended according to the terms of Order XI. upon the existence of a breach. however. The goods had not been shipped. cost freight and insurance. in this way.R. is. Collins L. as I hope. arguable that the purchaser could be heard to say. with the insurance policy and the other shipping documents (if any) to the purchaser. Schuller the case came before the Court of Appeal on an appeal from the judge in chambers. and I think conclusive answer. Is it. Sewell Martin B. if they pay against documents. As I have already said. r. terms. not very clearly expressed. from which the plaintiffs’ counsel sought.i. again referring to Tregelles v.f. I have really little or nothing to add to that which my brother Hamilton has said in considering this part of the plaintiffs’ argument. I think.’ and it was not argued that the contract was to deliver the goods at Liverpool. and there is.. affect the principle if the contracts are to be performed 25 . being clearly of opinion that under a c. as a necessary conclusion. and that their unquestionable failure to do this constituted a breach within the jurisdiction which would justify the grant to his clients of the order for service of notice of the writ which they had obtained. and the judgments of the Court of Appeal in Parker v. According to the judgment of Hamilton J.f. the appellants in the present case. that it created no such obligation on the part of the seller. It was not until the case came into this Court that the plaintiff set up another cause of action.i.i. Schuller contain nothing in conflict with that view. essentially identical with the c. contract was held in that case not sufficient to alter the effect of the c. That was abandoned. who heard the application ex parte in the first instance. but apparently intended to meet certain possible contingencies which we have not to consider in deciding the present issue. in this case without holding.f.i. There the contract was in its fuller form — “payment upon delivery of bill of lading and policy” — but this does not. The plaintiff therefore was wrong in his application. Mr. Horridge’s argument as to the obligation of the seller under a c.chambers (Farwell J. that the fact that there is a reference to delivery of goods in a c. and upon which the plaintiffs. not relied upon in the writ or in the affidavit. Horridge’s argument that the contract did bind the seller to deliver the shipping documents. contract was a contract to deliver goods in this country.). constitute a breach of the contract within the jurisdiction. Liverpool. the counsel for the plaintiffs in Parker v. had held that the non-delivery of the goods in Liverpool did.i. to draw support for their interpretation of the principal or governing provisions with which I have already dealt. reverse the judgment of Hamilton J. Schuller when it held. and. They do not appear to me to throw any useful light upon the construction of the contracts in regard to the conditions of payment. after referring to Mr. who affirmed his order. contract there was no obligation on the seller to deliver the goods themselves in this country. The claim was for non-delivery of the goods.i. The case is so important that I think it is my duty to quote one passage from the judgment of the Master of  the  Rolls  …  :  “Upon the appeal the alleged contract to deliver the goods at Liverpool was dropped. Sewell.i.f. a noteworthy confirmation of the opinion of Hamilton J. Horridge (now Horridge J.f. These clauses are printed clauses. that the law on this point has long been treated as well settled in the fact that Mr. In regard to the subsidiary or supplemental clauses of the contracts in question. expressly declined even to argue the point upon which his clients had obtained their order from the judges appealed from. was well founded.” The case of the plaintiffs on the present appeal that the defendants can demand payment only upon delivery of the goods logically depends upon the alleged obligation of the defendants to deliver the goods themselves in this country..i. but endeavoured to uphold that order upon the ground. the Master of the Rolls proceeded: “It was enough in the present case to say that that was not the cause of action indorsed on the writ of summons nor the cause of action alleged in the affidavit upon which leave to issue the writ and to serve notice thereof out of the jurisdiction was granted. but to deliver the shipping documents to his buyer here.f. contract. and we cannot. But all the members of the Court declined to deal with any defence of the order appealed against which rested upon a breach other than that which was put forward in the plaintiffs’ writ of summons and affidavit. it appears to me. the contract being ‘c. holding that this non-delivery of the goods themselves upon which the plaintiffs relied in their writ and the affidavit in support of their application did not constitute a breach of the c. That could not be allowed.i. I think. and my own also.f. It was not contended that a c.). they allowed the appeal. as the plaintiffs contended. that this Court decided wrongly in Parker v. and Lawrance J. to some slight extent. that under the c. Schuller. I may add.f. contract.i. in regard to a simple c. The Court of Appeal reversed their decision.” Then. contract the seller is bound to deliver to the buyer the bill of lading and the policy of insurance with the other shipping documents (if any). contract in the present case.f. base their appeal to this Court. contract not merely to ship the goods at the foreign port.f. nor can a solution be found in the mere designation of the contract as c. asked for the refund of the purchase price paid by them under the contract on the ground that the consideration had wholly failed. In the present case therefore it is not as if a usual form of delivery order had been given and accepted or an insurance certificate covering the parcel was in the hands of Van Bree as agents for the buyers. coupled with an insurance policy in the normal form and accompanied by an invoice which shows the price and. though. I can see no sufficient reason for supposing 26 . Ld.g.f. usually contains a deduction of the freight which the buyer pays before delivery at the port of discharge. The question for your Lordships’ consideration  is  whether  there  was  such  total  failure  of  consideration. Sometimes.i. That practice seems to me rather to show that the payment was not made for the documents but as an advance payment for a contract afterwards to be performed. the judgment of Hamilton J. The question is whether the purchaser has got what he is entitled to in return for the price. the obligations imposed upon a seller under a c. in Law & Bonar Ld. Not every contract which is expressed to be a c.i.i.i. 157. as in The Parchim [1918] A. the description c.. Against tender of these documents the purchaser must pay the price. I think. be modified: a provision that a delivery order may be substituted for a bill of lading or a certificate of insurance for a policy would not.f. British American Tobacco Co. contract is such. In the result the buyer after receipt of the documents can claim against the ship for breach of the contract of carriage and against the underwriter for any loss covered by the policy.i. who upheld an award of an umpire stated in the form of a special case under the Arbitration Acts. no doubt. and in the ordinary case include the tender of a bill of lading covering the goods contracted to be sold and no others.f. must not be neglected. Belgian Grain and Produce Co. 1889 to 1934. In my judgment. but I do not so construe the contract. an invoice sent. as in this case. but in deciding whether it comes within that category or not all the permutations and combinations of provision and circumstance must be taken into consideration. contract are well known. to say that some steps had been taken towards the performance of this contract.973 in a certificate of insurance. however. terms are introduced into contracts so described which conflict with c. the customary so-called delivery order had been transmitted and that delivery order amongst its provisions contained a declaration by the sellers’ agents.i. contract may. Ld. Reversed by the House of Lords. under which antagonistic terms can be neglected on the ground that they are repugnant to the transaction. The strict form of c. The arbitration arose out of a contract for the sale of rye by the respondents (the sellers) to the appellants (the buyers). but possession does not pass until the documents which represent the goods are handed over in exchange for the price.  … My Lords. that they gave a share of the present delivery order of $4.i.f. as was done by Rowlatt J. With all due respect to the learned judge and the Master of the Rolls. The buyers. It is true. if the buyers paid the sum claimed in order to obtain the delivery order and the share purported to be given by it in the certificate of insurance. terms.i. even when illuminated by the practice adopted by the parties.f. make the contract concluded upon something other than c. of course. the goods had been shipped.f. In such a case the property may pass either on shipment or on tender. provisions. and this appeal. who were the claimants in the arbitration. so far as relates to the plaintiffs’ claim. The true effect of all its terms must be taken into account. Of course. the contract would have been performed in part at least. Appeal allowed by majority. v. was right.f. should be dismissed. this is an appeal for a judgment of the Court of Appeal affirming by a majority the judgment of Morris J. COMPTOIR D’ACHAT ET DE VENTE DU BOERENBOND BELGE S/A V LUIS DE RIDDER LIMITADA (THE JULIA) [1949] AC 293 (HL) LORD PORTER: My Lords. This is not a case in which the overriding provision is the term c.f. e. But the taking of steps towards performance is not necessarily a part performance of a contract. C. the risk generally passes on shipment or as from shipment.strictly according to their tenor. Playford. and the certificate of insurance. Undoubtedly the practice of shipping and insuring produce in bulk is to make the process more difficult. “the insurance certificates. as I see it. it is difficult to see how a parcel is at the buyers’ risk when he has neither property nor possession except in such cases as Inglis v.i. But before physical delivery of the goods could take place Van Bree must have received a “Captain’s laissez suivre” authorizing delivery to them. My Lords. but in no way increases their obligations or adds to the security of the buyers.. those agents would then pay the freight and present the delivery order to the Belgian Grain and Produce Co. as in Castle v.” Similarly.f. or not) at the disposal of the buyers. Indeed. A complicated procedure had to be followed before the goods would be released. on the one hand. is in substance no more than a repayment of the money given for the goods. at any rate if attorned to by the master. But the type of delivery order tendered in the present case was a preliminary step only.. The buyer gets neither property nor possession until the goods are delivered to him at Antwerp. it was issued to Van Bree and was never physically in the buyers’ hands. though less satisfactory.f. is the case here. indicate a payment in advance or. Ld.” In these circumstances the fact that the sellers twice collected the insurance money for a total loss and handed it to the buyers does not lead very far. Ld. contract is to enable sellers and buyers to deal with cargoes or parcels afloat and to transfer them freely from hand to hand by giving constructive possession of the goods which are being dealt with.” He further finds that Van Bree “were at no time and in no respect agents of the buyers and that the sellers did not.either that the delivery order had some commercial value or that Van Bree undertook a personal liability by their indorsement of the document. except on the journey from ship to warehouse. or even have been seen by. But the whole circumstances have to be looked at and where. Ld. where the purchaser had an interest in an undivided part of a bulk parcel on board a ship. obtained by attornment of the bailee to him. dealing with the goods whilst at sea to take place. no further security 27 . “the effective document upon which Van Bree obtained physical possession of the goods. In my view. Stock and Sterns Ld.. despite the extra two per cent. and a policy or a certificate of insurance delivered to or even held for them might well put it in that category. The vital question in the present case. Vickers Ld. the object and the result of a c. if it enures to his benefit at all. or elsewhere. In my opinion. The tender of a bill of lading or even of a delivery order upon the ship.i. on the other. if the Belgian Grain and Produce Co. the buyers. No doubt the contract could have been so performed as to make it subject to the ordinary principles which apply to a c. There was no evidence of commercial value and the document itself was merely an instruction by one agent of the sellers to another. Ld. constructively deliver them to the buyers nor did Van Bree at any time hold the certificates (whether countersigned by the Belgian Grain and Produce Co. in my opinion. “It was thus. “were received by Van Bree from the Belgian Grain and Produce Co. The buyers had to hand the sum due for freight to their agents. It was a convenient method of settling accounts between the parties and.” as the umpire also finds. who would sign a note on it acknowledging receipt of the freight: the agents thereupon would hand the delivery order to Van Bree who would retain it and issue a “laissez suivre” or release to themselves authorizing delivery to the agents. but a ship’s delivery order and a certificate of insurance transferred to or held for a buyer still leaves it possible for some. by delivering the certificates to Van Bree. The time and place of payment are elements to be considered but by no means conclusive of the question: such considerations may.” as the umpire says. were sued upon the document they would rightly reply that they were acting only as agents and Van Bree could make the same defence. contract. they may show a payment postponed until the arrival of the ship. The practice adopted between buyers and sellers in the present case renders such dealing well nigh impossible.. though the property in the goods or the risk have passed to the buyer whilst the goods are still at sea. The document appears to me to be no more than an indication that a promise already made by the sellers would be carried out in due course. has never been held for or delivered to him. v. the method by which the contract was customarily carried out supports this view. and would not have passed through the hands of. is whether the buyers paid for the documents as representing the goods or for the delivery of the goods themselves. as. Therefore.. as it appears to me. this seems to me an astonishing proposition. though paid for. in the terms of the second of the formal reasons in their case. has arisen from the fact that. It is common ground that there was not physical delivery. If this be the true view there was plainly a frustration of the adventure . contract. the true view. My Lords..indeed the sellers admit so much in their pleadings . had the sellers been in a position and elected to tender shipping documents by virtue of which the property in the goods passed to the buyers. counsel for the sellers urged. I do not pause to examine the factual basis of this contention. the sellers had done all. and that that contract could be performed by either the physical or the symbolical delivery of the goods in accordance with its terms. being for the sale of goods and the goods. Was there then symbolical delivery? Certainly there was not. for it seems to me to be wholly unsound in law. But this result would have ensued not because a clause in the contract provided for payment against documents. What the buyers wanted was delivery of the goods in Antwerp. apart of the machinery by which the contract is carried out that payment should be made against. it was urged.f.J. but in truth whether the payment is described as made on presentation of or in exchange for a document. There was not. and the delivery of the documents furnished the date for payment. how do the sellers justify their contention that the consideration did not wholly fail? Departing.. The buyers are accordingly entitled to recover the money which they have paid. a delivery order and it is as little relevant to the question whether there has been failure of consideration as would be a provision that payment 28 . LORD SIMONDS:  …  The  argument  before  your  Lordships  ranged  over  a  wide  field. where the sellers were to pay for deficiency in bill of lading weight. If it was so contended. etc. for instance. as I think. or was to be regarded as.and no part performance and the consideration had wholly failed. the document was not a fulfilment or even a partial fulfilment of the contract: it was but a step on the way. viz. I think. but because in law there cannot be failure of consideration if the property has passed. any tender of a bill of lading. 500 tons of rye. It is in fact. The contract.i..” My Lords. it appears to me plain that here there was a contract for the sale of goods. from the reasoning which found favour with the majority of the Court of Appeal. not having been actually or symbolically delivered. to see what the parties respectively agreed to do and then to consider what is the legal effect of failure of performance. that “at the time of payment the respondents had performed all that they were required to do under the contract of sale.” they were bound to do if and when they handed over a delivery order and certificates of insurance. as Asquith L. Again it is common ground that the property in the goods did not pass to the buyers. There are many ways of carrying out the contract to which that expression would apply. or was of the type of. or partook of the nature of a c. I would allow the appeal and pronounce for the alternative award with costs in your Lordships’ House and in the courts below. Confusion. The fact that a seller at a certain stage in the carrying out of his contract is entitled by its terms to demand payment does not mean that at that stage he has fully performed his contract.i. then. where the property and possession both remained in the sellers until delivery in Antwerp. and I emphasize the word “all. The contract entitled the respondents as sellers to require payment “on first presentation of and in exchange for first arriving copy/ies of bill/s of lading . and/or delivery order/s and policy/ies and/or certificate/s and/or letter/s of insurance at Antwerp.” etc. Nor do I think it matters that payment is said to be not only on presentation but “in exchange for” documents. pointed out. is that it is not a c.  much  of  it  being   directed to considering whether the contract between the parties was.. but had no effect on the property or possession of the goods or the buyers’ rights against the sellers. contract even in a modified form but a contract to deliver at Antwerp. then the latter could not have contended that there had been failure of consideration. and I do not understand it to have been contended that the handing over of the delivery order in this case amounted to symbolical delivery. the contention is in my opinion baseless. without giving the contract a label. and indeed could not have been.f. I prefer. What the sellers wanted was payment of the price before that date.beyond that contained in the original contract passed to the buyers as a result of payment. guaranteed condition on arrival and made themselves responsible for all averages. i. There is. suggest a c.. …   What   the   buyers   bought   was   500   tons   of   rye.f. Assuming without deciding that these propositions are well-founded. There was therefore total failure of consideration. if there is any validity in these propositions.should be made. I am unable to see how they assist the sellers. LORD MACDERMOTT: …   My   Lords. Belgian Grain and Produce Co. afford some indication that it was intended as a dual purpose document and that its mixed nature is the result. Van Bree. none the less. and addressed not to the ship but to F. Some stipulations point to it being an arrival contract. as I hold it is.” It is also clear that the goods were never separated from bulk or appropriated to the contract and that.f. It is. accordingly. having regard to the previous course of business between the parties. contract. it is at least clear that it was an agreement for the sale of a specified quantity of rye “at the price of $4. in fact.i. however. that on the true construction of the contract the sellers’ performance was as complete as if they had tendered the bill of lading and other documents due to be presented under a normal c. The contract permitted the sellers to substitute a delivery order for a bill of lading in the documents to be presented and I shall assume. that the consideration had not failed at all. to the conclusion that the sellers performed neither all nor. contract and. S. But however this may be. then. recovering upon the insurance policies. I am unable to read the agreed terms as binding the buyers to treat the documents they got as a complete fulfilment of the sellers’ obligations. As I have ventured to point out. the buyers. all else failing them. Ld. it is immaterial what the contract may be called or to what category of contract it is nearest akin. such as those relating to insurance. a part of what they were required to do under the contract and that the buyers obtained no part of that which they had contracted to buy. if it lacks that salient characteristic.f. I think. on notification that the ship had left New York or had arrived at Cherbourg. probable that the insistence by the learned counsel for the sellers on this aspect of the case was bound up with his reiterated plea that this was a c. but in my opinion that has not occurred here. was a delivery order. If the contract is. No doubt the contract contains much that is equivocal so far as its commercial classification is concerned. What they did get. Antwerp. the buyers did not obtain physical delivery of an ear of the grain they had ordered. a firm of cargo superintendents who were employed on behalf of the sellers to handle the shipment but were not at any time or in any respect the agents of the buyers. a contract for the sale of rye to be performed by its physical or symbolical delivery what relevance has it that the sellers say at a certain stage that the risk has passed and that the insurance is available? It may well be that. namely. one other matter to which I would briefly refer. not an indorsement on a piece of paper which brought them not a step nearer their rye until the ship arrived at Antwerp. I would allow this appeal with costs here and below. that the property in the goods not only may but must pass by delivery of the documents against which payment is made. others.i. which alone is relevant. The sellers. Whatever might have been the position had the sellers delivered a bill of lading (and leaving out of account any point about policies or certificates of insurance). I cannot accede to that contention.025 per 100 kilos c. I think its terms contemplate quite clearly delivery of the goods by 29 . even if the property had not. in any material sense.A. that the form of delivery order tendered and accepted in this instance was that contemplated by the contract. It is plain that in law the handing over of this order did not amount to symbolic delivery and did not pass the property in the goods which remained in the sellers throughout. signed by the sellers’ Antwerp agents. But it was contended. It may be competent for a buyer to agree to accept performance which stops short of delivery. The terms employed. but this does not seem to me to touch the question whether there has been a total failure of consideration. contract. would hold the proceeds for the benefit of the sellers.   whatever   the   intent   of   the   present   contract   may   be   in   other   respects. urged that the risk in the goods had passed to the buyers. which in itself is not a material document for present purposes. for example. and that the insurance contract made by the sellers was available for the buyers. I come.i.. as well as the practice of the parties. actual or symbolic. in addition to the invoice.f. …   The   next   point   raised   on   this   aspect   of   the   matter   was   based   on   the   somewhat   vague   contention that the risk had passed to the buyers. and the contention under discussion is not. nor did F.. The sellers’ contention would leave delivery. I therefore conclude that the handing over of the delivery order was not the performance of the contract but. and if physical it must be ex ship. Paris (“GSC”) should be final. at most. BERGER & CO INC V GILL & DUFFUS SA [1984] AC 382 (HL) LORD DIPLOCK: My Lords. The hearing of the special case in the High Court recommenced before a different judge (Lloyd J. the umpire finds “. and cannot be said to echo the intention of the parties. appointed their arbitrator in a claim against the respondents. on the terms of GAFTA 41 subject to certain variations. even assuming that the risk passed. He found partly in favour of the buyers and partly in favour of the sellers. the subject matter of this appeal is a single contract dated 22 December 1976 for the sale of a consignment of 500 tonnes of “Argentine bolita beans . at the disposal of the buyers. But that is not the case here. in the air. (“the sellers”).A.. the seller had taken due steps not only to insure against such risk but also to enable the buyer to recover against the underwriters in the event of the loss thus covered is a question which does not arise for determination here.” That finding has not been disputed and must be accepted. and if that is not symbolic it must be physical. set out the arbitral and litigious history of this case since 1 April 1977..J. but what it buys is the journey. Van Bree S.. Ltd.f. What the position would be if.A. From his judgment an appeal to the Court of Appeal was brought.1974 crop” as per sample. In face of this diversity of judicial opinion between judges 30 .. 101). but. at any time hold the said certificates of insurance . Lords Du Parcq and Normand concurred. The buyers did not get them. as to that. and the latter do not necessarily indicate the quid pro quo. c.) at a hearing in January of that year.R. At the outset of his judgment in the Court of Appeal Sir John Donaldson M. The former are not incompatible with a promise to deliver. Berger and Co. then an appeal to the Board of Appeal of GAFTA culminating in an award in the form of a special case in April 1980 and in a supplemental award in April 1981. when the appellants. be made to bear a risk of this kind. (“the buyers”). Van Bree did.J. and Slade L. who made an award in favour of the buyers.A. Le Havre. pursuant to his contract. To my mind neither the provisions as to insurance nor the words “in exchange for” suffice to outweigh this consideration. a buyer who has got neither delivery nor ownership may. Appeal allowed. in compliance with a remission ordered by the High Court (Mustill J. so to speak. the sellers did not. Of course. a step towards performance. A bus fare is given in exchange for a ticket. hearings by arbitrators.i.the sellers to the buyers. They found by a majority (Sir John Donaldson M. Robert Goff L. By the time judgment had been given by the Court of Appeal that history had extended over nearly six years and had involved proceedings by way of saisie conservatoire in the Tribunal de Commerce at Le Havre. but this will not in itself give him something of that which he has bought. who disagreed. I would therefore allow the appeal with costs. constructively deliver the said certificates to the buyers. Inc.. by delivering to F. of which the most material was a provision (“the certification clause”) that a certificate of quality at port of discharge given by General Superintendence Co.) in July 1981 ([1982] 1 Lloyd’s Rep. Van Bree S. concerned with more than the risk of the goods being lost or damaged. On these grounds I am of opinion that the failure of consideration was not partial but total. dissented and would have found wholly in favour of the sellers.) wholly in favour of the buyers. as. As a matter of stipulation. followed by a hearing by an umpire. if a buyer does not get what he has paid for because of some risk which he has agreed to accept he cannot recover the price. certificates of insurance in respect of these goods.. no doubt. in the dispute that had by then arisen between them and the sellers. as I understand it. no insurance documents were tendered. Gill and Duffus S.R. ” The delay and expense arise from the refusal of the buyers to comply and the failure of some of the arbitration and judicial authorities to recognise the obligation.. The vessel arrived at Le Havre on 21 March.. Charges for sealing of samples at sellers’ expense. were presented at the buyers’ bank in Geneva on 22 March 1977 as provided for by the clause of the contract appearing against the rubric “payment.” “a disgrace to the judicial system. to accept as final the certificate of the expert chosen by the parties to indicate whether the quality of the cargo delivered by the sellers was equal to the quality of the sealed sample furnished by the sellers. freely negotiated and included in the contract between the parties in the interests of speed. “Quantity: 400 (four hundred) to 500 (five hundred) metric tons at sellers’ option to be declared latest 10/2/1977. “Destination: c..f. .i. So a claim for damages for an alleged breach of a contract for the sale of goods committed on 30 March 1977 will have taken more than 61/2 years in order to obtain final resolution of it.i. terms.. Geneve. “Commodity: Argentine bolita beans . the Court of Appeal gave leave to appeal to your Lordships’ House. terms (incorporated without material alteration in GAFTA 41) comprise: invoice. Le Havre/Antwerp at sellers’ option preferably Le Havre.” Under the quantity clause the sellers declared the full 500 tonnes on 3 February 1977. full set on board bill of lading and policy or certificate of insurance. however. “Special conditions & remarks: Quality final at port of discharge as per certificate of General Superintendence Co. and over-carried the balance of 55 tonnes to Rotterdam where it was transhipped and brought back to Le Havre in another vessel and was discharged there on 2 April 1977.of great experience in commercial law. .” 31 . “Payment: Net cash against documents on first presentation through: Banque de Paris et des Pays-Bas. The contract was set out in a confirmation note dated 22 December 1976 and signed on behalf of the buyers and the sellers. Shipment: February/March 1977. I turn next to what happened to the shipping documents relating to the goods. So much for what happened to the goods themselves. . indicating that the quality of the lot is equal to the one of the sealed sample. .f. I venture to think that by the time the case had reached the Court of Appeal it had managed to acquire a deceptive appearance of complexity which an analysis of the legal nature of the duties of the buyers and sellers under the contract of sale of 22 December 1976 should have shown that it did not possess. Stripped down to its essentials that contract. These documents under ordinary c...1974 crop.. My Lords. Ltd. Paris.. “Quality: As per sample submitted to buyers and sealed by the General Superintendence Co. rejected the documents and refused to pay against presentation on the ground that they did not include “certificate of quality on discharge made out on behalf of all parties by GSC certifying that the goods are of the same quality as the sample sealed by GSC Paris when the business was concluded. The Master of the Rolls rightly described this delay. certainty and economy. up to the time of hearing in the Court of Appeal. apart from the certification clause. I would substitute for “deplorable. The only provisions of this document which it is necessary to set out are: “We herewith confirm to you the following transaction by our intermediary on the conditions of: GAFTA 41 London arbitration where not contradictory to the terms below. nearly 12 months later. It is not disputed that shipping documents which satisfied this requirement and covered the whole contract quantity of 500 tonnes. but from some reason (which does not appear) she left after discharging 9. Ltd. and this quantity was shipped on the Salland from Limon in Costa Rica under a bill of lading dated 28 February.. was on ordinary c.” The buyers.f.661 bags containing only 445 tonnes of the consignment. Now. as deplorable.i.. GSC issued a certificate in the following terms: “Certificate of quality and inspection No. Salland in Le Havre on 21 March 1977.1974 crop” were two-year-old beans and as such were of a kind prone to contain some admixture of impurities and of defective beans. 455.” Parenthetically.f. at all relevant times the Sale of Goods Act 1893 was still in force in its original terms.A.i. Although an argument to the contrary was apparently persisted in by the buyers up to the Court of Appeal. In the instant case these latter obligations included a primary obligation. The contract of sale was one by sample as well as by description. The sellers did not elect to treat as a wrongful repudiation of the contract the buyers’ rejection of the documents as good tender under the contract and their consequent refusal to pay the price upon presentation on 22 March. We hereby certify that we inspected the quality of a parcel designated as: 9. included among shipping documents which a seller is required to tender to his buyer in return for payment of the price under a contract of sale in ordinary c. terms. 32 . discharged ex m. albeit that the right of disposal of the goods was reserved by the sellers until payment by the buyers for the shipping documents upon presentation. This had the consequence in law that all primary obligations of the parties under the contract which had not yet been performed were terminated. and nothing that I say is intended to cover cases of fraud. without fraud upon his part. Instead the sellers set about getting from GSC a certificate under the certification clause as to the quality of the 445 tonnes that had been discharged at Le Havre and were all that were available for sampling there. the extent of which would be revealed by a sample by reference to which the contract of sale was made. to ship goods that were in conformity with the contract. damages for any past nonperformance by the other party of that other party’s own primary obligations.661 bags ‘beans bolitas. The goods “Argentine bolita beans .i. Your Lordships in the instant case are thus not dealing with the converse of the example of conduct that was the subject of Lord Blackburn’s well-known aphorism in Bowes v. On 29 March 1977. due to be performed before the contract was rescinded. future as well as past. This termination did not prejudice the right of the party so electing to claim damages from the party in repudiatory breach for any loss sustained in consequence of the non-performance by the latter of his primary obligations under the contract.f.Cas. but were again rejected. Nor did the termination deprive the party in repudiatory breach of the right to claim. and is indeed incapable of being. you cannot oblige a party to take beans. a certificate by GSC as to the quality of the goods at port of discharge under the certification clause in the contract is not. This time the sellers did treat the buyers’ refusal to pay the price on presentation of the documents as a wrongful repudiation of the contract and by telex of 1 April 1977 they elected to treat the contract as rescinded./s. My Lords. the seller could ship beans but nevertheless be in a position to tender shipping documents conforming to those called for by a c.’ no marks. 480: “if you contract to sell peas. to be performed by the sellers at the time of shipment. Shand (1877) 2 App. or to set off. contract to sell peas. 15.944 “In pursuance of an order given to us by: Berger and Co. “Paris. to inspect: quality of 10. I may add that in the case of a c.f.” The shipping documents were re-presented to the buyers on 30 March together with this certificate. its hopelessness has now been recognised and it has not been advanced in the argument for the buyers in your Lordships’ House. the parcel of beans discharged from m.My Lords. contract it is difficult to see how.i. if such a sample were properly taken so as to be representative of the bulk shipment. According to the results of the analysis performed on the samples drawn by us on a 10% basis at random. Salland is equal to the samples previously sealed by us and kept in our possession./s.894 bags ‘beans bolitas’ at time of discharge by sampling. and thus before the date of termination of the contract. 29 March 1977 Societe Generale de Surveillance S. contract who was suing the seller for damages for non-delivery of goods which corresponded to the contract description. para.i. The two judges in the High Court who formed the minority took the orthodox view that the buyer’s refusal to accept the documentary bill on presentation made him unable to establish his readiness and willingness to perform the contract. O’Day Pty.R. to which deprecative reference is made in Benjamin’s Sale of Goods. 33 . protected by a bill of lading and a bill of exchange.. 132. Ltd. contract and upon such acceptance to pay the contract price amounts to a breach of condition (in the meaning given to that expression in the Sale of Goods Act 1893) has been taken for granted so universally by English courts as not to have attracted any subsequent positive exposition worthy of citation.i. By a majority of three to two (Knox C. appear to have held that a c. and I must confess that I have been unable to discover in his judgment any clear statement of some legal principle that he was treating as applicable to those facts.f. 5 H. buyer is entitled to reject conforming shipping documents.” Recognition of the principle so stated (to which I have myself supplied the emphasis) is implicit in all judgments dealing with bankers’ confirmed credits as a mode of payment including the most recent judgments of this House. is enabled to be financed. and Higgins J. constitutes a fundamental breach of contract. either ‘to approbate or to reprobate’ entirely and completely.In the instant case it has never been contended that the actual shipping documents tendered by the sellers to the buyers on 22 March 1977 and re-tendered on 30 March did not relate to the whole quantity of 500 tonnes or did not upon the face of them conform to the terms of the c. Of the majority. which the seller is entitled to elect to treat as rescinding the contract and relieving him of any obligation to continue to perform any of his own primary obligations under it. in my view. The case turned largely on a question of pleading which in New South Wales in 1927 followed the system that applied in England before the Judicature Act. the buyer had failed to prove the essential allegation in his pleading that he was ready and willing to perform the contract at the time when tender of the actual goods that had been shipped under the bill of lading had been made.. Isaacs and Powers JJ. was met by a plea by the seller that by reason of the buyer’s previous non-acceptance of a documentary bill of exchange accompanied by conforming documents.f. the purchase price upon presentation at the place stipulated in the contract.i. contract of 22 December 1976. That being so it is. or.f. it is the duty of those to whom the bill of lading and the bill of exchange are transmitted in a letter. did not adopt this ratio decidendi. Higgins and Starke JJ.i. I have not overlooked a case decided in the High Court of Australia. or to a banker nominated in the contract if the contract so provides.R. if it should subsequently turn out that the actual goods shipped under the conforming documents did not in fact conform to the contract. then and there. He regarded the case as a special one turning upon its particular facts.J.J. v. if correct.f. Starke J. would destroy the very roots of the system by which international trade. ever since Lord Cairns put it thus in Shepherd v. and Higgins J. That a refusal by the buyer to accept the tender of shipping documents which on the face of them conform to the requirements of a c. to use the terminology of the Sale of Goods Act 1893. it was held that when a buyer under a c. a legal characteristic of a c.. 1717.f. “to treat the contract as repudiated.i. Knox C. 116.J. (1981). Harrison (1871) L. 2nd ed. 330. particularly in commodities.L. although he concurred with Knox C. a case where payment was to be by acceptance of a documentary bill of exchange: “I hold it to be perfectly clear that when a cargo comes in this way.L.” So far as concerns the instant case the relevant primary obligation of the sellers of which they were relieved. Henry Dean & Sons (Sydney) Ltd. was any further obligation to deliver to the buyers any of the goods that were the subject matter of the contract. in the outcome of the action. of shipping documents which on their face conform to those called for by the contract. contract so well established in English law as to be beyond the realm of controversy that the refusal by the buyer under such a contract to pay to the seller. dissenting). (1927) 39 C. a view which. who had awarded the sellers damages on the basis of the prima facie measure I have mentioned above together with warehousing costs and interest.There was thus no ratio decidendi that commanded the support of a majority of the High Court of Australia. The umpire. In my opinion what was expressed to be the ratio decidendi of those judgments is not the law of England. fall to be reduced by any sum which the buyers could establish they would have been entitled to set up in diminution of the contract price by reason of a breach of warranty as to description or quality of the goods represented by the shipping documents that had been actually shipped by the sellers if those goods had in fact been delivered to them. v. The award. Le Havre. My Lords. Accordingly I do not find it necessary to refer to those parts of the award that record the submissions made to them by the parties or to the board’s own reasoning that led them to the conclusion that the buyers were under no liability to the sellers in damages.L. In the events that happened the certification clause in the contract is in my opinion relevant only to the measure of damages to which the sellers are entitled. He held. In relation to the 445 tonnes the fact that the rescission of the contract on 1 April 1977 necessarily included the remaining 55 tonnes as well. instead of there having been a single contract for the sale of 500 tonnes of Argentine bolita beans c. until it was dredged up in the course of the hearing of the instant case in your Lordships’ House to provide. It appears from the judgment of Lloyd J. They then ceased to be under any contractual obligation to deliver to the buyers any “Argentine bolita beans .f. and Higgins J. coupled with the fact that the only certificate of quality obtained from GSC related to the 445 tonnes first delivered. on the authority of Alfred C. Such prima facie measure might.R. and the matter was argued and dealt with by the learned judge entirely on the question whether the GSC certificate was conclusive that the 445 tonnes with which it dealt conformed to the contract.J. that a belated allusion to the c. It does not go to their liability even if they could show that the damages should be nominal only.” The buyers on the other hand became liable to the sellers in damages for breach of contract. a tabula in naufragio for the buyers. 330 has never been regarded as meriting citation in any later case. 34 .i. contract for the 55 tonnes having been rescinded. 39 C. that became so familiar before the case stated method of appeal to the High Court was abolished: “the question of law for the decision of the court is whether on the facts found and on the true construction of the contract the buyers are liable to the sellers in damages. there had been two separate contracts. Continental Grain Co. Ltd. as if.. the fact that the consignment of 500 tonnes was discharged at Le Havre in two instalments of 445 tonnes and 55 tonnes respectively at an interval of 13 days between them owing to over-carriage of the latter quantity to Rotterdam. however. in meticulous detail. Henry Dean & Sons (Sydney) Ltd. stated the question of law for the court in the following terms. thus obviating the necessity for a GSC certificate for that tonnage.i. one for 445 tonnes and the other for 55 tonnes.” This form of question left it open to counsel at the hearing in the High Court to advance whatever arguments in law arising from the facts found that his ingenuity might suggest to him. O’Day Pty. It has for more than half a century justifiably remained one of those submerged cases which lawyers in general have tacitly accepted as being a total loss. including those relating to the buyers’ refusal to pay the price on tender of the shipping documents and the sellers’ election to treat the c. contract as thereby repudiated. Prima facie the measure of such damages would be the difference between the contract price of the 500 tonnes of beans that were the subject matter of the contract and the price obtainable on the market for the documents representing the goods at date of the acceptance of the repudiation.. Toepfer v. in the judgments of Knox C.1974 crop. appears to have been overlooked. whether or not a similar argument had been addressed to the Board of Appeal. The Board of Appeal in their award in the form of a special case set out the facts. had the unfortunate result that the case was conducted in the High Court before Lloyd J. so far as I have been able to ascertain. [1974] 1 Lloyd’s Rep. 11 that it was and he restored the award of the umpire as respects this part of the shipment.f. In the instant case the sellers did elect to treat the contract as repudiated on 1 April 1977. Maybe for this reason.i. gave no reason for his award. in paragraph 52.f. accepted that such was in law the effect of these provisions of the c. 3 hard amber”) notwithstanding that the certificate was proved to have been inaccurate. the c. What Toepfer v. decided was that where the description of the goods agreed to be sold included a statement as to their quality and provided that a certificate as to quality was to be final. in respect of any characteristic which reasonable examination of the sample would not have revealed.f. No mention of this election on the sellers’ part is to be found in any of the judgments. My Lords.” characteristics of the goods which would be apparent on reasonable examination of the sample are unlikely to have been intended by the parties to form part of the “description” by which the goods were sold.. was a case of a c. sale of wheat by description alone.but the judge.. The conclusion reached by the Court of Appeal in Toepfer v. dealt with this part of the shipment as if it were the subject of a separate contract and appears to have regarded that contract as requiring the sellers to provide the buyers with a GSC certificate of quality relating to all goods delivered thereunder and the buyers as entitled to reject any goods for which such a certificate was not supplied by the sellers.S.” Similarly.S.f. I turn now to analyse what it was that went wrong with the case in the Court of Appeal. Continental Grain Co. Since Lloyd J. Robert Goff L. Continental Grain Co. 635).” One must look to the contract as a whole to identify the kind of goods that the seller was agreeing to sell and the buyer to buy. the Act contains no definition of what it means when it speaks in that section of a contract for the sale of goods being a sale “by description. 3 hard amber. plainly right.i.f. is. which make the certificate of GSC conclusive as to the conformity of the bulk shipment at port of discharge with the sample that had been submitted to the buyers while the contract was in course of negotiation and had been sealed by GSC. and all three members of the Court of Appeal. What appears to have been wholly overlooked is that the sellers.S. on 1 April 1977. viz. where.f. 3 hard amber durum wheat” simpliciter but durum wheat of U. but there is no suggestion in the instant case of any disconformity between the goods as delivered at Le Havre and the sealed sample. before turning to the fate of the instant case in the Court of Appeal. not being invited to do otherwise. in his dissenting judgment. to treat the buyers’ rejection of the shipping documents as a repudiatory breach that had brought to an end their primary obligation under the contract to deliver any goods at all to the buyers. the sale (to use the words of section 13) is “by sample as well as by description. had in fact elected. but it incorporated a term: “Official certificates of inspection to be final as to quality. 3 hard amber durum wheat of U.i.” The contract contained no provision for a sample.i. does say (p. I need say no more about them except to express my respectful concurrence. Toepfer v. contract in the instant case contains provisions opposite the rubrics “quality” and “special conditions & remarks” respectively. that on rejection of the 35 . it was not “No. In Toepfer’s case. it is convenient to deal with the conclusiveness of the GSC certificate of quality. the certificate was final as to the correspondence of the goods with that part of the description of them in the contract that referred to their quality (in casu “No. in my opinion. Continental Grain Co. It must have been the intention of the parties that the conclusiveness of the certificate would be limited to those characteristics of the contract goods that would be apparent on reasonable examination of the sample. origin for which a certificate had been issued by a U. “No.J.was made by counsel for the sellers . Here it was recognised that the c. contract. My Lords. contract was a single contract for a consignment of 500 tonnes. Government official stating that its quality was that which is described in the trade as “No. as in the instant case.i.” The words used in a contract of sale that refer to the goods agreed to be sold (not being “specific goods” as defined in section 62 of the Sale of Goods Act 1893) often include words that describe a characteristic as to quality or condition that they possess which distinguishes them from other goods of the same general kind. My own preferred analysis of the reason why it is consistent with section 13 of the Sale of Goods Act 1893 is that while “description” itself is an ordinary English word. as they were entitled to do. even though such characteristics are mentioned in references in the contract to the goods that are its subject matter. origin. led to the conclusion that the 36 . it is not necessary in the instant case to consider whether a similar right to reject the goods upon delivery is retained by a buyer who. in a passage of his judgment appears to accept the contrary as being a necessary corollary of the principle applied in the Kwei Tek Chao case I think. be contrary to the basic concepts of the law of contract that deal with the different remedies for different categories of breach. they accepted the finding of the Board of Appeal of GAFTA (which related to the whole bulk of the 500 tonnes of beans shipped) that these 55 tonnes did not conform to the contract. if he could prove that the seller would not have been able to deliver goods under those shipping documents that conformed with the contract of sale. the buyer has the right under section 34 of the Sale of Goods Act 1893 to reject the goods themselves for non-conformity with the contract and retains this right until he has had a reasonable opportunity of examining the goods after they have been delivered. As respects the 445 tonnes. it is trite law for which I do not find it necessary to refer to any other authority than the judgment of Devlin J. it would.f.i. in the Court of Appeal. all 500 tonnes of beans were treated as if they had been tendered by the sellers to the buyers on discharge at Le Havre and there rejected by the buyers. even for the purpose of examination. British Traders and Shippers Ltd. in breach of contract. and he does in fact reject them. so one would not be concerned only with rights of the buyer arising under the original c. and the seller has not elected to treat such refusal as a repudiatory breach bringing all further primary obligations on his part under the contract to an end. if a seller of goods who had elected to treat the buyer’s breach of a condition of the contract.f. for the 500 tonnes] to an end. and Slade L.i. both Sir John Donaldson M. 459. In so far as Robert Goff L.f.f. But this is because the c. the property in the goods that he obtains is subject to the condition subsequent that it will revest in the seller if upon examination of the goods themselves upon arrival the buyer finds them to be not in accordance with the contract in some respect which would entitle him to reject them. This.i. the Master of the Rolls reasoned. in my view. [1954] 2 Q. accepted that the GSC certificate was conclusive and that that quantity conformed with the contract. with respect. if the election so to treat the buyer’s breach were made before the actual goods had been delivered to him.documents by the buyers “the sellers became entitled to bring the contract [sc.J. that he was wrong. the buyer.f. My Lords. My Lords. The latter does not become exercisable until the seller has unconditionally appropriated the goods to the contract. has refused to accept the shipping documents when duly presented in accordance with the provisions of the contract. contract of sale. would be able to displace the prima facie measure of damages by an amount by which the value of the goods was reduced below the contract price by that disconformity.f. contract remains on foot. Delivery of the goods themselves. Whatever legal problems might be presented by a situation resulting from a seller’s failure to treat the buyer’s rejection of conforming shipping documents as bringing the contract to an end.B.i. or a fundamental breach of an innominate term. that when a buyer under a c. but this goes to a quantum of damages alone. but as respects the 55 tonnes for which there was no such certificate. contract. contract a right of the buyer at his election to reject shipping documents and a right at his election to reject the goods themselves upon delivery are separate and successive rights.R. contract this does not happen until his reservation of the right of disposal of the goods by his withholding from the buyer the shipping documents which represent them is terminated by his transferring the shipping documents to the buyers. Under a c. if the seller sued the buyer for damages for his failure to pay the price of the goods against tender of conforming shipping documents. As already mentioned. to a buyer who is not the holder of the bill of lading would seem to require some agreed amendment to the c. as bringing to an end his own further primary obligations under the contract (or in the terminology of the Sale of Goods Act 1893 “to treat the contract as repudiated”) continued to be under any legal obligation to deliver to the buyer any goods. in Kwei Tek Chao v. 487-488.i. and being a contract for the sale of goods. My Lords.J. Under the original c.i.” but there is nothing to indicate that his attention was directed to the fact that the sellers had acted on that entitlement and had brought the contract to an end. contract accepts shipping documents which transfer the property in the goods to him. So.f. is expressly said to apply to the whole bulk of 500 tonnes. For the reasons given in the rather more elaborate analysis of the legal nature of the contracting parties’ rights which result from the facts found in the Board of Appeal’s award. on the ground that that was where the cider was delivered. There is no suggestion in the award of the Board of Appeal of GAFTA that there was any difference in quality between the 445 tonnes and the 55 tonnes.J.i. Robert Goff L. even if there had been no rescission. contract. Decision of Court of Appeal reversed.f. 37 . I would allow the appeal. the buyers lacked the finding of fact essential to their defence in part to the sellers’ claim in damages.   say that they must be sued in Cyprus. thus entitling the buyers to reject the whole 500 tonnes under section 30(1) of the Sale of Goods Act 1893. does not.J. The buyers. The cider was loaded into containers in Hereford. The buyers must pay the sellers’ costs in this House and in all courts below. Scottish & Newcastle International Limited. in his dissenting judgment. For reasons previously given I think that this must be erroneous in law. in effect. contract was made. He treats the case as one in which the sellers are entitled to recover the price payable under the contract on tender of shipping documents unless the buyers can prove that they would have been entitled to reject the goods upon delivery at Le Havre. the opinion stated in their award that the goods delivered did not conform to the contract. I agree with the result reached by Robert Goff L. This issue has to be decided under the Judgments Regulation (Regulation (EC) No 44/2001). He goes straight to the question of damages. and shipped at Liverpool for Limassol in Cyprus. would have found wholly in favour of the sellers and restored the award of the umpire.f. Since. answer the question of law posed in paragraph 52 of the special case in favour of the sellers in respect of the whole 500 tonnes and uphold the alternative award of the Board of Appeal of GAFTA contained in paragraph 55 of the special case. so it is evident that the quality of the beans shipped was a matter upon which expert opinion may differ. Their dispute at present is as to where the sellers may found jurisdiction for their claim for the price of the cider. It was for this reason that Robert Goff L. [Appeal allowed with costs. contract under which alone any obligation of the sellers to deliver goods to the buyers arose. the certification clause made a GSC certificate conclusive as respects characteristics of the goods that would be apparent on reasonable examination of the sealed sample. as surviving the sellers’ justified determination of the c. Othon Ghalanos Limited.i.i. Given the absence of any suggestion of difference in quality between the 55 tonnes and the 445 tons that GSC had certified as equal to the sealed sample by reference to which the c.sellers had delivered to the buyers a quantity of goods conforming to the contract less by 55 tonnes than the quantity they had contracted to sell. The sellers say that they can found jurisdiction in England. Decision of umpire restored. It is to avoid this kind of dispute that parties incorporate conclusive certification clauses in contracts of sale of commodities. I shall refer to the parties as sellers and buyers respectively. In this court the sellers are respondents.J. GSC would not have issued a certificate covering the balance of 55 tonnes that was not available at Le Havre for sampling when GSC’s certificate for the 445 tonnes was issued. analyse the legal effects of the rescission of the c. that on balance of probabilities GSC would not have issued a similar certificate in respect of the 55 tonnes.] SCOTTISH & NEWCASTLE INTERNATIONAL LTD V OTHON GHALANOS LTD [2006] EWCA CIV 1750 Lord Justice Rix: The claimants. Indeed. would have to prove that. or alternatively under section 30(3). sold cider to the defendants.  who  are  a  Cypriot  company. in order to rely on section 30(1) or (3). on the balance of probabilities. and the buyers are appellants.  and  used  to  be  the  sellers’  exclusive  distributors  in  Cyprus. the buyers. these two members of the Court of Appeal treated the sellers’ obligation to deliver the contract goods to the buyers at Le Havre and the buyers’ right to reject them for disconformity with the contract after examination. the place in a Member State where. but it is acknowledged that.  The  buyers’  litigation in Cyprus was subsequently commenced in February 2006.1(b).  or  of  a  subsidiary  in  the  buyers’  group. was for CFR (or cost and freight) Limassol. which included the following: SHIPMENT From  Liverpool  or  Felixstowe  per  Zim  Line  vessel  as  per  attached  shipping  schedule… DELIVERY CFR Limassol. under the contract. INVOICE 38 . They conclude therefore. that. there is no alternative jurisdiction in this case in England. The judge.   The   buyers there ordered the cider on terms specified in their letter.  as  the  exclusive  importers  and  distributors  of   Bulmers cider in Cyprus.   The   sale   contract   with   which   we   are   concerned   was   entered   into   at   about   that   time. even if there was no specific agreement for delivery in Limassol. then article 5. As the judge explained. although there is now litigation in Cyprus concerning the sellers’  purported  termination  of  the  distributorship  by  letter  dated  29  March  2004. FREIGHT Prepaid at the rate of Stg £275.00 liner terms all in plus BAF (Banker Adjustment   Factor)   per   20’   container. Andrew Smith J.1(b) to the typical case of a C&F. rejected similar (albeit not identical) submissions. which it is common ground was governed by English law. The buyers allege that that amounted to. in the courts for the place of performance of the obligation in question. the buyers would prefer all aspects of their disputes  with  the  sellers  to  be  conducted  in  Cyprus. as well as article 2. That is disputed by the sellers.in the case of sale of goods. be sued: 1. In effect. the background to the contract was the appointment in 1990 of  the  buyers.  If  the  judge’s  solution  in  this  claim  is  correct  this   will possibly be another instance of the bifurcation of litigation caused by the jurisdiction rules contained in the Brussels Convention or what has now become the Judgments Regulation. the place in a Member State where.   The   sellers’   claim  in  these  proceedings  was  brought  on  12  December  2005. the place of performance of the obligation in question shall be: . the application of article 5. (a) in matters relating to a contract. and confirmed jurisdiction  for  the  sellers’  claim  in  England. delivery in Limassol. under the contract. No formal contract was ever entered into between Bulmers and the buyers. PAYMENT 90 (ninety) days from the date of the arrival of the vessel.A person domiciled in a Member State may. The   sale   contract   originated   in   the   buyers’   letter   to   the   sellers   dated   3   March   2004. INSURANCE Our care. whose headquarters are in Edinburgh. in another Member State. on either basis. The contract There was one contract for eleven separate containers. The contract of sale. the services were provided or should have been provided. were it so. separately shipped under eleven separate bills of lading. would lead to jurisdiction in Cyprus.   as   agreed with the Cyprus agents of Zim line. . HP Bulmers Limited was acquired by the Scottish & Newcastle Group. (c) if subparagraph (b) does not apply then subparagraph (a) applies.in the case of the provision of services. (b) for the purpose of this provision and unless otherwise agreed. but matters proceeded informally for many years. the goods were delivered or should have been delivered. PACKING …The   containers   should   be   stuffed   to   the   maximum   and   sealed   by   you   with   an   one   way   padlock   and   a   high   security bolt seal before delivery to the carriers. The buyers also allege that. CFR or CIF contract under English law should lead to the conclusion that the place where the goods are delivered is at destination. or that there was in any event a specific term of overriding importance for.  The  buyers  appeal  with  the  permission  of  the  judge. there was no attempt by the sellers to delay the passing of title until transfer of the bills against payment. 39 . The amount of the freight prepaid should  also  be  stated  on  the  invoice. the containers were despatched by three vessels: 6 containers left Liverpool on the Britain Star on 26 June 2004.  the  discussion  of  forms  of  FOB  contract  in  Benjamin’s  Sale  of   Goods.  “Terms  of  delivery  and  payment”   stated  “Cost  and  freight  Limassol.   The   goods   were   specified   as   were   their   prices. DOCUMENTS For each container separately.   container   number   and container high security bolt seal number. and the judge found that the buyers were probably named in them as consignees.  The   buyers’  order  had  stipulated   that the bills were to be non-negotiable. Clearly. In the event.   Original and copy non negotiable. On appeal. viz to order.For   each   container   separately…stating…FOB   prices   as   stated   below.  All   of  them  gave  Limassol  both  as  “Port/airport  of  discharge”  and  as  “Place  of  delivery”. The bills. For the avoidance of doubt. there was to be no opportunity for the sellers to buy the goods afloat. 2006. BILL OF LADING For   each   container   separately. I find.  submitted  that  the  expression  “Original  and  copy  non  negotiable”  meant  that  at  any  rate   the originals of the bills were negotiable. albeit the freight was to be prepaid  “on  our  behalf”. These forms stated at their foot the standard printed term as follows: This order shall be governed by Scottish and Newcastle International Limited’s  standard  Terms  and  Conditions.   should   state   “Notify   Othon   Galanos   Ltd”   and   a   high   security   bolt   seal   number. the contract contemplated by the parties differed very little from a form of FOB contract.K.  PAYMENT  DUE  90  DAYS  FROM  DATE  OF  ARRIVAL”.  and  “Place  of  delivery”   was   given   as   “LIMASSOL”.  or   in the event we have a contractual agreement with you.  “Port/airport  of   loading”  stated  “LIVERPOOL”. The buyers answered by their letter dated 3 May 2004. Two of them still mistakenly referred to “Terms  of  delivery”  as  “Free  on  board”. but as per our agreement you prepay the freight on our behalf. and that title to the goods was not transferred by the bills’  indorsement  and   delivery.  the  other  nine  correctly  said  “Cost  and  freight  Limassol”. at paras 20-001ff.  separately… In the circumstances. The acknowledgment of order forms which they issued at that time showed their then (ultimately mistaken) understanding that the proposed contract was to be on FOB terms. each in three copies. All copies should be signed. that risk and title passed on shipment (see further below): something that Mr Richard Lord QC. should be issued in the name of Othon Ghalanos Lts and forwarded to us. did not really attempt to dispute. and a total was then calculated. 23 and 29 June and 6 July 2004. and the final 2 on the Westmed II on 16 July. 7th ed. English law shall apply. Proforma invoices dated 18 June 2004 were issued.   total   FOB   value.   to   which   was   added   a   separate freight charge. Even the carriage was arranged by the buyers. save that it was. explaining – Our prices are FOB U.  in  general.  See. The bills of lading  were  not   in  evidence  before  the  court. In other words. port. the terms of said agreement. On 21 April 2004 the sellers responded. The delivery terms CFR should be stated on the invoice. were not taken by the sellers to their order.  “Port/airport  of  discharge”  stated  “Limassol”.   freight. 3 more on the City of Glasgow on 6 July. issued on 18. in my judgment forlornly. It follows. but straight consigned to the buyers. and delivery will be in accordance with INCOterms 2000. in my judgment. immediately upon shipment by registered and express mail. counsel on behalf of the buyers. to whom credit was extended for 90 days after the arrival of the vessels at Limassol. The eleven invoices. raising some queries. those findings were not seriously disputed. thus making the delivery terms CFR. although it was expressed to be CFR. were in the following  form:  “Country  of  destination”  was  named  as  “Cyprus”. pursuant to the contract. at any rate as to his primary case.   that   this was effectively an ex ship contract for delivery in Limassol. and that risk. They put forward two alternative candidates  for  the  place  “where   the   goods   were   delivered”:   first   where   the   documents   were   tendered   under   the   CFR   contract. when delivery   occurred. Mr Michael Bools submitted that the contract was a classic C&F contract under which the sellers performed all their obligations at latest on shipment.   The   [buyers]   dispute   the   jurisdiction   of   the   English   court. and therefore of the goods. Thus under sections 17 and 18 relating to the passing of property.1 was best met by recognising England as the place where all obligations connected with delivery took place. however. as it was to us by   Mr   Lord   who   did   not   appear   below. and goods of that description and in a deliverable state are unconditionally appropriated to the contract. the purposes of article 5.The submissions The judge did not state precisely what he considered to be the terms of the contract. The Sale of Goods Act 1979 contemplates that where. a seller ships goods for transmission to a buyer.   that   the   invoices’   reference   to   Limassol   as   the   “Place   of   delivery”   was   an   erroneous box entry merely reflecting the fact that there was no further destination beyond arrival of the ship in Limassol. that would not seem to have mattered: for it was not submitted. Mr Lord adopted a significantly different stance. International sale of goods under English law Before   turning   to   Mr   Lord’s   primary   submission. that even if that were not so and the contract was a typical C&F or CFR contract with no express term as to delivery save as might be derived from the provision for CFR Limassol. that the contract expressly provided for delivery in Limassol. and the assent may be express or implied. and that the prima facie rule.   arguing   that   the   “goods   were   delivered”   for   the   purposes of article 5 elsewhere than England. He submitted.   Thus   he   recorded   the   parties’   submissions in these terms: 7. Thus Rule 5 under section 18 states: (1) Where there is a contract for the sale of unascertained or future goods by description. On the basis of the submissions advanced to him below.   that   both   the   original   letter’s   “DELIVERY   CFR   Limassol”   and   the   invoices’   “Place   of   delivery   LIMASSOL”   meant   that   it   was   an   express term of the contract that the place of delivery was Limassol.1(b) were best met by superseding the intricacies of the English law as to delivery under international C&F or CIF sales by a simple and certain rule to the effect that goods under such contracts were delivered where they arrived at their contractual destination. such as by delivery of them to a carrier.  The  [sellers’]  case  that  the  English  court  has  jurisdiction  is  put…First  they  say  that  “the  goods  were  delivered”   within the meaning  of  article  5  in  Liverpool  where  the  goods  were  shipped… 8. Before us. and may be given either before or after the appropriation is made. and that the purpose of article 5. especially those on C&F and CIF terms. either by the seller with the assent of the buyer or by the buyer with the assent of the seller. the property in the goods then passes to the buyer. title and possession of the goods are transferred on shipment.   and   secondly   in   Limassol upon the arrival of the vessel. the general rule is that it passes  when  intended  to  pass. the parties appear   to   have   treated   the   contract   as   a   typical   C&F   contract. the delivery to the carrier is prima facie delivery to the buyer. is that property passes when unascertained goods are unconditionally appropriated to the contract. it is necessary first to say something about the general rules under English law relating to delivery under international sales. On behalf of the sellers. however. first. and secondly. 40 .  that  for  the  purpose  of  ascertaining  the  parties’  intention  regard  shall   be had not only to the terms of the contract but also to the conduct of the parties and the circumstances of the case. Before the judge. in the absence of a different intention. was inserted by the Sale and Supply of Goods to Consumers Regulations 2002. It may be noted. the seller must make a 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.  headed  “Rules  about  delivery”  states  that   the  default  rule  is  that  delivery  is  to  take  place  at  the  seller’s  place  of  business.  which  is   headed  “Performance  of  the  Contract”. it highlights the difference between what   one   might   call   a   layperson’s   view   of   delivery as being something essentially physical. Section 19 then deals with the exceptional case (although of course a frequent case in international sales) where a right of disposal is reserved.(2) Where. and the cider was unconditionally appropriated to the contract at earliest when the containers were stuffed in Hereford and at latest when those containers were shipped at Liverpool. unless otherwise agreed.   that   is   defined   in   section   61   as   meaning   “voluntary   transfer   of   possession from one person to another”. but if in ignorance of a contract of sale the seller is authorised or required to send the goods to the buyer. and does not reserve the right of disposal. 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 deemed to be delivery of the goods to the buyer. As   for   delivery   itself. as Mr Lord submits. If so. neither occurred nor was supposed to occur in this case. Section 30 (delivery of wrong quantity) and section 31 (instalment deliveries)   do   not   concern   us. in pursuance of a contract of sale. Section 20 of the Act then provides that risk will normally pass with property. the goods are at his risk during such sea transit. however. where goods are sent by the seller to the buyer by a route involving sea transit.   It   is   section   32.  and  that  otherwise  it   is a matter for agreement. delivery of the goods to the carrier is not delivery of the goods to the buyer.  these  duties  are  concurrent  conditions. 41 . dealing with consumer contracts. Section 28 provides that. and a merchant’s  or  lawyer’s  view  of  it  as  being  more  conceptual. the seller must give such notice to the buyer as may enable him to insure them during their sea transit. Thus prima facie delivery under the present contract was effected on shipment. the buyers were promised 90 days credit from arrival of the vessel. he is to be taken to have unconditionally appropriated the goods to the contract. the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer. in Scotland. where there is a consumer contract in which the buyer is a consumer.  The  concept  is  dealt  with  under  Part  IV  of  the  Act.   headed   “Delivery   to   carrier”. together with the transfer of title and risk: unless. under circumstances in which it is usual to insure. and of the buyer to accept and pay for them.   Mr   Lord   relies   on   the   fact   that   delivery   may   post-date the transfer of both risk and title. where the bills of lading were contracted to be non-negotiable. eg by a seller taking a bill of lading to order. and if the seller omits to do so. subsections (1) to (3) above must be ignored. This perhaps reflects a feeling that a consumer would not expect the goods to be at his risk until physical delivery had been effected: see Benjamin at para 5-098.  Section  29. in pursuance of the contract. That. of an international sale of goods involving carriage by sea.  Section  27  says  that  it  is  the  duty  of  the  seller  to  deliver  the   goods. and the goods are lost or damaged in the course of transit. as follows: (4) In a case where the buyer deals as consumer or.  It  should  be  noted  that  the  Judgments   Regulation has its own special provisions for consumers in its section 4.   which   deals   expressly   with the concept in our context. the references to CFR Limassol and/or to Limassol as the place of delivery displace that rule and turn the contract into one for ex ship delivery in Limassol. therefore. (2) Unless otherwise authorised by the buyer. A new subsection (4). that in this respect the law merchant that had developed and then been codified   in   Chalmers’   Sale   of   Goods   Act   is   now   specifically   disapplied   from   consumer   sales. the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages. and if the seller fails to do so. (3) Unless otherwise agreed. and that that will   occur   “whether   delivery   has   been   made   or   not”. providing: (1) Where. 185: The essential feature of a CIF contract is that shipping documents are transferred to the buyer. that the article 5. Having shipped proper goods and tendered proper documents. where the buyers’   primary   submission   was.  Three  stages  of  delivery.  and  a  “complete  delivery  of  the  cargo”  when  the goods are handed over to the buyer at the destination. the CIF and C contract. In this connection he refers to passages in Benjamin such as the following: 19-072. more rarely. for the present purpose.1(b) irrespective of English law.f. However. such as the C&F (or CFR) contract and.f. and that.i.1(b) place of delivery was in Cyprus where the documents were received by the buyers. thus: …Although   some   dicta   can   be   cited   in   favour   of   the   view   that   one   or   another   of   these   stages   is   “the”   time   of   delivery. not as providing the 42 .  Since  the  documents   stand in for the goods. at para 19-157. He did not go so far as to submit. as I understand his submission. that a C&F or CIF sale is a sale of documents rather than a sale of goods (see the discussion in Benjamin at para 19-008).1(b). The  buyer’s  opportunity   of examining the documents arises at the second stage. however. Harris and Bridge on International Sale of Goods in the Conflict of Laws at para 3. The duties of the seller so far discussed relate to the first two of these stages. Under a CIF contract.  not  against  the  seller… Benjamin  reverts  to  the  three  stages  of  delivery  in  the  context  of  considering  the  buyer’s  opportunity   of examining the goods at destination. and his opportunity of examining the goods arises at the third stage of complete delivery unless the contract expressly provides that he must examine the goods at the port of shipment. as an example of the complications of English law.For these purposes. the seller never delivers the goods to the buyer or even to the buyer’s  agent. the place where the goods were delivered or should have been delivered must refer to the place where the documents were transferred or should have been transferred. when the documents are tendered. This follows from the nature of a c. In this connection. if the seller performs those duties he is not normally in breach merely because the third stage is not reached. and the insurer and carrier on the other hand. there is no single time of delivery. on the following analysis in Fawcett.  a  “symbolical  delivery”  on  tender  of  documents.  In  a  c. The buyer is allowed a reasonable time after discharge for examining  the  goods  and  then  a  further  reasonable  time  for  deciding  whether  he  intends  to  reject… Mr Lord also submitted that since goods sold C&F or CIF can be bought by a seller afloat. There are a number of variants of the CIF contract. not as an autonomous meaning required by article 5. but in none of them is the parties’  agreement  as  to  delivery  any  different  and  the  position  under  Article  5(1)(b)  will  be  the  same  as  that  for  a   CIF contract. for the purposes of article 5. on the one hand. he relied. Payment of the price of the goods becomes due when these documents are tendered.  contract.i. refers to that passage. the necessity for clarity and certainty was in favour of a rule that the third or so-called  “complete  delivery”  stage  should  be   regarded   as   “the   place…where   the   goods   were   delivered   or   should   have   been   delivered”. the critical delivery may be the tender of documents. C&F or CIF sale is a documentary sale under which different aspects of delivery can and do take place at different times and places. contract and from the rules as to risk as they apply to such a contract. the seller is not normally concerned with what happens to the goods in transit: the buyer’s  remedies  (if  any)  in  respect  of  the  failure  of  the   goods  to  arrive  are  against  the  carrier  or  the  underwriter. All of these involve different obligations from the normal CIF contract. the CIF and E contract.  there  are  “three  stages  of  delivery”:  a  “provisional  delivery”   on  shipment. as a result of which a contractual relationship is established between the buyer. Mr Lord.   He   describes such a rule as one of English law. This is so even though a documentary sale is a sale of goods and not of documents. and the CIF and C and I contract. the best view is that. Mr Lord submits that a CFR. it may be impossible to talk of any delivery at the time of shipment. where a seller takes a bill of lading to order in order to reserve to himself a right of disposal and to prevent the passing of title save on payment against tender of documents. his overall submission was that the uncertainties of the concept of delivery under an international documentary sale under English law were such as both to justify an express provision for delivery only at destination and in any event to lead to the conclusion that. Unlike in the court below.   in   accordance   with   that   passage. Nevertheless. that would in the circumstances be a most odd contract to make. it did not. or at least a standard and certain English law view as to the place of delivery under a documentary sale. the bills of lading. That box was designed to cater for the case where the agreed final destination might be subsequent to the port of discharge. the judge did not have to determine the question of where exactly the terms of the contract were to be found. I note that the critical term. as Mr Lord accepted.  I  accept  Mr  Bools’  submission  that  this  is  an  error. in other  words  an  “ex  ship”  contract.  In  my  judgment  that  means  in  context. In the meantime. at latest. nor indeed in any case.  The  invoices   are  not   themselves   documents   of   contract. However. had on shipment been posted to the buyers. Although it would be theoretically possible to have title and risk pass before delivery. Thus risk. even though the errors in them had to be subsequently superseded. Its filling in here simply reflected the fact that the ultimate agreed destination of the cider under the contract went no further than the port of discharge. that possession will prima facie be transferred to the buyers on shipment on terms that the sellers will procure for the buyers a contract of carriage to carry the goods to Limassol. It may be observed that the definition of CFR or Cost and Freight in Incoterms (a set of terms published by the ICC) is – The  seller  delivers  the  goods  when  they  pass  the  ship’s  rail  in  the  port  of  shipment  and  must  pay  the  costs  and   freight necessary to bring the goods to the named port of destination. but as exemplifying the difficulties to which English law might lead in the absence of either an overriding term agreed between the parties as to the place of delivery. The buyer bears all additional costs and risks  after  the  goods  have  been  delivered  (over  the  ship’s  rail  at  the  port  of  shipment). An express term for delivery in Limassol? As stated above. It did not fundamentally change the agreed contractual basis of the sale. or whether the invoice reference to Limassol as the place of delivery was a term of the contract.  is  for  “DELIVERY  CFR  Limassol”. I see no reason why the incorporation of Incoterms found in those acknowledgments should not be regarded as a surviving term of the contract. It would. which comes through into  the  final  invoices. In my judgment. or transfer of the documents. consigned to the buyers. Mr Bools on this appeal did not rely on Incoterms. I  therefore  turn  to  consider  the  two  strands  of  Mr  Lord’s  submissions  in  this  case. this definition would seem to indicate that delivery at the place of shipment under a documentary sale is an internationally well-known concept. Turning to the letters between the parties. the terms of the contract are best found in the exchange of letters between the parties and there is nothing there to suggest that this was a contract for delivery in Limassol. The question then arises as to whether the additional reference in the invoices (and also in the proforma invoices issued shortly prior to the final invoices)   for   “Place   of   delivery   LIMASSOL”   turned this contract into an ex ship contract for delivery in Limassol. mean that if delivery never took place because the goods were lost at sea. a specific agreement for delivery in Limassol may be thought of as overriding such a general provision.   The   formal   “acknowledgments   of   contract”   are   contractual   documents. In my judgment. the sellers could not be liable for that loss. and so I make this observation merely in passing and not as leading to my decision on the construction of this contract. Nor is there any question of title being retained until payment. a requirement of the contract reflecting the fact that the sellers 43 . title and possession were all intended to pass on shipment.  in  accordance  with  the   well-known rules discussed above.  It  was   not   so  submitted  before  the  judge. There is no question here of the goods being bought afloat.  In  the  invoices  this  is  expressed  as  “Terms  of   delivery…Cost  and  freight  Limassol”. and would be entitled to the price despite non-delivery (and despite the fact that prima facie the price is the quid pro quo for delivery). however.  a  merely  administrative  filling  in  of  an  extra   box on the standard invoice form. In any event.answer in this case. It was a term of the contract that the champagne should be delivered to the licensee’s  premises.   concluded   that   the   “place   of   performance   of   the   obligation  in  question”  must  be  determined  by  reference  to  the  substantive  (national)  law  applicable   under the conflict of laws rules of the forum court (see at paras 14/15). Dunlop AG [1976] ECR 1473. First. that went only to the time of payment and did not alter the effect of the CFR term.  However. The only authority cited by Mr Lord to exemplify the situation he contended for was Galbraith & Grant Ltd v. The payment  term  was  not  90  days  “after  delivery  in  Limassol”  but  “after  arrival  of  the  vessel”  (as  stated   in  the  buyers’  original  letter). Block [1924] 2 KB 155. Secondly.1(b)? The  sellers’  alternative  submission  was  that  the  agreed  destination should be adopted as a matter of English law as a characteristic place of delivery for the purposes of article 5. speaking of the original   article   5   of   the   Brussels   Convention.  therefore. It was not an international sale. In effect the place of “complete   delivery”   should   be   adopted   as   the   “place…where…the   goods   were   delivered   or   should   have been delivered”.   Thirdly. Thus Mr Lord did not seek to support his primary submission by reference to the argument. The agreed place of delivery  was  at  the  buyer’s  premises. Mr Lord also referred   to   a   witness   statement   made   on   behalf   of   the   sellers.   which   referred   to   “such   order   and   contract  being  evidenced  by  the  invoices”. it was natural for a straightforward claim for the price to be particularised by reference to an invoice. if it too was lost). Mr Lord accepted that risk and title had passed on shipment.1(b). fails. Mr Lord did   not   submit   that   reference   to   payment   being   due   90   days   “after   arrival”   meant   that   in   the   absence of safe arrival the price was not due.1(b) is an autonomous meaning  itself. that Limassol had been impliedly agreed as the place of delivery because of the contractual term that payment would be 90 days from arrival.   That   necessarily involves a consideration of the proper law. and the self-same witness statement relied on all the contractual documents.  Although  a  carrier  was  involved.   the   goods   were   delivered…”). by the seller.  it  was  not  said  that  the  contract was contained in the invoices. However. Lush and Greer JJ.   under   the   contract. He accepted that the answer had to be found under English law.  using  its  own  delivery  service. where unascertained goods are to be delivered directly to the buyer. In that I think he is correct. That was the sale of a case of champagne by wine merchants to a licensee.1(b) stresses that the solution has to be found on a contract   by   contract   basis   (“where.  the  buyers’  primary  submission. payment would in my opinion have been due 90 days after the vessel arrived (or ought to have arrived. Similarly. In  my  judgment. 44 . on appeal from the county court. it may be said that the whole of article 5. what does it mean for delivery to be effected only at Limassol? It makes no sense. held that good delivery had been effected when it was  made  to  a  person  at  the  buyer’s  premises  apparently  authorised  to  receive  the  goods. and that the buyers had agreed to look to their contract of carriage and to their insurance in the case of loss.  that  it   was an express term of the contract that delivery was to be effected at Limassol and not before.  It  seems   to me. if the goods had been lost.  It   was just as though a department store had delivered an item which had been bought on the telephone for delivery at the  customer’s  home. the European Court of Justice.  The  case  was  lost  because it was signed for at those premises by a rogue. advanced to the judge below.  Mr  Lord  did  not  describe  this  as  an  autonomous  meaning  to  be  imposed  on  all   sales under all national systems of law. article 5. that this case is of no assistance to Mr Lord. It was not a documentary sale.had ceded possession and control over the goods to the buyers.  because  it  states  the  conventional  rule  for  the  “place   of   performance   of   the   obligation   in   question”   for   the   “case   of   sale   of   goods”. at his premises. Destination as a characteristic place of delivery for the purposes of article 5. In such circumstances. That was the most straightforward of contracts. In such a case. including the acknowledgment of order forms and their reference to Incoterms. Mr   Lord   sought   to   support   his   submission   by   observing   that   the   sellers’   claim   form   itself   refers to the invoices as being the foundation of their claim.  or  “from  date  of  arrival”  (as  expressed  on  the  invoices).  he  was  the  seller’s  agent. however.   in   Industrie Tessili Italiana Como v. As the judge remarked. first to ship (or procure a shipment of) goods in accordance with the contract and. for instance. counsel then representing the buyers did not submit that the place where the goods are unloaded from the vessel would normally be the place where the goods are delivered under a  cif  or  c&f  contract  (which  is  Mr  Lord’s  alternative  submission):  see  Andrew  Smith  J   at para 21. I see. On this basis. this submission overstates the difficulties. however. an argument that the place where the goods are delivered might be said to be not the place of shipment but the place where the documents are tendered: as Fawcett. The ramifications of documentary sales have become well known. there is.1(b). The duties of a c. Bankhaus Schröder Münchmeyer Hengst and Co (Case 189/87) [1988] ECR 556 at paras 19/20. in the sense that arrival  of  the  goods  at  destination  is  no  part  of  the  seller’s  duty  (as  Benjamin observes in the passage just  cited). Mr Lord submitted that article 5.  remained  the  primary  rule. to appropriate such goods to the contract. everything occurs   at   latest   at   shipment.1(b) must be applied so as to provide a certain and easily predictable answer to the relevant jurisdictional question. Glasgow City Council [1999] 1 AC 153 at 167B.f. He is not under any duty to ensure the actual physical delivery of the goods at the c.  where  the  bill  of  lading  is  taken  to  the  seller’s  order  and  he   intends to retain title until he is paid on tender of the shipping documents. In my judgment. In  a  typical  case  (albeit   not   this  case). which states: (11) The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based  on  the   defendant’s  domicile  and  jurisdiction  must  always   be  available  on  this  ground  save  in  a  few  welldefined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor.Mr Lord supported his submission by reference to the purpose of the Judgments Regulation.  There  was  therefore  no   need to give a special jurisdiction such as was to be found in article 5. providing jurisdiction  in  the  defendant’s  domicile. and it was well recognised that for these reasons such special jurisdictions should be interpreted restrictively: see Kleinwort Benson Ltd v. and. Unless some such approach was adopted. and thirdly to tender these documents to the buyer. therefore. Mr Lord said. most significantly. citing the European Court of Justice in Kalfelis v. since the country of domicile was a place where the defendant could always be sued. any stage of delivery is to be selected for the purposes of article 5.f. seller are. in this passage of Benjamin (at para 19-010): In general.   essentially   reflects   only the facts that the seller might (in theory) wrongly attempt to divert the goods at the last moment and that the buyer might still have an opportunity to reject the goods following inspection at the port of arrival. however. If. In this connection he referred to paragraph 11 of its preamble. which is not this case. where necessary. the intricacies and difficulties of the English law would render article 5.1 any wider latitude than was necessary. though he is under a duty not to take active steps to prevent such delivery. however.   albeit   called   “complete   delivery”. In every other respect. where he continued: He was right not to do so: the only connection between the destination of the goods and the contract is that the seller is obliged to arrange for a contract for the carriage of the goods to the agreed destination or to acquire goods that are to be carried there. In their essence they can be succinctly expressed. He also emphasised that article 2. Harris and Bridge have argued (see above at para 27). Talk of the  “three  stages  of  delivery”  is  an  attempt  to  highlight  different  aspects  of  the  contract:  but.i.i. the judge below said this: 45 .   save where delivery and the transfer of title are delayed either by the need to purchase goods afloat or the reservation implicit in the retention of the documents. secondly to procure or prepare the proper shipping documents. or as the buyer directs.   The   third   stage.  actual  physical  delivery  of  the  goods  at  destination  is  no  part  of  the  seller’s  obligations  in   performance of his contract. As to that argument. destination. In the court below.1(b) effectively futile. it seems to be least likely that it is the third stage. is article 5. After all. and. under the contract. Or it might be at destination. However. There is simply no reason to suppose that the place where the documents are transferred will typically be connected with the dispute between the parties or the action. but not where they are at that time: in reality. Where then are the goods delivered in the typical case of goods   shipped   by   a   seller   under   a   bill   of   lading   taken   to   the   seller’s   order?   Wherever   the   goods   happen to be at the time of transfer of the documents? If so. however much.1(b) would provide a merely illusory alternative place of jurisdiction. in Bowen LJ’s  famous  phrase  the  bill  of  lading  is  “a  key  which  in  the  hands  of  a  rightful  owner  is  intended  to   unlock the door of the warehouse. if the sea voyage is short and/or there is delay in transferring the documents. Maclean (1883) 11 QBD 327 at 341).1(b) looks to is where the goods are delivered. I would venture the opinion.  there  should  be  alternative  grounds  of  jurisdiction  based  on  a  close   link between the court and the action or in order to facilitate the sound administration of justice. and do not have to be answered in this case. I am unable to accept that the Regulation confers jurisdiction upon the courts of the place where the documents are transferred. And often the buyer might anticipate the bill of lading and even obtain actual physical delivery at destination on the provision to the carrier of a letter of indemnity: in such a case. this view does not seem to me to recognise the purpose of article 5 and in particular its purpose in relation to sale of goods contracts. in the case of documentary sales what the parties are primarily concerned with is not actual physical delivery at destination – something which may never take place even though the seller has fulfilled all his obligations and the buyer is still obliged to pay the price – but a legal concept of delivery.  in  which  the  goods  may  chance  to  be”  (Sanders v. but I speculate. which the seller is in any event bound to do against receipt of the price.1(b) is concerned with: and that is the significance of the place of performance of contractual obligations as a connecting factor with a particular jurisdiction. floating or  fixed. reflect a broad international consensus on the effect of documentary sales (see for instance the Incoterms definition cited above). The same point was made by the ECJ itself in Tessilli (at paras 12/13): 46 . This is not to question the analysis of the nature of cif and c&f contracts. this interpretation of the Regulation does not even have the virtue of clinging to the literal wording of the article.1(b) delivery delayed until the shipping documents are finally tendered and paid for? These questions are not easily answered. risk is. What article 5. Moreover. to the carrier for carriage to the buyer. but no more. the goods are delivered. that the solution may be to look to what has been described as the provisional delivery which takes place at shipment. albeit in such a case title may not be transferred at shipment. Moreover. In his Jenard Report on the original Brussels Convention (OJ 1979 No C 59 at p22). As paragraph (12) of the preamble to the Judgments Regulation states: (12)  In  addition  to  the  defendant’s  domicile. which refers to the transfer of the goods: the fact that possession of the goods is transferred symbolically by the delivery of documents affects when they are transferred or taken to be transferred. I am inclined to agree with the judge about the case where the transfer of the shipping documents completes at any rate the symbolic delivery of the goods.While acknowledging the respect to be paid to a work of such authorship. Mr Jenard commented on articles 5 and 6 as follows: Adoption   of   the   ‘special’   rules   of   jurisdiction   is   also   justified by the fact that there must be a close connecting factor between the dispute and the court with jurisdiction to resolve it. subject to transferring the documents. In this context it is also important to consider what article 5. that might be at sea – in which case article 5. The judge later (at para 23) reserved his view as to where goods are delivered in a case where the seller buys them afloat. the goods might well be at sea when the documents are tendered. not where the documents are tendered. Such a solution would. This can readily be illustrated by considering how documents are transferred under letter of credit arrangements. Article 5 however provides for a number of cases of special jurisdiction at the option of the plaintiff. This freedom of choice was introduced in view of the existence in certain well-defined cases of a particularly close relationship between a dispute and the court which may be most conveniently called upon to take cognizance of the matter. In Shenavai v. Kreischer Case 266/85 [1987] ECT 239 the ECJ said this (256, at para 18): On the other hand, no such uncertainty exists for most contracts if regard is had solely to the contractual obligation whose performance is sought in the judicial proceedings. The place in which that obligation is to be performed usually constitutes the closest connecting factor between the dispute and the court having jurisdiction over it, and it is this connecting factor which explains why, in contractual matters, it is the court of the place of performance of the obligation which has jurisdiction. See also Custom Made Commercial Ltd v. Stawa Metallbau GmbH [1994] ECR I-2913, 2955, at para 12. The  concept  of  the  “obligation  in  question”  under  the  Brussels  Convention  has  given  rise  to   difficulties: see, for instance, in this jurisdiction Royal & Sun Alliance Insurance plc v. MK Digital FZE (Cyprus) Ltd [2006] EWCA Civ 629, [2006] 2 All ER (Comm) 145 at paras 92/100. There has been oscillation between identifying a characteristic obligation of a contract as being the obligation in question, and, as the ECJ finally determined, outside the special case of contracts of employment, “the  contractual  right  on  which  the  plaintiff’s  action  is based”  (Custom Made at para 23). In effect, the Jurisdiction Regulation by its article 5.1(b) (and 5.1(c) in relation to contracts for the provision of services) has reverted to defining a characteristic obligation as being the definitive obligation in question. In Briggs & Rees, Civil Jurisdiction and Judgments, 4th ed, 2005, at para 2.123 the learned editors give a characteristically vibrant account of the historical forces at work in this narrative. They express the view that the original article 5.1 has  been  eviscerated  (“Apart  from  the  sale  of  goods  and   the supply of services, and remembering that contracts of individual employment have been removed   to   the   new   Section   6   of   Chapter   II,   what   other   contracts   are   there?”).   They   continue   (at   p147): But sub-paragraph (b) operates within the context of the law which developed under the original Article 5(1) of the Brussels Convention. It is, after all, only the identification of the obligation in question which is re-defined for the purposes of Article 5(1) of the Judgments Regulation. I  agree:  and  that  is  among  the  reasons  why  I  would  reject  Mr  Lord’s  alternative  submission  that  the   place of delivery is the place of physical delivery to the buyer at destination even in cases where the seller has already performed all his obligations by shipment. Sub-article (b) remains an example of the   selection  of  “the  place  of  performance  of  the  obligation  in  question”  as  constituting  that  close   connecting factor which justifies an alternative jurisdiction in that place. Therefore, the “place…where,  under  the  contract,  the  goods  were  delivered  or  should  have  been  delivered”  ought   to reflect a matter of obligatory performance under the contract. In a CIF or C&F contract, the seller has no obligation to deliver to destination, only to procure the shipment of goods for carriage to destination. The importance of that connecting factor may perhaps be tested by reference to a number of typical situations where contract of sale of goods could lead to litigation. Thus, where the claim is a simple one for the price, it is natural to think that the place of delivery is closely connected with that obligation (although of course, by agreement, the price might be payable either in advance or, on credit, after delivery). There seems no logic, however, to sue for the price at the place of destination, where that is not the same as the place of contractual delivery. Moreover, since a buyer is typically quite likely to be found at the country of destination, an article 5.1(b) which focuses on the place of destination as the place of delivery would hardly seem to offer an alternative jurisdiction to that of domicile. Where, moreover, there is a dispute about the price because of a dispute about the quality of the goods, it will be their quality prima facie at the point of shipment that will typically be in issue, not their quality at the place of destination. Similarly, where it is the buyer who sues, 47 typically he does so on the ground of non-delivery or mis-delivery or delivery of defective goods. There again, it makes sense to look to the place where the contractual obligations of the seller mandate such delivery, rather than at destination where that is different. That remains the case, even though it may turn out in individual situations, or even typically, that goods which are defective on arrival at destination are surveyed there. What, however, remains critical in a typical documentary sale is the quality of the goods which were shipped. Inspections on shipment are also frequently carried out in international trade. Thus, although a general rule may not fulfil its function in every case, an interpretation of article 5.1(b) as referring to the place where delivery is due under the contract, rather than to the place   of   the   goods’   destination   where that differs, would far better fulfil the general purpose of article 5.1 of putting forward an alternative place of jurisdiction (to that of domicile) which reflects the place where the typical contractual obligation of delivery is performed. It is that obligation which is  deemed  to  be  the  “obligation  in  question”.  A  place  of  destination  which  differs,  as  it  typically  does   in   documentary   sales,   from   the   contractual   place   of   delivery   where   the   seller’s   obligations   are   generally performed does not meet the purpose of a jurisdictional rule which is seeking a close connecting link between place of performance of the obligation in question and forum. Conclusion For these reasons, I would dismiss this appeal. Although the submissions have to some extent changed, my reasons are, I think, very largely the same as those of the judge. PROFINDO PTE LTD V ABANI TRADING PTE LTD [2013] SGHC 10 Judith Prakash J: Introduction 1 This is an appeal against the decision of the district judge (“the DJ”) in Profindo Pte Ltd v Abani Trading Pte Ltd [2012] SGDC 176 (“the GD”). The primary issue on appeal is how demurrage is to be calculated as between a seller and a buyer in a “cost and freight” (“CFR”) sale contract – ie, whether or not the calculation of laytime against the buyer is to be suspended when the vessel carrying the goods is forced to leave its berth halfway through the unloading process. Facts Background 2 The parties are both trading companies incorporated in Singapore. On 19 May 2009, the appellant, Profindo Pte Ltd, agreed to sell 2,750 metric tons of cement to the respondent, Abani Trading Pte Ltd. The cargo was to be loaded in China and delivered to a port in Madagascar. The terms of the sale are contained in a proforma invoice (“the Agreement”). 3 The relevant clauses of the Agreement are as follows: 1. Product: Ordinary Portland Cement 42.5 R Conforming to China Standard GB 175-2007 2. Quantity: 2750 MT (+/- 5% at [the appellant’s] option) 3.        Unit  Price:  USD  101/MT  CFR  … 4.        Total  Price:  USD  277,750.00  CFR  … … 48 15. Discharge rate: 1000MT per WWD SHEXC UU 16. Demurrage/Dispatch: USD 5500 per day or prorate/no dispatch 17. Port DA: Port DA at disport of maximum USD5000 is under [the appellant’s] account. If [Port DA] exceeds USD5000, [the respondent is] to top up the difference and pay [the appellant] Under the Agreement, it was the appellant’s responsibility to procure a ship to carry the cargo. 4 Pursuant to cl 15 of the Agreement, the parties agreed that on arrival of the carrying vessel at the discharge port, the respondent would discharge the goods within the allowable laytime of 2.75 days (calculated on the basis that 2,750 metric tons of cargo would be discharged at the rate of 1,000 metric tons per day). Clauses 3 and 4 of the Agreement also made it clear that the parties contracted on a CFR (ie, cost and freight) basis. It is not disputed by the parties that a CFR contract is but a variation of a “cost, insurance and freight” (“CIF”) sale contract, and that the differences between the two types of contract are not material for the purposes of this appeal. 5 The appellant chartered the MV Athens and having loaded the cargo, the vessel arrived at the discharge port of Diego Suarez, Madagascar on 28 June 2009. The vessel berthed on 29 June 2009 at 0700 hours and the respondent commenced discharge at 0805 hours the same day. Discharge continued on 30 June 2009. However, on 1 July 2009, the port authorities unexpectedly required the vessel to leave the berth and move to the anchorage to give priority to a tanker. As a result, no discharge took place on 1 July 2009 and 2 July 2009. On 2 July 2009 at about 3pm, Mr Jeremy Wong (“Mr Wong”) of the appellant called Mr Jayes Damodar (“Mr Damodar”), director of the respondent, to inform the latter that the vessel had been anchored outside the port since 1 July 2009. Mr Wong offered Mr Damodar the option of allowing limited discharge to take place on 2 July 2009 as the vessel could return to berth that day. 6 However, as it was too late in the day for significant discharge to occur, Mr Damodar instructed Mr Wong to wait until the next day (ie, 3 July 2009) to berth the vessel. Mr Wong followed up with an email dated 2 July 2009 stating: As spoken, we will advise vessel to berth tomorrow instead of today as per your decision. Kindly note that time is to count whether vessel is berthed or not, and once demurrage, always in demurrage. In his reply email on the same day, Mr Damodar simply replied: Let the [vessel] discharge then for 2 hours, if it does not make any difference. 7 Despite Mr Damodar’s email, the vessel only returned to berth on 3 July 2009 and the respondent completed the discharge of the goods on the same day. The parties’ claims 8 Subsequently, the owners of the vessel (“the shipowners”) imposed demurrage on the appellant who managed to negotiate a reduced charge of US$8,200 but wanted the respondent to pay the amount. The appellant alleged that pursuant to cll 2 and 15 of the Agreement, the respondent was responsible for the delay since laytime continued to run whether the vessel was berthed or not. The respondent disagreed, contending that laytime was suspended when the vessel left the berth and that it was not responsible for demurrage because it had completed the discharge within the allowable laytime of 2.75 days when the vessel was berthed. 9 The appellant eventually paid the shipowners. However, the appellant alleged that it was blacklisted by the shipowners for late payment of the demurrage. As a result, the appellant allegedly suffered a loss of earnings of US$57,500 because it was unable to charter any vessel from the shipowners to fulfil its agreement with another customer for cement to be shipped. The appellant claimed this sum of loss of earnings from the respondent. 49 the appellant had not proven its claim for loss of earnings of US$57. The DJ came to her decision on the basis that that there was no express or implied term between the parties that the respondent would be liable for demurrage whether or not the vessel was berthed (see the GD at [16]). the respondent claimed that the cement supplied was not of satisfactory quality. 15 The appellant appealed against the findings in paras 13(a). caused an unnecessary rise in these charges. (b) and (c). Relying on cl 3 of the Agreement. the DJ fixed costs of $10. 12 Second. According to cl 17 of the Agreement.000 in respect of Port DA charges. It was also a loss which the appellant could have taken reasonable steps to avoid. Its counterclaim for US$10. the respondent had agreed to pay the appellant for any excess above US$5.000 was thus dismissed. for which it was not responsible. ie the Port DA charges. the Port DA charges amounted to US$9. 14 Finally.alleging that the delay in discharge. The respondent therefore sought to recover this sum from the appellant. As a result. the respondent claimed that there was a shortfall of four metric tons of cement as the total amount discharged from the vessel was 2. and therefore had to pay US$4. the respondent had had to compensate a subsequent buyer of the cement by paying it a sum of US$10.10 The appellant also claimed reimbursement of disbursements payable at the port. which the appellant did not succeed on. the respondent sought to recover US$404 (ie.500 because this was a loss which the appellant could not have reasonably foreseen.965.746 metric tons instead of the 2. (e) The respondent had not made out its case that the goods supplied were not of a satisfactory quality. However. As the vessel was at the port for a longer time. the respondent refused to pay .750 metric tons as agreed in cl 2 of the Agreement.965.965. (d) The respondent was liable to the appellant for any Port DA charge in excess of US$5. (c) The appellant had supplied four metric tons less cement than the contractually agreed amount and the respondent was therefore entitled to its counterclaim of US$404.000 in favour of the respondent on the basis that the majority of court time was spent on the issues relating to demurrage and loss of earnings. First. The claim for loss of earnings was thus not allowed.03 to the appellant.000. Decision below 13 The DJ held as follows: (a) Laytime was suspended when the vessel was not berthed so the respondent was not liable for the appellant’s claim for demurrage.03. 11 The respondent also filed a counterclaim against the appellant on two separate grounds relating to the cement delivered. It also appealed against the costs award. Issues 16 The issues which arise for my consideration in this appeal are as follows: (a) Did the DJ err in holding that the respondent was not liable for the appellant’s claim for demurrage because laytime was suspended when the vessel was not berthed (“Issue 1”)? (b) Did the DJ err in holding that even if laytime was not suspended. the respondent could not be responsible for the loss of earnings amounting to US$57.03. (b) Even if laytime was not suspended. of US$4.000.500 allegedly suffered by the appellant (“Issue 2”)? 50 . US$101 x 4) from the appellant on the basis that it should not have to pay for the shortfall in the cement. Given that the respondent took more than 2. based on cll 2 and 15. Triton Navigation Limited v Vitol SA [2003] EWCA Civ 1715). while the buyer contended that time could not start to count until the vessel had berthed. 2d Ed (Oxford University Press.as between a seller and a buyer who are parties to a CFR (or CIF) sale contract .i. that neither the extract from Benjamin’s nor the case cited Etablissements Soules et Cie v Intertradex SA [1991] 1 Lloyd’s Rep 379 (“Intertradex”) . that the respondent had a laytime of 2. on the true construction of this provision. This could very well have been the result of the appellant’s choice of arguments before the DJ on this issue – the appellant first argued that there was a separate agreement based on the email correspondence between Mr Damodar and Mr Wong that laytime would continue to run whether or not the vessel was berthed.75 days to discharge the goods (see above at [3] and [4]). the DJ appeared to have shifted the burden of persuasion on to the appellant to show that laytime was not suspended when the vessel was not berthed. both parties were unable to identify any case authority which specifically addresses the issue of whether laytime . The seller argued that time should start counting from the moment the vessel had arrived in the port and notice of readiness was tendered. the burden of persuasion should have been borne by the respondent. Carriage of Goods by Sea. the respondent referred to the following extract from Benjamin’s Sale of Goods.f contract specified the rate at which the goods were to be discharged and went on to provide for demurrage at a specified daily rate. The issue which the English Court of Appeal had to decide in Intertradex was whether laytime had commenced – as between a buyer and seller to a CIF contract – even before the vessel could berth. 2010) (“Benjamin’s”) at para 19-089: [I]n Etablissements Soules et Cie v Intertradex SA a c. As a matter of principle. 8th ed (Sweet & Maxwell. as opposed to sale contracts between sellers and buyers (see Stephen Girvin.75 days to do so. 18 In their submissions before me.(c) (d) Did the DJ err in holding that the appellant was liable for the respondent’s counterclaim for shortfall of cement (“Issue 3”)? Did the DJ err in fixing costs at $10.actually supports the respondent’s position.is to be suspended when the vessel is forced to leave the berth and suspend discharging operations before completion through no fault of either the seller or the buyer. notwithstanding the lack of an express provision to that effect in the Agreement.46.000 to be paid by the appellant to the respondent (“Issue 4”)? My decision Issue 1 17 In determining the issue of whether laytime was suspended in favour of the respondent. even though it might have begun to run against the seller as charterer under the charterparty from the earlier time of the vessel’s arrival at the port of discharge. without making any reference to the charterparty. Based on this extract. and then it argued that there was an implied term in the CFR contract that the respondent would pay demurrage in such a case. however. it is the respondent who bore the burden of showing that the Agreement allowed for the suspension of laytime when the vessel had to leave the berth part way through discharge. demurrage began to run against the buyer under the contract of sale only from the time when the vessel berthed. no discharge could occur on those dates and laytime must be suspended on these two days. 19 In its written submissions. 2011) at para 32. It was held that. 20 I am of the view. the respondent submitted that since the vessel was not berthed on 1 and 2 July 2009. Although the CIF contract 51 . The Agreement merely stipulates. The authorities dealing with the allocation of risk arising from obstructions occurring within the prescribed laytime relate mostly to contracts of carriage between charterers and shipowners. however. 1970) (“Chorley”) as authority. It is true that prima facie a c. but where there is a special provision as to discharge which imposes an obligation on the buyer which is enforceable by the seller it seems to me to follow that. for the purposes of the present issue. He is not under any duty to ensure the actual physical delivery of the goods at the c. 6th Ed (Pitman Publishing. The authority cited is not very helpful because the learned authors were referring to the specific (and. or as the buyer directs. 21 In my view. In fact. the time when that obligation takes effect is when the vessel reaches the berth at which the buyer’s goods are to be discharged. The learned authors explained that demurrage would still be payable in such a situation because “if the [buyer] had performed his obligation in time the perils would not have had any effect on the loading” (Chorley at p 153). and thus the justification provided for imposing demurrage after laytime has expired is not apposite. unless they have been expressly allocated to the seller by a specific term in the contract. In Benjamin’s at para 19-010.in Intertradex did not expressly state whether laytime would commence before the vessel was berthed.i. demurrage runs immediately from the expiry of the laytime and ends only when discharge ends. submitted that I should give effect to the principle that “once demurrage has become payable no excepted peril can have effect on the duty to pay demurrage”. it would be quite remarkable to hold that the risk of delay in unloading the goods at the port of discharge after laytime has commenced has to be borne by him. secondly to procure or prepare the proper shipping documents. irrelevant) situation of whether demurrage is payable if an excepted peril arises after laytime has expired. Since the Agreement did not specify who the risk should fall on if the discharge of 52 . Lord Justice Neil held (at 388) that: The natural meaning to be placed on any stipulation as to the time of discharge between seller and buyer is that the time should run from the moment the seller places the goods at the disposal of the buyer. worth remembering that the concept of demurrage as enunciated in demurrage clauses is based on the premise that the contract gives the cargo owner a specific period – the laytime – within which to unload his cargo and if discharge is not completed within the laytime. 22 The appellant.f. the appellant) is not even “under any duty to ensure the actual physical delivery of the goods” at the port of discharge. the learned author explained that the duties of a CIF seller are: …   first   to   ship   (or   procure   a   shipment   of)   goods   in   accordance   with   the   contract   and. are to be borne by the CIF/CFR buyer. [emphasis added] 25 In my view. Lord Justice Neil’s comment that “the time should run from the moment the seller places the goods at the disposal of the buyer” (emphasis added) can even be construed as assisting the appellant since the goods in the present case had in fact been placed at the disposal of the respondent before the disruption occurred. This is especially so when there is a demurrage clause in the contract since the raison d’être of the same must be to transfer the risk of delay in the discharge of goods to the buyer. It is a separate question altogether as to whether laytime can be interrupted or suspended after it has already commenced.i. citing Lord Chorley and O C Giles.   where   necessary. In the present case. and thirdly to tender these documents to the buyer. destination. in a port where discharge is at a berth. laytime can be suspended in favour of a buyer in a CIF/CFR contract when the vessel is made to leave the berth halfway through the discharge. in the absence of clearly stipulated “excepted perils” in a contract. No authority has been cited by the respondent to show that. on the other hand.f. however. if the CIF/CFR seller (ie. 24 In this particular case it is helpful to consider the matter in light of the duties of a seller in a CIF/CFR sale contract. this case does not assist the respondent because the holding of Lord Justice Neil is specific to the issue of when laytime can be said to commence or “take effect”. Shipping Law. 23 It is.   to   appropriate such goods to the contract. laytime had not expired when the disruption occurred. however. though he is under a duty not to take active steps to prevent such delivery. contract is concerned with documents rather than with goods. It is more logical and more in line with commercial realities to hold that such risks. cll 2 and 15) were also framed “without further qualification”. [the respondent] did not elaborate on why such qualifications should be implied into the contract. 26 As a matter of contractual construction. This is because nowhere in the Agreement is the obligation of the respondent to pay demurrage so qualified. cl 17). it is “clear and undisputed” that demurrage only begins to run against a CIF/CFR buyer when the vessel is berthed and ready for discharge. on 7 July 2009.000 without further qualification.500 multiplied by 1. [emphasis added] 27 There is no reason why the DJ’s accurate analysis of the issue on excess Port DA charges should not apply to the issue of demurrage as well. I would have thought that if. counsel for the appellant 53 . At [28] of the GD. as the respondent now argues.03. I note that this was the very basis upon which the DJ had decided that the respondent should be liable for the excess Port DA charges (see above at [13(d)]). The respondent was effectively urging the Court to imply into the laytime clauses a qualification stating that “laytime will be suspended if the vessel is forced to leave the berth”. It was the respondent’s burden to show why the laytime clauses in the Agreement should be qualified in its favour. but it has similarly not “elaborate[d] on why such qualifications should be implied into the [Agreement]”. in my judgment no such burden lay on the appellant. Mr Damodar did not raise any objection when Mr Wong wrote to him that “time is to count whether vessel is berthed or not” (see above at [6]). I rejected their argument that they are not liable for the Port DA because the vessel was not berthed on 1 and 2 July 2009 and allowed [the appellant’s] claim for Port DA of USD 4. the laytime clauses in the Agreement (ie.965.000 (ie. Like the clause stipulating that the respondent was to pay any excess Port DA charges above US$5. Mr Damodar replied on the same day merely to request for “a copy of [the charterparty with the shipowners]. As a matter of principle.637 (ie. 30 For the above reasons. it must also be liable for demurrage even if laytime was only exceeded because the vessel was forced to leave the berth on 1 and 2 July 2009. the DJ reasoned: The agreement between the parties simply states that [the respondent] was to pay any excess Port DA above USD 5.goods was to be interrupted after laytime had commenced. Mr Damodar’s conduct – in not categorically denying liability to pay demurrage at the earliest opportunities – suggests that the respondent’s submission that “laytime is suspended when the vessel is not berthed” was likely an afterthought. I hold that laytime continued to run during the period when the respondent could not have discharged the goods (ie. if the respondent is to be liable for the excess Port DA charges notwithstanding the fact that “the vessel was not berthed on 1 and 2 July 2009”. Instead of categorically denying any liability to pay demurrage. [The respondent] sought to imply a term that their liability for Port DA is limited to a reasonable sum and that they would not be liable for Port DA when discharge was delayed due to the unexpected departure of the vessel from berth. Although the appellant had initially claimed the full sum of US$10. Consequently. and detailed laytime calculation [from the shipowners]”. rather than a reflection of a “clear and undisputed” legal or commercial understanding that existed between the parties. 1 and 2 July 2009) because the vessel had shifted away from the berth. However. I have also mentioned that the burden lies on the respondent to convince the Court that a suspension of laytime can be read into the Agreement (see above at [17]). US$5.200. this holding was made in the context of the appellant having to prove that there was a separate agreement between the parties that laytime would continue to run whether or not the vessel was berthed. I allow the appellant’s appeal in respect of its claim against the respondent for demurrage of US$8. 29 While the DJ held that agreement to pay demurrage cannot be inferred from Mr Damodar’s conduct (see the GD at [11]). Ms Vonny Fu Li Fang (of the appellant) emailed Mr Damodar requesting “demurrage payable of US$10. 28 I should also point out that at the material time (ie. A few days later.934 days) as the demurrage due. However. Mr Damodar would have strongly objected to Mr Wong’s email in his reply instead of merely stating: “[l]et  the  [vessel]  discharge  then  for  2  hours  …”. 2 July 2009). In this different context.637”. as stated. the appellant also failed to address the DJ’s legitimate concern that this alleged loss of earnings was one which the appellant could have easily mitigated. “Laytime and demurrage clauses in contracts of sale – links and connections” [2003] LMCLQ 508). the 54 . the damages to be awarded must either be those: a) which arose naturally. according to the usual course of things from such breach of contract itself. I agree with the DJ that the appellant has failed to satisfy the legal requirements of remoteness and mitigation in relation to this alleged loss (see above at [13(b)]). the appellant had invoiced the respondent only for the discounted demurrage sum of US$8. In fact. Issue 2 32 While the appellant’s reduced claim for demurrage against the respondent should be allowed.200.200 (ie. As this issue was not properly ventilated before either the DJ or myself. It is a basic principle in the law of contract that a claimant cannot recover damages for reasonably avoidable loss (see The Asia Star [2010] 2 SLR 1154). 34 Crucially. I affirm the DJ’s decision on the issue of the alleged loss of earnings and dismiss the appellant’s appeal in respect of the same. as the probable result of the breach of it (see Hadley v Baxendale (1854) 9 Exch 341 at 354). 33 When there is a breach of contract. that the respondent was aware that the appellant was under some pressure by the shipowners to make payment for demurrage. the appellant attempted to show that the respondent knew or ought reasonably have known that blacklisting would take place if demurrage was not paid in time to the shipowners.stated during oral submissions before me on 1 November 2012 that the appellant was willing to reduce its claim for demurrage to US$8. greater loss of US$57.637 in the present case. as a matter of law.200. The appellant’s further allegations that the respondent was informed over the phone and that blacklisting by shipowners was “well known in the trade” were also unsubstantiated by any objective evidence. it could have been argued in the appellant’s favour that the demurrage clause in the CFR sale contract between the parties was a free-standing provision of an independent contract unconnected with the contractual arrangements between the appellant and the shipowners (see Fal Oil Co Ltd & Anor v Petronas Trading Corp Sdn Bhd [2004] EWCA Civ 822. this is a far cry from it having been actually informed that any late payment would jeopardize the appellant’s alleged oral agreement with the same shipowners to charter a second vessel. at the time they made the contract. I will only allow the appellant’s reduced claim for demurrage of US$8. As the respondent rightly submitted. none of the evidence relied on by the appellant substantiated its claim. Issue 3 36 In finding that the appellant supplied four metric tons less cement than the contractually agreed amount and then holding that the respondent was entitled to its counterclaim of US$404. 31 For purposes of completeness. it might very well have succeeded notwithstanding its own reduced obligation to pay the shipowners US$8. on 25 August 2009.200. However. This is because. at best. 35 In the result. its claim for loss of earnings allegedly as a result of being blacklisted by the shipowners stands on a different footing.500 before claiming for demurrage against the respondent later. or b) as may reasonably be supposed to have been in the contemplation of both parties. the sum which the shipowners had agreed to accept after negotiations with the appellant). The email correspondence between the appellant and the respondent shortly after the goods were discharged merely showed. The appellant was therefore rightly described by the respondent as “authors of their own misfortune” with regards to the alleged loss of earnings. Charles Debattista. and since the appellant had clearly manifested its willingness to reduce its claim for demurrage. I should point out that had the appellant consistently claimed the full sum of US$10. In its written case. No argument or evidence was advanced before me to explain why the appellant could not have paid off the shipowners first to avoid the alleged. DJ reasoned that the appellant could not charge for 2. 5th Ed (Thomson Reuters. the DJ’s costs order below (ie.000 in favour of the respondent) will have to be set aside. the learned author stated that “unless otherwise agreed in the [CIF sale] contract. it is my judgment that the imposition of $10. 41 For that reason. Issue 4 42 As the appellant has succeeded on Issue 1 and Issue 3. the burden fell on the respondent to show that notwithstanding the representation on the bill of lading. the bill of lading which was signed by the agent of the master of the vessel at the port of loading records the weight of the goods shipped as follows: GROSS WEIGHT: 2754. However. It is common knowledge that in the context of the carriage of goods by sea. in Benjamin’s at para 19-073. both parties were generally unsuccessful on the bulk of their claims. it is mentioned (in the context of a CIF contract) that: Having shipped proper goods and tendered proper documents. the seller is not normally concerned with what happens to the goods in transit: the buyer’s remedies (if any) in respect of the failure of the goods to arrive are against the carrier or the underwriter.81 MTS NET WEIGHT: 2750 MTS 40 Given that the documentary evidence clearly suggests that at least 2. such that the risk of a shortfall in goods at the point of discharge falls on the seller. before the DJ. rather than at the port of discharge. The respondent did not discharge this burden. the DJ’s reasoning rests on the presupposition that the seller in a CIF/CFR sale contract is responsible for the amount of goods discharged from the carrying vessel. the appellant had in fact shipped less than 2. Even if the appeal had not succeeded however. CIF and FOB Contracts. I find this presupposition contrary to the authorities on the relationship between a seller and buyer of a CIF/CFR sale contract. the bill of lading typically serves as a receipt of the quantity or weight of goods shipped. for example. With respect. If the four metric tons of cement were lost in transit on the MV Athens or during the discharge process. not against the seller. 37 In my view. 43 I note that the DJ took into account the fact that the majority of time was spent on the issues relating to demurrage and loss of earnings. 39 In short. $10. 38 In Filippo Lorenzon. succeeded only in its counterclaim for the shortfall of cement (amounting to US$404) but lost on its much more substantial counterclaim of US$10. In the present case. the authorities suggest that the appellant’s delivery obligation was discharged at the port of loading. The respondent. the amount of time spent per se on a particular issue should not. I reverse the DJ’s holding that the respondent was entitled to its counterclaim of US$404.000 for the alleged unsatisfactory quality of cement (see above at [13(e)]).750 metric tons of cement when it had only discharged 2. the respondent’s proper recourse would be to claim for short delivery against the shipowners (as carriers) instead.750 metric tons of cement were in fact loaded and shipped at the port of loading. be the sole determinant of the amount of costs a party should receive. The DJ should have considered whether the time spent 55 . risk passes from seller to buyer across the ship’s rail at the port of loading” (emphasis added).746 metric tons of the same (see the GD at [29]). The appellant is not liable for the missing cement as it has fulfilled its delivery obligation towards the respondent by loading 2.750 metric tons of cement on to the MV Athens.000 of costs in favour of the respondent was incorrect given that. 2012) at para 2-010. on which the appellant failed before her. Similarly. in my view.750 metric tons of cement. It was not able to prove its case of short delivery since what it relied on was short discharge at Diego Suarez rather than evidence showing a shortfall in cargo delivered to the vessel. There shall be judgment for the appellant for the sum of US$8.2 Parties’ Obligations under the CISG PART III.000 (on the basis that the appellant succeeded in two out of its three claims and successfully resisted the counterclaims) plus reasonable disbursements in favour of the appellant. or the crossexamination by the respondent’s counsel being unnecessarily protracted.on those issues was due to the appellant’s witnesses being unreasonably evasive.03 awarded by the DJ together with costs as provided in [44] above. DELIVERY OF THE GOODS AND HANDING OVER OF DOCUMENTS Article 31 If the seller is not bound to deliver the goods at any other particular place. SALE OF GOODS … CHAPTER II. and at the time of the conclusion of the contract the parties knew that the goods were at. 44 Given my holding that the DJ should have decided Issue 1 and Issue 3 in favour of the appellant. the contract relates to specific goods. (c) in other cases — in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.000 plus reasonable disbursements and award them to the appellant as well. even if the former was true.000 in costs given that the respondent had: a) failed in its defence against the appellant’s claim for the excess Port DA charges. his obligation to deliver consists: (a) if the contract of sale involves carriage of the goods — in handing the goods over to the first carrier for transmission to the buyer. I set aside the DJ’s costs order and award the costs of the trial fixed at $10. and b) failed in its counter-claim for the alleged unsatisfactory quality of cement. In any case. this would still not have justified the respondent being awarded S$10. SECTION I. As the appellant has largely succeeded in this appeal (save for Issue 2). or were to be manufactured or produced at. I allow the appellant’s appeal save for its claim for the alleged loss of earnings. or unidentified goods to be drawn from a specific stock or to be manufactured or produced. a particular place — in placing the goods at the buyer’s disposal at that place.965. 56 . hand over any documents relating to them and transfer the property in the goods. I fix the costs of the appeal at $5. as required by the contract and this Convention. in cases not within the preceding subparagraph. (b) if. OBLIGATIONS OF THE SELLER Article 30 The seller must deliver the goods.200 in addition to the US$4. Conclusion 45 For the foregoing reasons. 3. Some costs at least should have been awarded to the appellant on the basis that the costs generally follow the event and the victor is only deprived of costs if it has raised issues unreasonably or unduly prolonged the proceedings. or (c) in any other case. up to that time. he must hand them over at the time and place and in the form required by the contract. in accordance with the contract or this Convention. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods. he must. If the seller has handed over documents before that time. Article 33 The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract. by shipping documents or otherwise. (d) are contained or packaged in the manner usual for such goods or. except where the circumstances show that the buyer did not rely. the seller must give the buyer notice of the consignment specifying the goods. (2) Except where the parties have agreed otherwise. hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods. Article 34 If the seller is bound to hand over documents relating to the goods. (2) If the seller is bound to arrange for carriage of the goods. the buyer retains any right to claim damages as provided for in this Convention. on that date. quality and description required by the contract and which are contained or packaged in the manner required by the contract. CONFORMITY OF THE GOODS AND THIRD PARTY CLAIMS Article 35 (1) The seller must deliver goods which are of the quantity. at the buyer’s request. SECTION II. even though the lack of conformity becomes apparent only after that time. at any time within that period unless circumstances indicate that the buyer is to choose a date. (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity. 57 . or that it was unreasonable for him to rely. if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. cure any lack of conformity in the documents. (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract. where there is no such manner. he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. within a reasonable time after the conclusion of the contract. provide him with all available information necessary to enable him to effect such insurance. (b) if a period of time is fixed by or determinable from the contract. Article 36 (1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer. in a manner adequate to preserve and protect the goods.Article 32 (1) If the seller. he may. the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used. However. on the seller’s skill and judgement. (2) In any event. However. or cause them to be examined. Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. However. or 58 . the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer. Article 42 (1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property. within as short a period as is practicable in the circumstances. Article 41 The seller must deliver goods which are free from any right or claim of a third party.(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations. Article 38 (1) The buyer must examine the goods. of which at the time of the conclusion of the contract the seller knew or could not have been unaware. deliver any missing part or make up any deficiency in the quantity of the goods delivered. the seller’s obligation is governed by article 42. provided that the right or claim is based on industrial property or other intellectual property: (a) under the law of the State where the goods will be resold or otherwise used. if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State. Article 40 The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer. if such right or claim is based on industrial property or other intellectual property. he may. provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. up to that date. Article 37 If the seller has delivered goods before the date for delivery. examination may be deferred until after the goods have arrived at the new destination. the buyer retains any right to claim damages as provided for in this Convention. (2) If the contract involves carriage of the goods. including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics. unless the buyer agreed to take the goods subject to that right or claim. (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch. examination may be deferred until after the goods have arrived at their destination. unless this time-limit is inconsistent with a contractual period of guarantee. or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered. (b) in any other case, under the law of the State where the buyer has his place of business. (2) The obligation of the seller under the preceding paragraph does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer. Article 43 (1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim. (2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it. Article 44 Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice. …. CHAPTER III. OBLIGATIONS OF THE BUYER Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. SECTION I. PAYMENT OF THE PRICE Article 54 The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: (a) at the seller’s place of business; or 59 (b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place. (2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract. Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity. Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller. SECTION II. TAKING DELIVERY Article 60 The buyer’s obligation to take delivery consists: (a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and (b) in taking over the goods. BUNDESGERICHTSHOF, VIII ZR 159/94, GERMANY, 8 MARCH 1995 (NZ MUSSEL CASE) Facts Defendant [buyer], who runs a fish import business in D., bought 1,750 kilograms (kg) New Zealand mussels for U.S. $3.70 per kg from Plaintiff [seller], who resides in Switzerland. [Seller] delivered the goods, as agreed, in January 1992 to a storage facility belonging to [buyer] and located at Company F. in G.G., and invoiced [buyer] on January 15, 1992 in the amount of U.S. $6,475 payable within 14 days. At the end of January 1992, Company F. informed [buyer] that the federal veterinary agency of G.G. had taken samples of the goods for examination purposes. After the veterinary agency confirmed at the end of January/beginning of February 1992, upon [buyer’s] request, that an increased cadmium content was discovered in the mussels and that further examinations by the responsible veterinary examination agency of Southern Hesse were necessary, [buyer] informed [seller] of these facts by facsimile dated February 7, 1992. According to the report by the veterinary examination agency of Southern Hesse, which was received by [buyer] on February 26, 1992 and forwarded to [seller] by [buyer], cadmium contents of between 0.5 and 1.0 milligram per kg (mg/kg) were ascertained in four of the examined bags of mussels; these contents did not yet exceed twice the amount of the 1990 60 standard of the federal public health agency, but further examinations by the importer were found necessary. An examination commissioned by [seller] and conducted by the federal agency for veterinary matters in Liebefeld-Bern determined a cadmium content of 0.875 mg/kg. By facsimile dated March 3, 1992, [buyer]) announced to [seller] that she was going to send the mussels back at [seller’s] expense since the veterinary agency had declared them “not harmless” due to their high cadmium content; simultaneously, she complained that the goods were “no longer in their original packaging as required” and that, furthermore, the packaging was unsuitable for frozen food. Thereafter, [seller] informed [buyer] by telephone that she would not accept the goods. Consequently, [buyer] did not return the goods. According to a report of the chemical examination laboratory of Dr. B. dated March 31, 1992, which had been commissioned by [buyer] for further examination, three samples revealed 1 mg of cadmium per kg; a doubling of the federal public health agency standards could not be “tolerated,” and at least 20 additional samples of the entire delivery had to be examined. [Buyer] requested that [seller] cover, among other things, the future expenses of the examination; [seller] did not reply. In the complaint, [seller] demands payment of the purchase price of U.S. $6,475 plus interest. She claimed that the mussels were suitable for consumption because their cadmium content did not exceed the permitted limit; furthermore, [buyer] had not given timely notice of the defects. [Buyer], on the other hand, declared the contract avoided due to a fundamental breach of contract because the mussels were defective and had been complained of by the responsible authorities. Thus, the mussels were not permitted to be delivered out of the storage facility. And by now, the “expiration date of 12/92,” affixed to the merchandise by [seller], had come and gone anyway. The Trial Court (here the “Landgericht”) obtained an expert opinion from the federal public health agency. With respect to the question whether the mussels were suitable for consumption having the reported cadmium content, the federal public health agency elaborates that the ZEBS (central registration and evaluation office of the federal public health agency for environmental chemicals) standards are guidelines indicating an unwanted concentration of harmful substances in food for purposes of preventative consumer health protection. Occasionally exceeding the individual standard which are not toxicologically explainable, usually does not lead to harmful effects on one’s health, even if the measured concentration reaches twice the amount of the standard. If twice the amount of the standard is exceeded, the responsible state control authorities usually declare that, analogous to the procedure legally required for enforcement of the meat hygiene regulations (FleischhygieneVerordnung), the relevant food can no longer be considered suitable for consumption according to the foodstuffs and consumer goods law (“Lebensmittel- und Bedarfsgegenständegesetz” or “LMBG”) § 17(1)(Nr.1). The Trial Court ruled against [buyer] in accordance with [seller’s] petition. On appeal, buyer claimed, as a precaution and with offer of proof, that the cadmium content of the mussels was even higher than 1 mg/kg. The Court of Appeals (Oberlandesgericht) dismissed [buyer’s] appeal. In the appeal to this Court, [buyer] continues to move for a dismissal, whereas [seller] pleads for a dismissal of the appeal. Opinion The appeal is unsuccessful. 61 Law of Sales) Art. because mussels. have no influence on the conformity of the goods with the contract according to CISG Art. The question whether only goods of average quality are suitable for ordinary use (CISG Art. an agreement between the parties is primarily relevant (CISG Art. therefore. Schlechtriem in von Caemmerer/Schlechtriem. CISG Art. The demand to declare the contract avoided is also not legally founded based on [buyer’s] allegation that the goods were not packaged properly. In any event. and it is not legally objectionable. Even if [seller] knew that [buyer] wanted to market the goods in Germany. [Buyer] did not argue against this finding. That is why it is no longer relevant whether the public law provisions of those countries. [Buyer’s] pleadings in this respect are not substantiated and can. II. 35(2)(a). The Court of Appeals has explained: The U. 35(2) governs the question whether the goods conform with the contract.I. Even if the standard is exceeded by more than 100%. It is true that a delivery of goods that do not conform with the contract can be a fundamental breach of contract within the meaning of CISG Art. 49(1)(a) in case of a fundamental breach of contract by seller. to which an export was possible at the time of conclusion of the contract. The fact that the standard was exceeded is similarly not relevant to the elements of CISG Art. 25 6 20 (2d ed. The prerequisite to [buyer’s] right to declare the contract avoided pursuant to CISG Art. 1980 (CISG) applies to the legal relationship between the parties. even “peaks of contamination” are not harmful to one’s health. The reason for this is that the standard for cadmium content in fish. the statement to declare the contract avoided is statute-barred by CISG Art. This is the case when the purchaser essentially does not receive what he could have expected under the contract. 49(1)(a) due to the cadmium contamination of the delivered mussels is. The Court of Appeals did not even find an implied agreement as to the consideration of the ZEBSstandards. Defendant (buyer) gave notice for the first time that the packaging of the goods delivered in the beginning of January did not conform with the contract. 25. 53. not be accepted.G. The mere fact that the mussels should be delivered to the storage facility in G. 35(1)). in case of a lack of express agreement. especially since the standards do not have legal character. in contrast to the standard for meat. one cannot make such an assumption. therefore. These elaborations hold up against a legal re-examination with respect to the result. one cannot assume that the food is no longer suitable for consumption. [Buyer] can only declare the contract avoided pursuant to CISG Art. she did not give notice within a reasonably short time. contrary to basic food. 35 can. There is no evidence that the parties implicitly agreed to comply with the ZEBS-standards. This is so because on March 3. and can be caused by a delivery of goods that do not conform with the contract (see. 1.N.g. Convention on Contracts for the International Sale of Goods dated April 11. Not even non-conformity with the contract within the meaning of CISG Art. a fundamental breach of contract by [seller] within the meaning of CISG Art. 25. therefore. 1992. 1(1)(a)). does not necessarily constitute an 62 . Kommentar zum Einheitlichen UNKaufrecht (Commentary on the Uniform U.) (with further citations)). 35(2)(a)) or whether it is sufficient that the goods are “marketable” may be left open. The application of the CISG provisions to the contract between the parties is expressly no longer questioned and is also correct (CISG Art. however. 49(2). be determined. does not have a legally binding character but only an administratively guiding character. a) In this respect. therefore. [seller] is entitled to the purchase price.. e. are usually not consumed in large quantities within a short period of time and. The delivered mussels are not of inferior quality even if their cadmium content exceeds the examination results known so far. 35(2)(b) (fitness for a particular purpose). According to CISG Art.N. 282 et seq. This. After taking delivery without giving notice of the lack of conformity. Enderlein in Enderlein/Maskow/Stargardt. (1st ed. Internationales Kaufrecht (International Law of Sales) Art.g.1. the same in Enderlein/Maskow/Strohbach. 6 3.. 274 et seq.).. p. Convention on Contracts for the International Sale of Goods. especially in Germany. Commentary on the international sales law Art. 35 6 22 (13th ed.2.. e. the goods do not conform with the contract if they are unsuitable for the ordinary use or for a specific purpose expressly or impliedly made known to the seller (CISG Art.. above that. Contrary to [buyer’s] contention at trial. bb) Admittedly. the Court of Appeals rightly left open the question -. goods of average quality were found to be required. supra. Commentary) Art.5.. which this Court follows. “there are also other imported New Zealand mussels on the market . there would be reservations. that has been reported or. supra. and the contents of which is thereby alleged. that do not show a comparable cadmium contamination. Schwenzer in von Caemmerer/Schlechtriem. . 35(2)(a) and (b)). supra. 35 6 26 et seq. According to the absolutely prevailing opinion in the legal literature. 35 6 16 et seq. 5. Kommentar (The U. 35 6 9 (1991).N. 35 6 8 (1991). even if twice the amount of the ZEBS-standard is exceeded. this would not change anything regarding the suitability of the mussels for consumption pursuant to LMBG § 17(1)(1). 60(b)) at the place of destination in G. The appeal wrongly requests that [seller] submit a statement that New Zealand mussels usually have such a high cadmium contamination. and..g. if the public law provisions of the Federal Republic of Germany were relevant. the buyer must allege and prove that the goods do not conform with the contract and the seller does not have to allege and prove that they do conform with the contract (see. therefore. is not the case. Bianca in Bianca/Bonell. [buyer] has still not argued that the delivered mussels contain a higher cadmium contamination than New Zealand mussels of average quality. supra. do not conform with the contract. . the compliance with specialized public law provisions of the buyer’s country or the country of use cannot be expected (Schwenzer. submitted by [buyer] to the trial court. Audit. (1987). supra. 96 (1990).controversial in the legal literature -. supra. Convention de Vienne sur les contrats de vente 63 . La vente internationale de marchandises (The International Sale of Goods) 6 98. according to the report from the examination laboratory of Dr. Internationales Kaufrecht (International Law of Sales) § 5 6 21 (1993). Art. 6 49 (with further citations)). 35 6 4 (1985). under this rule. § 5 66 35. e. Art. 35 6 15 (with further citations)). alleged by [buyer]. and she did not give notice of the lack of conformity of the goods at that time. BGB (German civil code). Art. Neumayer/Ming. CISG Art. The cadmium contamination of the mussels. and it definitely does not constitute an agreement regarding the compliance with certain public law provisions on which the resalability may depend. resalability of the mussels and contrary to the Court of Appeals’ opinion. 41. La vente internationale de marchandises (The International Sale of Goods) 6 290 (1993). Even if on appeal. that average New Zealand mussels on the market contain a smaller amount of cadmium than the mussels delivered to [buyer].” It does not follow. does not allow us to assume that the goods. 35 66 4. Art. Stumpf in von Caemmerer/Schlechtriem. considering the report from the federal public health agency and the documented administrative practice of the state health agencies. Konvention der Vereinten Nationen über Verträge über den internationalen Warenkauf. 35 6 2. b) Where the parties have not agreed on anything. Piltz. p. Piltz. she accepted the mussels by physically taking delivery (CISG Art. p. B.G. aa) In the examination of whether the goods were suitable for ordinary use. Internationales Kaufrecht (International Law of Sales) Art. Heuzé. Schwenzer.). It is true that. as [buyer] alleged. however.agreement regarding the resalability of the goods. Staudinger/Magnus. from the point of view of salability and. Herber/Czerwenka. however. Herber/Czerwenka.whether this requires generic goods of average quality or whether merely “marketable” goods are sufficient (see. 185 (1994).. Schwenzer. BGB (German civil code). supra..). In any event. did not allege that there are any Swiss public law provisions concerning the contamination of mussels with toxic metals. CISG Art. Piltz. probably also Hutter. therefore. the buyer has pointed them out to the seller (see. noticeable in the discussions in the legal literature and probably partly caused by the not very precise distinction between subsections (a) and (b) of CISG Art.g. Hutter. Some uncertainties.03. Internationales Kaufrecht (International Law of Sales). e. Enderlein in Enderlein/Maskow/Strohbach. but rather. Bianca. Bianca. Kommentar zum Einheitlichen Kaufrecht (Commentary on the Uniform Law of Sales) Art. 6 26. as the reply to the appeal rightly points 64 . 35(2)(b). the standards of the seller’s country always have to be taken into account (see. Art.g. 6 41. compare. the buyer can be expected to have such expert knowledge of the conditions in his own country or in the place of destination. Mängelgewährleistung im UN-Kaufrecht (Guaranty with Respect to Non-Conformity with a Contract pursuant to the U. inconsistent Heilmann. as most argue. Law of Sales). 6 4). 33 6 16. who bears the burden of proof. Otto.. even if it could be viewed as an indication by [buyer] of the anticipated marketing in Germany. 6 16. 35 6 11 (12th ed.2) or if.N. e.5. supra). 6 17. Stumpf in von Caemmerer/Schlechtriem. This applies even more in a case like this. 534. e. and this should possibly be examined within the scope of CISG Art. 6. at 40).. maybe. 184 with p.g. as determined by him. therefore. if the relevant provisions in the anticipated export country are known or should be known to the seller due to the particular circumstances of the case (see. and. supra. 35(2)(a). probably different Schlechtriem in International Sales §§ 6. e. supra. compare p. not clear Soergel/Lüderitz. MDR 1992.. 6 27. no need to finally decide whether.. Schwenzer. 35(2). so that it is not important for the purposes of subsection (a) whether the use of the goods conflicts with public law provisions of the import country (see. April 1980 (The Liability of the Seller for Non-delivery or Delivery of Goods Not Conforming with the Contract pursuant to the Vienna UNCITRAL-Convention on the International Sale of Goods dated April 11. each supra). 66 16. neither under subsection (a) nor under subsection (b) of CISG 35(2) sufficient to judge whether the mussels conform with the contract pursuant to certain cadmium standards used in Germany (compare. e. 6 3. Piltz. do not require clarification in the evaluation of whether this question must be integrated into the examination of the ordinary use of the goods or the examination of the fitness for a particular purpose.g. Law of Sales under Special Consideration of Implied Promises). Aue. bbb) The agreement regarding the place of delivery and place of destination is in itself. certain standards in the buyer’s country can only be taken into account if they exist in the seller’s country as well (see. Die Haftung des Verkäufers für Nichtlieferung bzw. therefore. Piltz.. Art.N.1. supra. he can be expected to inform the seller accordingly. Bianca. Schwenzer. There is. supra. supra. relied on and was allowed to rely on the seller’s expertise or. and that the purchaser. supra. None of these possibilities can be assumed in this case: aaa) [Buyer]. supra) and.21 (Galston/Smit 1984). Stumpf. concerning the legal situation pursuant to the EKG. (doctoral thesis 1988). supra. Dölle/Stumpf. within the scope of CISG Art. supra. Lieferung vertragswidriger Ware nach dem Wiener UNCITRAL-Übereinkommen über internationale Warenkaufverträge vom 11.internationale de marchandises (The Vienna Convention on Contracts for the International Sale of Goods). supra. e. Herber/Czerwenka. 19). Decisive is that a foreign seller can simply not be required to know the not easily determinable public law provisions and/or administrative practices of the country to which he exports. Enderlein and Bianca. where. Enderlein. 35 6 7 (1993).g. cannot rationally rely upon such knowledge of the seller. 6 2. 533. supra. supra. probably different Schlechtriem. thereby. 6 35. e. 1980) at 46 et seq. 33 6 18 (1976) (with further citations) with Mertens/Rehbinder. Mängelgewährleistung im UN-Kaufrecht unter besonderer Berücksichtigung stillschweigender Zusicherungen (Guaranty with Respect to Non-conformity with a Contract pursuant to the U. supra. at 75 (doctoral thesis 1989).g.g. The appeal similarly does not mention anything in this respect. 17. [Buyer] did not allege any such facts. I 1678. The allegedly improper packaging could have easily been ascertained in an external examination. for instance. 3 of Exh.. the appeal argues unsuccessfully that the mussels could not be sold due to the “official seizure” and were. which must be considered first (compare Huber in von Caemmerer/Schlechtriem. seemingly. 1992 was untimely even if the latter date of delivery was decisive. 1986. 38(2) in connection with subsection (1)).” There is no need to go into great detail with respect to the question whether [buyer] has even alleged a seizure of the goods and whether she could have reasonably and with a chance of success attacked such a measure. that are only valid as to the meat trade (compare No. 6 17). 1992. Defendant (buyer) lost her rights that might have resulted from these allegations due to untimeliness. 227.”) section of [buyer’s] facsimile dated February 7. result from the “untimeliness” of the declaration to avoid the contract pursuant to CISG Art.g.g. ccc) This Court need not decide whether the situation changes if the seller knows the public law provisions in the country of destination or if the purchaser can assume that the seller knows these provisions because. however. because he has already had a business connection with the buyer for some time (see. 7. 1995. In that respect. Hutter.. 6 to the regulation for meat hygiene dated Oct. 49 66 45 et seq. Otto MDR 1992. but from the untimeliness of the notice of the lack of conformity required by CISG Art. The time limit for the notice of the lack of conformity. 1991. not uniformly in all the German Länder (federal states) (compare the announcements of the federal public health agency in Bundesgesundhbl. In any event. The first notice of the lack of conformity of the packaging in the facsimile dated March 3. 25) or of any lack of conformity with the contract at all (CISG Art. e.g. supra. 39(1)). or not until January 16. The Court of Appeals also correctly denied the [buyer’s] right to declare the contract avoided because of the improper packaging of the goods. ddd) Finally. Even if this Court were to apply a very 65 . intended for publication) should not be calculated too long in the interest of clarifying the legal relationship of the parties as quickly as possible.out. 1992. e. I 2066)).. at 47) or because he has promoted his products in that country (see. 533. 1993. as the Court of Appeals assumed.g. 49(2) (compare judgment by this Court dated Feb. as the appeal alleges pointing to the “Betreff” (“Re. supra. 30. Art. Schwenzer. VIII ZR 18/94 at II(3)(b). e. specifically 122). [Buyer] had to examine the goods or had to have them examined within as short a period after they arrive at the place of destination as practicable under the circumstances (CISG Art. whether by herself at the storage facility not far from her place of business or by a person employed by company F. 534). 226. and designated by [buyer]. e.g. 1990. as well as the time limit to declare the contract avoided pursuant to CISG Art. a seizure would have been based on German public law provisions which. e. BVerwGE 77.. 39(1). Neumayer/Ming. not “tradable. The question whether [buyer’s] allegations were sufficient for a conclusive statement of a fundamental breach of contract (CISG Art. as set forth above. 224 et seq.. 211) to the exceeding of standards in the fish and mussels trade and where the legal bases for measures of the administrative authorities do not seem completely certain (compare. BGBl. he has a branch in that country (see. therefore. In any event. instead. as modified by the regulation dated Nov. there are no statutes regulating the permissible cadmium contamination and where. specifically II(1)(b)(bb)(bbb)). [buyer] could have easily done this.. because he often exports into the buyer’s country (see. it does not make any difference whether the mussels were delivered “in the beginning” of January 1992. supra). cannot be applied in order to determine whether the goods conformed with the contract (supra. 15. 1992. “analogously” and. the public health agencies apply the provisions. BGBl.)). supra. 49(2)(b)(i). in a different context. 35(2)(e) [sic]) may remain unanswered. This does not. which starts at that moment (CISG Art. 1991. 210. At least during the working week from January 20 to 24. (2d ed. 102. 2. At the time of assembly. Art. e. TSL was seeking to continue the sales of these used trucks. operate a road transport. of which he gave untimely notice. Reinhard. Mr and Mrs Smallmon. law of sales) Art. 39 6 10. supra.N. TSL had previously sold used Volvo trucks to businesses in Australia and the trucks had been successfully imported into Australia and used by the purchasers. 39 6 5 (1991)). The buyer cannot claim those defects. Schwenzer. LG = Landgericht [District (trial) Court]. 1992. a key issue was whether. The owner of TSL is the second respondent. Art.g. BGBl. stricter. At trial. Uniform Law on the International Sale of Goods]. The trucks were brought to New Zealand and operated (in the case of the four that were the subject of sale) by the dairy company Fonterra. EKG = Einheitliches Gesetz über den internationalen Kauf beweglicher Sachen [ULIS: 1964 Hague Convention. 13 U 51/93. Index No. April 20.generous “rough average” of about one month. = Bundesgesetzblatt [Federal Law Gazette].g. At the time of sale they were owned by a leasing company called Esanda. December 22. 1992. [2] The four trucks were Volvo model FM12 and were originally assembled in Australia to comply with the Australian Design Rules (ADRs). § 5 6 59. e. Index No. UN-Kaufrecht (U. the compliance plate (certifying that the vehicle was manufactured to comply with the ADRs) was not attached to each truck. Judgments of the Lower Courts: OLG Frankfurt. Art. supra. the Smallmons experienced a series of problems with the Queensland regulatory authorities. OLG = Oberlandesgericht [Regional Court of Appeals]. The Smallmons decided to purchase four trucks for use in their business from a New Zealand company. BVerwGE = Bundesverwaltungsgerichtsentscheidungen [Official Reporter of cases decided by Germany’s highest Federal Administrative Law Court]. taking into account different national legal traditions (see Schwenzer. supra. as the vehicles were intended for export to New Zealand and required some minor modifications for that market. Mr Grant Miller. The appeal’s reference to an examination of the mussels already carried out by the public health agency as well as [buyer’s] earlier notice of the increased cadmium content do not affect the assumption that the notice of lack of conformity was untimely.. Transport Sales Ltd (TSL). By means of an advertisement in an Australian trade magazine. the Smallmons were not able to have the trucks registered by Queensland Transport because they did not have a compliance plate attached and because the Smallmons had not obtained an authority to import from the National Transport Department. [3] The four trucks were purchased in New Zealand by the Smallmons and shipped to Queensland. Bundesgesundhbl. If the goods do not conform with the contract in various aspects. Despite the trucks being roadworthy. SMALLMON V TRANSPORT SALES LTD [2011] NZCA 340 An international sale of trucks [1] The appellants. = Bundesgesundheitsblatt [Federal Health Gazette]. and in what 66 . Herber/Czerwenka. Australia. After the trucks arrived. water and earthmoving business in Queensland. supra.. Eventually. it is necessary to state all defects individually and describe them (see. 39 6 9. the time limit for the notice of the lack of conformity with the contract had expired before March 3. MDR = Monatsschrift für Deutsches Recht [monthly law journal]. [4] The contract between TSL and the Smallmons did not contain an express term as to the registerability of the trucks in Queensland. Piltz. Art. supra. 39 6 17 (with further citations). 14 O 165/92. 1994. 39 6 8). Herber/Czerwenka. LG Darmstadt. the first respondent. TSL’s role was as sales agent of the used trucks on behalf of the owner. these regulatory authorities agreed to issue exemption permits allowing the Smallmons to use the trucks on a limited basis. 2 The seller was not responsible for compliance with the regulatory requirements of the importing country and there was no basis for finding that TSL knew or ought to have known about the applicable regulatory requirements for trucks in Queensland. [10] The advertisement came to Mr Smallmon’s attention at a time when the business was looking to upgrade its existing fleet of trucks.circumstances. their counsel. Prices available ex New Zealand or Landed at Brisbane. a truck must have what are called its “roadworthies”. 30 July 2010. a seller of goods can be liable for breach of an implied term as to fitness for purpose when the alleged lack of fitness arises not from the physical features of the goods. A further requirement is that a truck manufactured after a certain date must be fitted with a compliance plate. Phone Grant and discuss your requirements. Mr Smallmon was aware of another transport operator in Allora. during the 1 2 3 4 The Convention was adopted into the domestic law of New Zealand by the Sale of Goods (United Nations Convention) Act 1994. it is permissible to do so as long as the owner obtains a “modification plate”. notably art 35. Mr Smallmon saw a full page advertisement for the sale of trucks in an Australian trade magazine. It stated: Late model 8x4 cab & chassis available.3 [7] The Smallmons appeal against this aspect of the decision. Formation of the contract [9] The Smallmons have been in the road transport business in Queensland for about 20 years. Queensland who had imported two trucks from New Zealand and who had told him they were a good deal.1 This article sets out the primary requirement that a seller in an international transaction deliver to the buyer goods which are of the quantity. Melbourne or Sydney. At [94]–[100]. art 35(2) establishes that the goods do not conform with the contract (except where the parties have agreed otherwise) unless the goods are fit for the purposes for which goods of the same description would ordinarily be used or fit for any particular purpose expressly or impliedly made known to the seller. The central issue is the application of the law in art 35 of the Convention to the facts. a metal tag attached to the vehicle at the time of manufacture for trucks being sold in Australia. In order to be registered. Mr Dale acknowledged at the hearing that apart from one area to be addressed below. Mr Smallmon thought the other operator’s trucks looked “pretty good” and warranted further enquiries of Mr Miller. [6] The Judge found that the Smallmons had failed to establish that TSL was liable for breach of an implied term as to fitness for purpose. There followed two phone conversations with Mr Miller. In April 2006. At the hearing. Some on Spring some on Airbag. French J held that this issue was determined by the application of the provisions of the United Nations Convention on Contracts for the International Sale of Goods (the Convention). It had been placed by TSL. Most have Alloys and Med km. Mr Dale. This is a colloquial term for a test undertaken to check whether or not a vehicle complies with the ADRs. 67 . quality and description required by the contract. Smallmon v Transport Sales Ltd HC Christchurch CIV-2009-409-363. If the owner wishes to make modifications to the truck. abandoned the challenge to the Judge’s findings that there was no basis for any claim under the Fair Trading Act 1986 or s 6 of the Contractual Remedies Act 1979. Relevant to this case. there was no real challenge to the factual findings of French J. [5] In the High Court. broadly similar to a warrant of fitness in New Zealand. which are essentially national standards. The advertisement showed a photograph of a Volvo truck and gave Mr Miller’s contact details in New Zealand.4 Before a truck can be driven on the road in Queensland it must be registered. but as a result of the alleged non-compliance with regulatory requirements in the buyer’s country. Some further factual background Regulatory requirements in Queensland [8] The essential facts are not in dispute. then trading as Transport Sales Canterbury Limited. These trucks are good buying!!!!!!! Dealer inquiry welcome. we set them out in full: • Mr Miller was aware the Smallmons were purchasing the trucks to use in their business. • Mr Miller told them he could put them in touch with Australian contractors who had brought in the other trucks he had sold to Australians. and the other was Mr Walsh who did the ADRs.5 [12] The Smallmons duly travelled to Auckland and met Mr Miller at a truck yard where they saw between 20 and 30 trucks on the yard. At [23]. This would necessitate obtaining modification plates for the trucks in Queensland. As part of the Smallmons’ business involved the cartage of water. He said he had heard that they were looking at some trucks for sale in New Zealand. which he knew was based in Queensland and which he knew involved water cartage and landscaping. [13] In the High Court. • Mr Miller never gave them any advice on Australian registration requirements and the Smallmons never asked him. Before they left Queensland the Smallmons received a telephone call out of the blue from a Mr Kevin Walsh who had been asked by Mr Miller to contact them. The Smallmons inspected the trucks in order to see whether they would comply with the ADRs and in particular whether the trucks complied with the three things mentioned by Mr Walsh. The photograph in the advertisement was one of the Allora trucks. 68 . • The Smallmons told him the reason they wanted to replace their existing fleet was because of the age of the vehicles and the large distances they had travelled. if the Smallmons decided to buy the trucks. • At no stage did Mr Miller draw to the Smallmons’ attention that the trucks did not have compliance plates. 5 6 At [18].6 As these findings were not challenged on appeal. One was a customs broker. Mr Walsh intimated that. It is unclear whether Mr Miller actually named the two contractors or just said he would arrange for them to contact the Smallmons.course of which Mr Miller confirmed that his company had sold the trucks to the Allora operator. and he would be happy to attend to the ADRs on their behalf. once they returned to Queensland. Mr Walsh was an ADR compliance engineer. the Smallmons noted black plates screwed on the inside door of the trucks. The Judge found that the most likely explanation for him saying nothing about compliance plates was that he would have known the plates would be missing but would not have considered it a matter of concern. During the course of their inspection. He told them that for compliance purposes it was important to look for three things when inspecting the trucks – the exhaust. Mr Walsh did not advise the Smallmons to check whether compliance plates were fitted to the trucks. • They told him they would have to sell their existing trucks to be able to pay for the new ones. and that he had some Volvo FM12 trucks for sale. a Mr Tucker. The Smallmons did not tell him their work sometimes took them into New South Wales. the Judge made factual findings that were described as “common ground”. the inspection confirmed that they would in due course need to make some modifications to the trucks so that they could carry water. • There was never any discussion of any kind as to what was required in Queensland before the vehicles could be registered. • Mr Miller stated he had exported trucks to Australia before and had never encountered any problems. they could call him. the seatbelts and a stamp on the fuel tank. [11] The Smallmons then decided to travel to New Zealand to meet with Mr Miller in August 2006. They assumed these were the compliance plates because they were in the same place where in their experience compliance plates are normally located. • Mr Miller told them the trucks had been assembled in Australia and exported fully made up to New Zealand and were returned Australian goods. A deposit of ten per cent was payable immediately.220. the Smallmons had agreed it was “their responsibility to attend to roadworthies and registration once the trucks arrived in Brisbane”. At [27].7 So far as Mr Miller was concerned. The parties did not enter into a written contract. the Smallmons accepted at the hearing that Mr Walsh and Mr Tucker were in fact their agents and not Mr Miller’s agents. He outlined the cost of the services to be provided by his company. Soon after the Smallmons paid the ten per cent deposit. a customs broker to whom we will refer later. the trucks were held in quarantine by the Australian authorities because they were considered to be too dirty. Mr Miller agreed that TSL would arrange and pay for the trucks to be cleaned and to be shipped to Brisbane. the Smallmons orally agreed to purchase four trucks for the sum of NZ$72. Accepted by trial counsel for the Smallmons: see acknowledgement recorded by the Judge at [31]. 69 .9 These two were “his guys” only in the sense that Mr Miller had recommended them and put them in touch with the Smallmons. At [30]. He also knew the trucks he was selling did not have compliance plates and believed the Smallmons must have appreciated that because that was the reason they needed to engage the services of Mr Walsh. The Smallmons thought (erroneously) that the trucks did have compliance plates attached and that Mr Walsh’s function was to do the modification plates and the roadworthies.8 The reference to “his guys” was to Mr Walsh who had already telephoned the Smallmons and to a Mr Tucker. [17] The Judge referred to the Smallmons’ contention in parts of their evidence that. Events leading to delivery [18] In September 2006. Importantly. [15] At the end of the meeting in Auckland. the Judge noted that in cross-examination. Also during September 2006. the ADR compliance engineer. the Smallmons were contacted by Mr Tucker. The Smallmons then 7 8 9 10 11 At [24]. with the balance payable before the trucks left New Zealand. the Smallmons spoke again with Mr Walsh. he was generally aware of the need for compliance plates. as well as paying for cleaning and shipping.10 Mr Miller testified that he was not aware of what formalities would be required to get the trucks registered in Queensland11 and had not made any enquiries about the Australian requirements because under the contract he did not have anything to do with that side of things. There were delays in securing the release of the trucks. Despite this claim.000 per truck. but was not aware that it was a pre-requisite for registration in Australia. “Grant and his guys” were to arrange for the roadworthies and everything else up to the point when the Smallmons would take the trucks to be registered. the person Mr Miller had recommended they should engage to take care of the arrangements for importing trucks into Queensland. we also deal with the Judge’s findings on the question of responsibility for compliance with the regulatory requirements in Queensland.00 and that amount was paid on 18 September 2006. There is no dispute that these were paid by the Smallmons direct. They discussed the modifications that they wanted to make to the trucks for water haulage purposes once they arrived in Brisbane.• Mr Miller never advised the Smallmons they should check out the rules relating to importation and registration. [19] The four trucks left New Zealand on 29 September 2006 and arrived in Brisbane on 2 October 2006. At [29]. Mr Tucker explained to the Smallmons the various matters that needed to be undertaken including arranging for the trucks to have a quarantine inspection. but by 19 October 2006 all four trucks had finally been released from quarantine. Upon arrival. Findings on regulation compliance [16] Because of their centrality to the issues in dispute. the Judge found that the parties “were somewhat at cross-purposes”. [14] With respect to the critical question of compliance plates. On 31 August 2006 they received an invoice from TSL for the balance of NZ$259. following assistance from the Smallmons’ Member of Parliament. However. Eventually. Mr Walsh did not alert the Smallmons about the importance of having fitted compliance plates. Mrs Smallmon attempted to register the first of the trucks at Queensland Transport. She was unable to do so because the truck did not have a compliance plate attached. Queensland Transport and the National Transport Department agreed to issue the Smallmons with an exemption permit for each of the four trucks. although it seems likely that they will be renewed for a further five-year period. According to Mr Tucker’s uncontradicted testimony. The same evidence was given by Mr Tucker who had imported similar trucks on many occasions. Mr Tucker testified that he had seen a box containing all the ADR compliance plates for the Volvo trucks that had been exported to New Zealand and the Pacific. The Judge postulated that “for whatever reason the Australian authorities must have either changed their previous enforcement policy or are now wrongly applying the relevant regulations”. the Smallmons had obtained a ratings letter from Volvo and a letter of compliance. This was because the trucks were intended for export to the New Zealand market and required some minor modifications for that market. the Smallmons sought help from Mr Tucker and others (including a lawyer) in an attempt to persuade the Queensland authorities to register the trucks. another importer of Volvo trucks has been told that any vehicles he wants to bring into Australia in the future must have a fitted Australian compliance plate and that he must apply for vehicle import approval prior to shipping. [23] Mr Tucker had not advised the Smallmons that they needed an authority to import the trucks to Australia. [51] Through Mr Walsh. [21] Subsequently. On this aspect of the case the Judge found: [49] The evidence established that Volvo trucks of the type purchased by the Smallmons were originally assembled in Australia. Attempt to secure registration [20] On 20 October 2006. meaning that the trucks cannot be sold. 70 . At [54]. despite not being fitted compliance plates and the owner having no authority to import. [50] In the past. other Australian purchasers of imported Volvo trucks have obtained registration by providing the authorities with what is called a ratings letter from Volvo confirming the “build spec” and a letter of compliance from a compliance engineer. since their case. The problem was that Volvo for reasons of its own would not release any of the plates. which he did. Moreover. This turn of events surprised the Smallmons as they had understood that they would not need anything other than the modification plates and the roadworthies.arranged for the modifications to be carried out. The permits are due to expire on 21 September 2011. The letter of compliance from the engineer certifies that the vehicle complies with all relevant ADRs applicable as at the date of manufacture. Moreover. But the exemption permits only allow the Smallmons to use the trucks on a restricted basis. she had no authority from the National Transport Department to import the truck. in their case that was held not to be sufficient. Further.13 12 13 At [48]. with the result that they cannot cross the State border into New South Wales. all the trucks were manufactured to ADR requirements and compliance plates made for the trucks but never attached. The permits are not transferrable.12 The evidence was that another operator who purchased similar trucks from TSL only one month earlier had no difficulty whatsoever in obtaining registration in Queensland. the permits restrict the use of the trucks to Queensland. They were unsuccessful. It was then a matter for Mr Walsh to obtain modification plates and the roadworthies. There was evidence that. He was confident the compliance plates for the Smallmons’ trucks would be amongst them. [22] One of the issues in the High Court was why the Smallmons had not been able to register the trucks in Queensland and whether the Australian authorities were correct to decline registration. where the Smallmons have about five per cent of their business. [24] The evidence in the High Court resulted in the following findings that were not challenged on appeal: [55] There is no doubt the four trucks do in fact comply with Australian Design Rules and comply with all relevant ADRs applicable as at the date of manufacture. The existence of a long-standing connection between the parties. It is a defect that can never be remedied unless perhaps Volvo released the plates.cisg. The seller knew or should have known of the requirements because of special circumstances.r.F.  Bundesgerichtshof.  District  Court  for  the  Eastern  District  of  Louisiana. it is the absence of a fitted compliance plate that seems to be the major stumbling block. the seller is not responsible for compliance with the regulatory provisions or standards of the importing country even if he or she knows the destination of the goods unless: a. b. iii.”   (SA)   (13 September 1995) 93/4126.17 the “Italian cheese case” (Court of Appeal. The fact the seller has promoted its products in the buyer’s country.16 [26] The Judge considered a number of overseas decisions and academic articles.    A  translated version of this case can be found online at the CISG Database: www. The deficiency lies in the absence of the compliance plates and the absence of an authority to import.14 Thus the standards set out in art 35(2). Medical Marketing International Inc v Internazionale Medico Scientifica s. I accept he would not have appreciated the significance of that. The fact the seller has maintained a branch in the importing country.15 The Judge reasoned that trucks are ordinarily used for the cartage of goods on the road. “New  Zealand  Mussels  Case”  (8  March  1995)  VIII  ZR  159/94. The buyer drew the seller’s attention to the regulatory provisions and relied on the seller’s expertise.edu. she referred to the leading cases. France). as I have said. Louisiana. The same regulations exist in the seller’s country. including the “New Zealand mussels case” in the Bundesgerichtshof (German Supreme Court). they could not be driven and were therefore not fit for the ordinary purpose”.  Grenoble. and could never be fully registered. ii.    This too can be found at the CISG Database. Special circumstances may include: i. (17 May 1999) Civil Action No. c.  United  States.  Germany.18 and Medical Marketing v Internazionale Medico Scientifica (Federal District Court.F.  Cour  d’appel. At [79]–[80]. 71 .law. 99-0380 Section  “K”  (1). including the requirement that goods be fit for the purposes for which they are ordinarily used. At [83]. The trucks cannot be re-made. Mr Miller knew the trucks did not have a compliance plate. were implied terms that formed part of the contract. [56] While. The Smallmons contention was that “because the trucks were not registerable at the point of sale. M   Caiato   Roger   v   La   Société   française   de   factoring   international   factor   France   “S. High Court judgment [25] The Judge was required to determine the Smallmons’ claim that there had been a breach by TSL of art 35(2) of the Convention on the basis that the trucks were not fit for purposes for which they would ordinarily be used or a particular purpose made known to the seller at the time of contracting.l.  France. In particular.pace. The fact the seller has often exported into the buyer’s country. Grenoble.19 The Judge concluded that the following principles emerged from the authorities:20 i) 14 15 16 17 18 19 20 As a general rule. The Judge held that there was no express warranty in the contract between TSL and the Smallmons relating to registrability of the trucks in Queensland. United States).    A  translated version is available at the CISG Database. At [81]. iv. At [78]. given the fact he had sold other vehicles also without compliance plates and those purchasers had never experienced any difficulty. The trucks purchased by the Smallmons were mechanically capable of being driven on the road. Of those two deficiencies. It was also common ground that at no stage did the Smallmons ever raise the issue of registration requirements with Mr Miller. any reliance placed on Mr Miller’s expertise or knowledge or that of his company about the regulatory requirements in Australia would not in my view be reasonable.” 72 . or it was unreasonable for him to rely. as well as delineating his own field of expertise and knowledge. they could be expected to be able to identify a compliance plate. but was there to be seen. He was thereby delineating the parties’ respective responsibilities. The issues on appeal [33] The central issue is the application of art 35 of the Convention to the sale of the four trucks by TSL to the Smallmons. Further. there was no evidence that Mr Miller knew what the registration requirements were in Queensland. Hence there was no question of breach of art 35(1).24 So the first 21 22 23 24 At [86]. [30] The Judge also held that the same considerations apply under art 35(2)(b) dealing with any particular purpose made known expressly or impliedly to the seller at the time of contract. except where the circumstances show that the buyer did not rely. They were in a much better position to know the registration requirements of their own country than Mr Miller. Transport Sales had exported seven Volvo trucks into Australia. The second is that Mr Miller expressly recommended Australian contractors who would be able to assist the Smallmons with importation and ADR compliance.21 This conclusion was not challenged by the Smallmons on appeal. As experienced transport operators. it could only be on the grounds that Mr Miller and TSL ought to have known about such requirements because of special circumstances. The evidence established that prior to the Smallmon transaction. and in my view in those circumstances it would be wrong to say that Mr Miller or Transport Sales ought to have known. The Smallmons were experienced transport operators. Mr Miller recommended they engage specialist contractors. [100] In those circumstances.23 [31] The Judge concluded on this point: [99] …  the  circumstances  show  it  was  unreasonable  for  the  Smallmons  to  rely  on  Transport   Sales’ skill and judgment. Significantly. Further. on the seller’s skill and judgment. There was no express provision in the contract that the trucks would in fact be registrable in Queensland. The fact the trucks did not have compliance plates was not hidden from them. these are circumstances capable of amounting to special circumstances. the Smallmons had made known to Mr Miller that they wanted to use the trucks in Australia so that use in Australia could be said to be a particular purpose. quality and description required by the contract and which are contained  or  packaged  in  the  manner  required  by  the  contract. [32] As a result the Judge concluded that the Smallmons had failed to establish a breach of art 35(2) of the Convention on the part of Mr Miller or TSL.[27] In terms of interpretation of the Convention. At [98]. Mrs Smallmon agreed with the proposition that the purpose of inspecting the vehicles was to see if they complied with ADRs and that at that stage they were acting on advice from Mr Walsh. which they did. they are outweighed by two other considerations. [28] In the High Court it was common ground that the registration requirements in Queensland are different to those prevailing in New Zealand. for the Smallmons to establish a breach of art 35(2)(a). Article 35(1) provides that: “(1) The seller must deliver goods which are of the quantity. Here. [96] However. [95] As the authorities make clear.22 Accordingly. in my view. At [92]. The first is the terms of the advertisement which stated “landed” at Brisbane. [29] On this issue the Judge held: [94] What is alleged to amount to special circumstances are the facts that Transport Sales advertised in Australia and that Transport Sales had exported trucks previously into Australia. the Judge held that under art 7 recourse to domestic law is prohibited. art 8 is also relevant.25 The aim of the 25 The Act came into force in 1995. usages and any subsequent conduct of the parties. 73 . on the seller’s skill and judgement. due consideration is to be given to all relevant circumstances of the case including the negotiations. the Convention was enacted for New Zealand by the Sale of Goods (United Nations Convention) Act 1994. Applicable legal principles Convention articles [35] There are three relevant articles: arts 7. statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. Article 7 provides: (1) In the interpretation of this Convention. regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. any practices which the parties have established between themselves. 8 and 35(2). in a manner adequate to preserve and protect the goods. in conformity with the law applicable by virtue of the rules of private international law. which provide: (2) Except where the parties have agreed otherwise. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or. (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model. (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract. which opened for signature on 11 April 1980 and entered into force on 1 January 1988. on 22 September 1994. Interpreting the Convention [38] New Zealand acceded to the Convention. [36] Because the intent and conduct of the parties to the contract is in issue.question is: was there an implied term of the contract that the trucks met the requirements for registration in the buyer’s home state. Article 8 states: (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. in the absence of such principles. We will then provide our evaluation of the facts in the light of those principles. (2) If the preceding paragraph is not applicable. (3) In determining the intent of a party or the understanding a reasonable person would have had. As noted. the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used. [37] The key articles are arts 35(2) and 35(3). we will first consider the principles arising from art 35(2) as derived from the international jurisprudence in the form of cases and articles. except where the circumstances show that the buyer did not rely. pursuant to the Sale of Goods (United Nations Convention) Act Commencement Order 1995. (d) are contained or packaged in the manner usual for such goods or. where there is no such manner. or that it was unreasonable for him to rely. Accordingly. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity. when the seller was located in a different country? The second question is: which of the parties had responsibility for obtaining registration of the four trucks in Queensland? [34] These questions involve the application of the provisions of art 35(2) of the Convention to the facts of the case as outlined above. This follows from the requirement in art 7.28 Principles to be distilled from art 35(2) [42] We have already referred at [26] above to the distillation of the applicable principles by French J. Oberster Gerichtshof. Austria. 2009) at [1]. (19 April 2007) 6 Ob 56/07i. “New  Zealand  mussels  Case”  at  bb).31 Just because the seller knows generally of the buyer’s country or the country where the goods are destined. We need only offer some brief elaboration. Oberster Gerichtshof.32 [43] The German Supreme Court did. the seller is not responsible for compliance with the regulatory provisions or standards of the importing country. Heidelberg. concepts and words of the Convention. generally. Austria.  Bundesgerichtshof. Austria.  Karina  Winsor  “What  is  the  CISG?”  [2011]  NZLJ  31. to have regard to “its international character and to the need to promote uniformity in its application and the observance of good faith in international trade”. Austria at [1. 74 . that does not place upon the buyer an obligation to comply with the regulations of that country. and that the standards of the seller’s country specify the standard of ordinary usage. The seminal case is the New Zealand mussels case. recourse to domestic law must be avoided:27 In reading and understanding the provisions. At bb). but experience shows that practitioners and scholars tend to understand words and concepts of the Convention according to their familiar domestic law. must be avoided. or 26 27 28 29 30 31 32 33 Peter Schlechtriem and Petra Butler UN Law on International Sales: The UN Convention on the International Sale of Goods (Springer. This line of jurisprudence suggests that it is incumbent upon the buyer to incorporate the regulatory provisions of their country into the contract. Oberster Gerichtshof. recourse to the understanding of these words and the like in domestic systems.2]. (27 February 2003) 2 Ob 48/02a.  Germany. “New  Zealand  mussels  case”  (8  March  1995)  VIII  ZR  159/94. (13 April 2000) 2 Ob 100/00w. dealing with the interpretation of the Convention. Counsel for the Smallmons accepted at the hearing that this was an accurate summary. As did French J in the High Court at [82]. case law emanating from the Oberster Gerichtshof (the Supreme Court of Austria) confirms that a seller cannot be expected to know all of the rules of the buyer’s country or the country of usage. Austria. in particular the domestic legal system of the reader. Translations of these cases can be found at the CISG Database.30 More recently. (25 January 2006) 7 Ob 302/05w. The international jurisprudence concerning art 35(2) has established that.    A  translation  can  be  found   at the CISG Database. however. [40] As urged by the late Professor Peter Schlechtriem.29 where the Supreme Court of Germany stated that a buyer cannot expect compliance with the specialised public law provisions of the buyer’s own country. [41] We therefore propose to consider only the international authorities and articles in interpreting art 35(2). These are when the relevant regulatory standards of the buyer’s country:33 (a) exist in the seller’s country as well. making specific reference to the leading international decisions. This seems to be self-evident.     Peter Schlechtriem “Requirement   of   Application   and   Sphere   of   Applicability   of   the   CISG”   (2005)   36   VUWLR   781   at   789–790. Oberster Gerichtshof.26 [39] Counsel for the Smallmons properly acknowledged that resort to authorities dealing with domestic law is not permissible. We consider that this concession was properly made. This text also provides useful commentary on art 35(2)(a) as it applies to public law provisions of particular countries at [139]. (27 February 2003) 2 Ob 48/02a.Convention was to seek to achieve the harmonisation and unification of trade law regarding international sales of goods. For a useful discussion of the Convention see: Peter Winship “Changing  Contract  Practices  in  the  Light  of  the  United  Nations  Sales  Convention:    A  Guide  for  Practitioners”  (1995)  29   International  Lawyer  525. Oberster Gerichtshof. Thus the Convention is to be given an autonomous interpretation requiring the Convention to be interpreted exclusively on its own terms and applying Convention-related decisions in overseas jurisdictions. identify certain situations where the requirements of the buyer’s country can be taken into account. in statements not directly necessary to the reasoning. (17 May 1999) Civil Action No.org>.l. [47] With respect to proof of particular circumstances.  Cour  d’appel. French J   also   used   the   term   in   the   High   Court   decision   (see   [26]   above).  Spain. “such as the existence of a seller’s branch office in the buyer’s state”.34 [45] In the United States. the seller may be able to point to proof of such special circumstances. the Audiencia Provincial de Granada (an appellate court in Spain) seemed to uphold the principle that the seller is not expected to know the public law provisions of the buyer’s country or the ultimate destination of the goods. These are illustrative of the factors that may enable a buyer to establish liability on the seller. Where the reasonableness of the buyer’s reliance on the seller’s skill and judgment is in issue under art 35(2)(b). See Medical Marketing International Inc v Internazionale Medico Scientifica s. United States. the seller often exports to the buyer’s country. [48] Finally.”   (SA)   (13 September 1995) 93/4126. the District Court for the Eastern District of Louisiana essentially adopted the reasoning of the New Zealand mussels case. Oxford University Press.r. 990380  Section  “K”  (1). It seems that this principle can apply to the provisions of both art 35(2)(a) and 35(2)(b). despite the general principle to the contrary.uncitral. or the seller has promoted his or her products in that country.r. which can be accessed at the CISG Database.  Conformity  of  the  goods  and  third  party  claims   – Art   35”   in   Ingeborg   Schwenzer   (ed)   Schlechtriem & Schwenzer: Commentary on the UN Convention on the International Sale of Goods (CISG) (3rd ed. due to actual or deemed knowledge on the part of the seller.  Grenoble. we note that the existence of an opportunity by the buyer to inspect the goods before the contract is entered into may be relevant to the analysis.    Commentary  on  this   75 .36 These cases encourage the conclusion that the existence of such “special circumstances”37 may lead to the seller being liable for breach of public law and regulatory requirements in the buyer’s country.(b) the buyer has pointed them out to the seller and thereby relied on and was allowed to rely on the seller’s expertise. a long-standing business connection between the parties. the seller knew or ought to have known of the regulations at issue.F. [44] The German Supreme Court went on.  Audiencia   Provincial  de  Granada. or (c) the relevant provisions in the anticipated export country are known or should be known to the seller due to the particular circumstances of the case. “Frozen  chicken  legs  case”  (2  March  2000)  546/1999. The  term  “special  circumstances”  was  used  in  Medical Marketing International Inc v Internazionale Medico Scientifica s. Oxford. M   Caiato   Roger   v   La   Société   française   de   factoring   international   factor   France   “S. the examples identified in the cases and the literature include the seller maintaining a branch in the buyer’s country. For  useful  academic  commentary  see  Ingeborg  Schwenzer  “Section  II.  District Court for the Eastern District of Louisiana. Case law in France has also shown that the business relations of the parties may be important in determining non-conformity pursuant to art 35. The exception was when. the seller making regular exports to the buyer’s country and the provision of goods in the buyer’s country.38 [46] The international authorities and articles support the proposition that the seller will not be liable for goods that do not conform to the regulatory provisions or standards of the buyer’s country unless the seller knew or ought to have known of the requirements because of special circumstances.F.l. due to special circumstances. the seller already had a business connection with the buyer for some time. In the “Frozen chicken legs case”. A translation of this case can be found at the CISG Database.     “Special”   in   this   case   simply   means   that   particular circumstances exist that warrant the imposition of liability on the seller. to describe the circumstances in which the seller knew or ought to have known of the regulations at issue. to list different circumstances in which a court might find that the seller knew or ought to have known the relevant public law provisions of the buyer’s country. see also commentary on art 35 at   “UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Good – 2008 revision”  UNCITRAL  <www.39 It was also material in this case that the buyer had had an opportunity to 34 35 36 37 38 39 Ibid at ccc).35 The Court stated that the decision of the German Supreme Court was authority for the proposition that the seller was not obligated to supply goods that conformed to public law provisions of the buyer’s country. These circumstances included that the seller had a branch in the buyer’s country. 2010) at [17]. France. where a link to a translated version exists. on the seller’s skill and judgment. At [30]. [51] Counsel further submits that it was not necessary for the Judge to go on and consider art 35(2)(b) because this sale did not involve the making known by the buyers to the seller of any “particular purpose”.inspect the frozen chicken legs. Accordingly. 76 . further pushing responsibility for non-conformity with regulatory provisions towards the buyer. Mr Dale emphasises that the problems with registration in Australia were unforeseen by both the buyers and the seller. Mr Dale submits that the existence of such does not arise under art 35(2)(a). [53] By way of fall-back position Mr Dale submits that. as was the case. But counsel submits that art 35(2) of the Convention places the risk of non-registration with the seller. Mr James relies on the international authorities and articles as supporting the principle applicable to art 35(2)(a) and (b) that the seller is not responsible for 40 case can be found at the CISG Database.40 A further aspect of this challenge is counsel’s submission that there was no proper pleading by the respondents that neither the engagement of Messrs Walsh and Tucker. [52] As to the question of “special circumstances”. resulted in responsibility for registration of the trucks in Queensland being placed on the Smallmons. there were such circumstances in this case. if it is necessary for the Smallmons to establish special circumstances. Hence the fact of inspecting the goods may well be relevant to the particular circumstances of the case. This is because art 35(2)(a) itself puts the seller at risk. noting that art 35(2)(b) alone refers to circumstances showing that the buyer did not rely. or it was unreasonable for him to rely. These submissions therefore involve a challenge to the Judge’s conclusion that the Smallmons “agreed it was their responsibility to attend to roadworthies and registration once the trucks arrived in Brisbane”. Submissions of the parties Appellants’ submissions [49] For the appellants. He submits that it is sufficient for the Smallmons to prove that the trucks could not be registered. Mr Dale submits in this context that at the trial counsel for the respondents never directly put to the Smallmons the proposition that “Grant did not say he would take care of everything”. [50] Counsel submits that the seller is liable under art 35(2)(a) because the inability to register the trucks means that they are not fit for purpose. Respondents’ submissions [55] For the respondents. This is because there is no reference to this concept in the text of the article. nor any other factual aspects. [54] The one factual aspect that Mr Dale advances is that the Judge was wrong to ignore the Smallmons’ evidence to the effect that “Grant [Miller] and his guys” were to arrange for the obtaining of the roadworthies and everything else up to the point of the Smallmons taking the trucks along to have them registered. The trial Judge erred in finding that such special circumstances were outweighed by the twin factors of the reference in the advertisement to “landed in Brisbane” and the recommendation by Mr Miller to the Smallmons of two Australian advisers who could assist with importation of the trucks and registration. Any principle from the international jurisprudence that the seller is not responsible for compliance with regulatory requirements in the buyer’s country is a general one only and open to proof to the contrary. They comprised the fact that the seller had previously exported trucks into Australia and promoted the sales of trucks by advertisement in Australia. Counsel draws a distinction between the text of the two provisions. It is not necessary for the buyers to go on and prove that the seller ought to have known of the unusual circumstances in Queensland that prevented registration. no issue arises as to whether or not it was reasonable for the buyers to rely on the seller’s skill and judgment about the regulatory position in Australia. and are the result of “unusual rulings” by the regulatory authorities in Australia. like the Judge. it was common ground that the registration requirements for trucks in Queensland were different to those applicable in New Zealand. [59] With respect to the first inquiry. Here the starting point is that the goods must be fit for purpose. Our evaluation Article 35(2)(a) [58] Article 35(2) is premised on the fact that the parties have not agreed otherwise. As noted at [20] above. in Australia. Mr James submits that the circumstances relied on by the buyers as special circumstances showing that the seller ought to have known about the regulatory impediments in Queensland are not decisive: the general principle continues to apply in the seller’s favour. [57] As an alternative argument. TSL had sold seven used Volvo trucks to buyers in Australia. second. in an international sale of goods generally the seller is not responsible for compliance with the regulatory provisions or standards of the buyer’s country. the particular circumstances identified by the Judge as relevant to the analysis are: first. the claim under art 35(2) must fail. The Judge found (and this was not challenged on appeal) that there was no evidence that Mr Miller knew what the registration requirements were in Queensland. under art 35(2) of the Convention. we are satisfied that difficulties experienced by the Smallmons in registering the trucks in Queensland could fairly be characterised as part of the public law or regulatory requirements of the buyer’s country. The next question concerns any terms to be implied under art 35(2). [56] Further. Despite this being a general principle. UN Law on International Sales: The UN Convention on the International Sale of Goods. because the parties have agreed otherwise. there was no evidence Mr Miller actually knew about either requirement. Here.43 The Judge correctly observed that these factors are “capable of amounting to special circumstances”.42 [61] For the purposes of the application to the facts of the principle governing regulatory requirements. Mr James refers to factual findings that support the conclusion that art 35(2) is not engaged at all. As stated in the text by Schlechtriem and Butler:41 Article  35(2)  …  sets  out  what  reasonable parties would have agreed upon had they put their mind to it. It follows that. unless particular circumstances can be shown by the Smallmons to demonstrate that Mr Miller knew or ought to have known about either of these requirements. at no stage prior to contracting with TSL did the Smallmons raise the issue of registration requirements with Mr Miller. the Judge found that there was no express term in the contract relating to the registrability of the trucks in Queensland. the advertising of trucks for sale in Australia by TSL and. Both of these factors are quintessentially issues for the regulatory authorities. This finding was not challenged on appeal. nor any other factor. At [95]. he submits it applies for the seller’s benefit in this case. 77 . the reasons why the first of the trucks could not be registered were that it did not have a compliance plate attached and the absence of an authority to import. This is important since it means that the first inquiry has to be what the parties agreed  upon  and  only  if  that  inquiry  is  not  satisfactory  is  Article  35(2)  …  applicable. is sufficient to justify a departure from the general 41 42 43 44 Peter Schlechtriem and Petra Butler. Mr James refers to the portions of the evidence supporting the trial Judge’s factual findings to this effect. Further. Judgment of French J at [92]. including Queensland Transport and the National Transport Department. prior to the sale to the Smallmons. the fact that. As already noted. At [94]. at [135].44 But.compliance with the regulatory provisions or standards of the buyers’ country. Mr James submits that this proposition was sufficiently signalled in the pleadings to be available to support the judgement in the High Court on this additional basis. [62] On the question of whether he ought to have known about them. we are satisfied that neither of these circumstances. [60] Then there is the principle that.   Germany.principle under art 35(2) because TSL ought to have known about the regulation provisions or requirements governing registration of the trucks in Australia. We do not agree. given their experience. The Judge was satisfied that. in all previous sales to Australia. Moreover. We agree. [68] As the German Supreme Court stated in the “Frozen pork case”:47 It is true that a seller is generally not liable for the goods meeting the public law regulations valid in the country of consumption. [66] Another circumstance that we consider to be material is the knowledge and experience of the Smallmons. [67] Counsel for the Smallmons also relies on the “Frozen pork case”46 as authority supporting the proposition that the trucks were non-conforming under art 35(2)(a) because they could not be registered in Australia. In the advertisement the seller made no promises about registration or the provision of services to achieve registration in Queensland. [65] It was against this background and state of Mr Miller’s knowledge that the sale to the Smallmons took place. In our case. [63] With respect to the promotion by TSL of trucks for sale in the Australian trade magazine. however. As noted by the Judge. The contaminated state of the pork product sold led to the issue of protective regulations. Messrs Walsh and Tucker. Mr Miller was not aware that the buyers had encountered any problems with the import regulations. The appellants submitted that this case formed a contrary principle to that espoused in the New Zealand mussels case.45 they were experienced transport operators. We agree with the Judge’s view that Mr Miller was thereby delineating the respective responsibilities of the parties to the contract. indicating that the seller’s role ceased at the latest upon delivery by ship onto the wharf at Brisbane. having received preliminary expert advice from Mr Walsh about matters to watch out for. who could assist with the importation. At [I]. the advertisement offered shipping prices ex New Zealand or landed at Brisbane (or elsewhere). if any. [64] The fact that TSL had previously exported seven Volvo trucks to Australia likewise can have little weight as a particular circumstance in overcoming the general principle. despite the trucks not having compliance plates attached and the owners not having an authority to import. the regulations that were the source of the problems for the Smallmons well pre-dated the sale and importation of the trucks. In this case. can be placed on this factor. the product itself caused the issuance of protective regulations under public law. including the country of origin. they could be expected to be able to identify the presence or absence of a compliance plate. but also throughout the entire European Union.   Bundesgerichtshof. 78 . and not only in the ultimate buyer ’s country (Bosnia-Herzegovina). we do not consider much weight. At the same time. “Frozen   pork   case”   (2   March   2005)   VIII   ZR   67/04.     Translation   available   at   the   CISG   Database. they had the opportunity to (and did) inspect the four trucks in New Zealand. Mr Miller expressly recommended to the buyers two expert Australian contractors. Hence they were in a much better position than Mr Miller to know the registration requirements of their own country. ADR compliance and registration processes. [69] The German Supreme Court went on to state that under art 35 (1)(a) the circumstances in the seller’s country are generally controlling as the seller cannot be expected to know all relevant 45 46 47 At [99]. which had prohibited the sale of these goods. including the country of ultimate consumption. as the meat was not resalable. The regulatory authorities had facilitated the registration process. Belgium. As the Judge found. Mr Miller was informing the buyers about the limits of his own expertise and knowledge about regulatory requirements within Australia. The fact that the trucks did not have compliance plates on them was not kept from them. First. It was there for them (and anyone else) to see. The German Supreme Court found that the goods did not conform with the contract within the meaning of arts 35(1) and 35(2)(a). The “Frozen pork case” involved the sale of meat foodstuffs at risk of contamination and subject to regulatory provisions in Europe. or in achieving registration in Queensland. We are satisfied there is clear evidence that both Mr and Mrs Smallmon accepted that the parties agreed that these matters were their responsibility. Both the topic generally and the specifics of the issue of responsibility for registration in Queensland were adequately raised at trial by counsel for the respondents. [70] For all of the above reasons.50 (c) the fact (accepted by the Smallmons) that Mr Miller was not aware of what formalities would be required to get the trucks registered in Queensland and had made no inquiries about the Australian requirements because under the contract that was not his responsibility. it being unreasonable for them to have done so in all the circumstances. In our view. There was thus ample justification for the Judge’s finding on the point.51 (d) the Smallmons subsequently worked with Messrs Walsh and Tucker to arrange importation. or if the seller is familiar with such provisions of the buyer’s country due to particular circumstances.48 She did so on the basis that the buyers made it known to Mr Miller that they wanted to use the trucks in Australia. we reject the suggestion by Mr Dale that the negative of the proposition asserted by the Smallmons was not properly put to them. or that it was unreasonable for them to rely. The factual challenge [73] We have considered the evidence touching the question of the responsibility for attending to roadworthies and registration once the trucks arrived in Brisbane. Is art 35(2) engaged? [74] It remains for us to address the alternative argument raised by the respondents for dismissing the appeal. That could be said to be a particular purpose in terms of art 35(2)(b).52 and 48 49 50 51 52 At [97]–[100]. this case does not support the appellant’s case. It concerns whether art 35(2) is engaged at all. At [30]. Such an argument was not dealt with by the Judge. 79 . We agree with that conclusion. The fact that it involved goods destined for human consumption and suspected of being contaminated (as compared with fully-functioning trucks) further distinguishes it from the present case. At [34]–[35]. Further. [75] We consider that it is open to the respondents to contend that the parties agreed as part of the contract that the buyers would be responsible for obtaining registration of the trucks in Australia. Article 35(2)(b) [71] The Judge also analysed the facts by applying art 35(2)(b). The same facts as described above were used by the Judge to support the conclusion that the buyers did not so rely. This follows from the factual findings set out below: (a) the Smallmons’ acceptance that Messrs Walsh and Tucker were their agents: they were only “his [Mr Miller’s] guys” in the sense that he was the person who recommended them and put them in touch with the Smallmons. on the seller’s skill and judgment. We deal with the pleading point in the next section. we are satisfied that there is no proper basis upon which the Smallmons can establish that the general principle does not apply on the ground that Mr Miller ought to have known about the regulatory standards or requirements of Australia. At [29]. [72] Such analysis calls for an assessment of whether there were circumstances that show that the buyers did not rely. At [31].provisions in the buyer’s country or in the country of the ultimate consumer.49 (b) the Smallmons’ acceptance that it was their responsibility under the contract to attend to roadworthies and registration once the trucks arrived in Brisbane. The situation is only different if the regulatory or public law provisions in the seller’s and buyer’s country are the same. ADR and registration requirements (including the modifications) in Australia. [79] There followed a pleading of a number of terms said to be implied in the contract as a matter of law: a. the Smallmons were found to have agreed to such delineation. … d. It follows that any risk that the goods could not be registered must lie with the Smallmons.(e) the Smallmons’ acceptance that TSL’s responsibility was limited to cleaning and shipping the trucks: TSL never agreed to arrange importation and registration. In particular. 80 . The parties agreed that conforming with the regulatory requirements (including importation and registration) in Australia was the buyer’s responsibility. Australia. In terms of such responsibility. as that was the Smallmons own responsibility. and intended use by. age and kilometre reading (the Trucks). b. These relevantly included: a. … (d) [81] 53 54 55 They say the costs were never paid as referred to in (d)(iii). only shipping with the Plaintiff paying their own agent to attend to import and export. the respondents pleaded relevantly: (a) They never agreed to export and import. the parties must be treated as having agreed otherwise. d. This  can  be  adduced  by  the  parties’  intentions:  art  8  of  the  Convention. the pleading in the statement of defence was: At [69]. In terms of the opening words of art 35(2). The First Defendant had requisite knowledge and ability in the area of the export of trucks from New Zealand and the import of trucks into Australia. They deny that they needed to pay such costs and say that no claim has [ever] been made for it as it was never agreed to by the First and Second Defendants.55 [77] Having accepted that the Judge’s factual findings could not be challenged. this evidence and other findings giving rise to supporting inferences. For example some of the matters listed as common ground set out at [13] above. With respect to the implied terms. the Plaintiff would make the following payments: … iii. to enable it to import the Trucks into Australia in a manner which would allow for the Plaintiff’s full business use and in a timely manner. In consideration for the purchase and export of the Trucks. c. The reasonable costs of the First Defendant and its duly authorised agents incurred in the export of the Trucks from New Zealand into Queensland. But they denied the allegations as to responsibility to arrange the importation of the trucks into Australia via its agents. We do not agree. and The First Defendant had the requisite knowledge and ability to determine the correct documentation or authorities needed for import of the Trucks from New Zealand into Australia for the Plaintiff’s full business use and in a timely manner. The First Defendant would arrange for the export of the Trucks from New Zealand and their importation into Australia. b. The First Defendant agreed to sell to the Plaintiff four Volvo FM12 trucks of a specified type. thereby delineating that he was not accepting any responsibility for this process. [78] The Smallmons’ statement of claim pleaded that there was an oral contract between the parties with certain express terms. the Plaintiff in its business. [80] The respondents admitted the agreement to sell the four trucks to the Smallmons. Mr Dale responds by contending that the respondents did not adequately plead that the contract placed the responsibility for dealing with importation and registration on the Smallmons.53 [76] In our view. The First Defendant warranted that the Trucks were fit for the purpose of. The First Defendant and its duly authorised agents would exercise reasonable care and skill in carrying out the terms of the contract.54 provides a proper foundation for the proposition that Mr Miller made no promise as to the registerability of the trucks in Queensland. via its agents. which was an essential condition for the conclusion of the contract. the machinery turned out to be totally unfit for the particular use made known to the seller before the conclusion of the contract. c) That they had the requisite knowledge and ability to determine the correct documentation or authorities needed for import of the trucks from New Zealand into Australia. the Court found that the seller had failed to deliver conforming goods (art. During the negotiations. THAT they deny each and every allegation contained in paragraph 16 of the Plaintiff’s statement of claim and say that no warranty was given as to:a) Their fitness or purpose. It was thus open to the Judge to make the findings she did as summarised at [75] above. as from the time it was installed. the Court rejected the seller’s argument that notice of non-conformity was untimely (Art. given her findings on art 35(2).14. Quantum of damages [83] As the Smallmons’ arguments as to liability have failed. the buyer also informed the seller of the difficulties incurred by other companies previously entrusted with the recycling. however. Indeed. the machinery was also not capable of reaching the promised production volume. Had we been required to do so. the defects could not be repaired by the seller’s technicians even after several attempts. the machinery turned out to be defective and not capable of reaching the promised production level. 39(1) CISG). Result [84] The appeal is dismissed. The Court held that the contract was governed by CISG (art. had it been necessary for us to do so we would have been prepared to uphold the respondents’ alternative argument that art 35(2) is not engaged. declined any responsibility. the buyer sent a sample of the goods to the seller. We note that the Judge did not consider them either. Upon installation. The buyer notified forthwith the seller of non-conformity. given the state of the evidence and the number of questions requiring resolution. there is no need for us to deal with any issues of quantum of damages. so as the latter could be aware of the specific features of the goods to be processed. there was a clear engagement by the parties as to where the contractual responsibility lay for arranging importation and registration in Australia. 1(1)(a) CISG). ITALY. Therefore. it is likely that. 35 CISG). Furthermore. b) That they had the requisite knowledge and ability in the area of the export of trucks from New Zealand and the import of trucks into Australia. That was a live issue at trial. 13 DECEMBER 2001 (PLASTIC BAGS CASE) An Ecuadorian buyer and an Italian seller concluded a contract for the sale of machinery to be used in the recycling of plastic bags. As to the merits. but it continued to inform the seller or its agent of any additional defect it had discovered subsequently. arguing that the buyer had not properly used the machinery and had used material other than that of the sample. Not only did the buyer give notice of the defects immediately after the installation of the machinery. TRIBUNALE BUSTO ARSIZIO. Since the seller. 81 . The seller assured the buyer that the machinery would fit the particular purpose made known to seller and that it would reach a specific level of production. we would have sent this aspect back to the High Court. [82] In the light of the above pleadings. the buyer brought an action claiming avoidance of the contract. On 17 June 2004. reference is made to page 14 of the record. According to the Court the buyer was not under a duty to indicate also the cause of the defective functioning of the machinery. The Uganda National Bureau of Standards declined the import of the shoes by letter of 24 June 2004. LANDGERICHT.. among them high-heel woman’s shoes. GERMANY.The Court also held that the buyer’s notice was sufficiently specific (Art. The Buyer contends that the shoes that were delivered had not been in conformity with the contract.e. i.750 EUR). as the containers had been 82 . 49 CISG differs from the “reasonable time” ex Art. Buyer also states that the goods could not be examined in Mombassa because of international regulations on freight and customs. For the wording of that statement. 11 APRIL 2005 [2-26 O 264/04] (USED SHOES CASE) The Plaintiff [Buyer] is a society that has its place of business in Kampala. With respect to the timeliness of the notice of non-conformity. thus at a total price of 30.750 EUR. with slight signs of use. The Buyer had the goods transported to Kampala then. where it examined them on 16 June 2004. 49(2) CISG). it states that the Seller had known that the shoes would be forwarded from Mombassa to Uganda.. though without mentioning Art. the Buyer reprimanded the Seller for the bad condition of the goods. quality class one and 360 bags of used shoes. it bought from the Seller 360 bags of used shoes.000 kg each) at a price of 27. avoidance has to be declared only after it appears that the non-conformity amounts to a fundamental breach which cannot be otherwise remedied (in the case at hand: only after the buyer becoming aware that all the seller’s attempts to make the machinery fit for the particular purpose had failed). 7(1) CISG. The goods sent by the Seller arrived in Mombassa on 26 April 2004. In fact. Uganda. the Court held that the buyer had declared the avoidance of the contract within a reasonable time (Art. it follows that the starting point of the time limit for declaring avoidance is not the same moment as that of the time limit for giving notice of non-conformity.e. Since in the system of the Convention the remedy of avoidance of contract represents a last resort as compared to all the other remedies available to the buyer. expressly stated that the principle of good faith in the performance of the contract applies also “under international law”. i. After the Buyer had paid the last installment of the purchase price on 18 May 2004. The Buyer complained about the condition of the goods again by a letter of 23 June 2004 and set an extension until 22 July 2004. Quality class two means shoes of good quality. FRANKFURT (MAIN). without rips or holes and if at all with only slight. as it contained a description of the defects as they appeared.000 EUR plus C&F FOB Mombassa. Quality class one consists of used shoes in a very good condition. It declared the shoes to be unfit for usage and recommended their destruction at the parties’ cost. inline-skates and shoe trees. Finally. 39 CISG with respect to both its starting point and its length. Uganda. In this respect the Court. and that in in the case at hand to avoid the contract without waiting the outcome of the attempt to cure the defects would have been contrary to such principle. The Bureau stated that the shoes were not acceptable for the Ugandan market because of their bad and unhygienic condition. 39(1) CISG). Instead of the quality agreed upon. the Court stated that the “reasonable time” ex Art. minor signs of use. The Buyer declared avoidance of the contract by letter of 2 July 2004. all the more so as it in the case at hand not even the seller could provide the necessary information. In reaching this conclusion. whereas non-conformity has to be notified as soon as it is discovered or ought to have been discovered (in the case at hand: as soon as the machinery was put into operation). it received the original Bill of Lading document from the Seller on 24 May 200[4]. Kenya (3. but also without rips or holes. quality class two (9. Because of an announcement on the Internet placed by the Defendant [Seller]. the bags had only contained defective and unusable shoes. precluded from relying on a lack of conformity (Art. The Convention on Contracts for the International Sale of Goods (CISG) is applicable to the present dispute. however. a) The Seller has fundamentally breached the contract concluded between the parties by delivering shoes not in conformity with the contract. 1(1)(a) CISG). The Buyer detected the non-conformity of the shoes delivered on 16 June 2004 in Kampala. The Seller was thus given notice of the lack of conformity only one day after it had been detected. Uganda and gave notice to the Seller on 17 June 2004. the examination of the goods was to be conducted there. Uganda since 1 March 1993.  The   Seller has requested that the claim be dismissed. 38 CISG). which states the number of the bags as well as the sender and recipient of the goods. REASONS FOR THE DECISION The Buyer’s claim is admissible but not justified. The Buyer argues that paying additional customs in Kenya would have been an unreasonable burden. however. Kenya was the goods’ contractual destination. The Buyer demands reimbursement of the purchase price as well as of the costs incurred such as customs. In addition to the parties’ arguments stated here. b) The Buyer is. however. The examination of the goods. reference is made to the memoranda that have been added to the file. 74. 2. the shoes delivered were not in conformity with the quality classes one and two agreed upon in the contract. 38(2). The  Buyer  has  requested  the  court  to  order  the  Seller  to  pay  EUR  62. According to this letter. assume in favor of the Buyer that the period for examination did not begin before 24 May 2004 as this is the date when the Buyer received the original Bill of Lading document after having paid the last installment of the purchase price. An examination in Mombassa would have required damage to the customs seal and would thus have caused a payment of customs duty for the goods in Kenya. as the contract is for the sale of goods and the parties have their place of business in different States which are parties to the Convention (Art. 45(1)(b). the Buyer was obliged to examine the goods within the shortest period practicable under the circumstances. But even under the assumption that this was the date when the time to examine the goods began. 38(1) CISG. 39(1). This is because the Buyer did not examine the goods soon enough and also did not give notice of the nonconformity of the goods within a reasonable period of time. According to Art. 8[4](1) CISG nor under any other provision.sealed in Germany. too late. The fact that this document refers to the goods delivered can be inferred from the wording of the letter and the enclosure. The goods arrived in Mombassa on 26 April 2004. Therefore. it is assumed that the goods had been in the same bad condition before they arrived in Mombassa. 1. It also contests the amount of the damage. The Seller argues that the notice of non-conformity of the goods was not sent in time. Mombassa. This can be inferred from the letter by the Uganda National Bureau of Standards of 24 June 2004 (page 14 of the record) according to which the shoes were in a bad and unhygienic condition and not acceptable for the Ugandan market. and consequently the notice was.63  plus  interest  8  %  …  .301. The Federal Republic of Germany has been party to the Convention since 1 January 1991. Art. As the Seller itself has stated that shoes are not perishable items and therefore cannot “rot” in a container in a warehouse (page 55 of the record). The Buyer is not entitled to any payment under Arts. The court will. handling fees and freight costs. the notice 83 . 6. 38 para. The Buyer cannot rely on Art. 39 para. Handbuch zum Einheitlichen UN-Kaufrecht. Uganda. 9). because the Buyer redirected the shoes to Kampala. The fact that the Buyer has its place of business in Uganda is insofar insufficient.” The strict measure of § 377 HGB cannot be applied here (Schlechtriem/Schwenzer. The Buyer has not convinced the court that it did not have a reasonable opportunity to examine the goods before they were forwarded (Art. the court cannot see why opening the containers would have been inadequate or unreasonable in the present case. questionable. Eventually. 38 para. It was free to agree upon a different destination with the Seller. Consequently. which is three weeks after the time for examination started. 15). the Buyer had sufficient time to organize and conduct the examination of the goods in Mombassa. The non-conformity of the goods could have been detected by only looking at a sample. The Buyer’s argument that the goods could not be examined in Mombassa because of international regulations for freight and customs as the customs seal would have been damaged which would have 84 . The e-mail of 13 April 2004 (page 91 of the record) is irrelevant in this context as it was sent after the conclusion of the contract. does.“cause them to be examined”). the Seller could expect that it would be conducted within a short period of time (MüKo/Benicke. as it was only made on 17 June 2004. 38 para. In addition. 31). before Art. It was under no pressure of time as the goods were not forwarded immediately after their arrival in Mombassa. As shown above. As the examination did not require much effort. This question. 38 para. Repacking which could have caused costs was not necessary as well (Achilles. In addition. did not need to fly to Kenya itself to examine the goods. 16. the Buyer had no right to postpone the examination until the goods had arrived in Uganda. Art. 38 para. 1). 38(1) CISG . It is. The Seller has contested this. Art. However. 38(3) CISG). the inconvenience of a flight from Uganda to Kenya cannot be an argument against the Seller. however. Article 38(3) would only be applicable if the Buyer did not have a sufficient possibility to examine the goods and if the Seller knew or ought to have known the possibility that the goods would be forwarded. CISG Vol. The Buyer had known for several weeks that the goods had arrived in Mombassa and would have been able to organize an examination (cf. 4. Handelsgesetzbuch §§ 373-406. The shoes were packed in simple plastic bags which could be opened without difficulties and without destroying the packaging (Schlechtriem/Schwenzer. Kommentar zum UNKaufrechtsübereinkommen (CISG). The Buyer. or respectively its manager. 7). MüKo/Benicke. 38. as the Buyer itself has chosen Mombassa as the goods’ destination. The Buyer has not presented any facts that would justify a longer period. In addition. Achilles. 38 para. Honsell. after they had arrived in Mombassa and the goods were examined immediately after their arrival in Uganda. Art. the goods were forwarded three weeks after the Buyer had received the Bill of Lading and seven weeks after their arrival in Mombassa. 25. Art.was made too late. 38(3) is generally applicable in this case. Kommentar zum UN-Kaufrecht. 17). an examination that did not take place until more than three weeks had passed has to be regarded as too late and unreasonable in international commerce. 38(1) CISG does not give a special period of time but only states that the goods have to be examined “within as short a period as is practicable in the circumstances. Art. 38(3) CISG according to which the examination can be postponed until the goods have arrived at their final destination. ed. Art. the packaging did not have any distinct features that would have made an examination on the spot unreasonable. It could have ordered somebody else to examine the goods (Art. which is in dispute between the parties. whether the Seller knew or ought to have known of the possibility that the goods would be forwarded to Uganda at the time the contract was concluded. para. Art. not need to be decided. however. The goods were neither complicated technical equipment nor was it necessary to assemble or process them in order to examine them (Schlechtriem/Schwenzer. The argument presented by the Buyer that it would have been unreasonable to fly from Uganda to Kenya to examine the goods is not convincing. Art. Reasons for unreasonableness have not been presented by the Buyer. 35(1) and 35(2)(a) CISG.caused an obligation to pay customs duties in Kenya is not convincing. In the case at hand. 3. When the goods were delivered. and applied CISG as the law governing the contract (Art. according to which a person domiciled in a Contracting State (in the case at hand: the seller) may be sued in the Court for the place of performance of the obligation in question. The decision on costs is based on § 91 ZPO. Art. Referring to Arts. 5(1) of the EC Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Brussels. ZPO = Zivilprozessordnung [German Code on Civil Procedure]. 38(3) CISG which could be used to construct a disadvantage for the Seller. Accordingly. The argument that paying the customs duties would have been unreasonable. MüKo = Münchener Kommentar [German commentary on commercial law]. the “EXW” INCOTERM clause indicated that the parties had agreed on the seller’s place of business as the place of delivery. it would have been possible for the Buyer to agree upon Kampala. Therefore both obligations must be performed at the same place. 44 CISG). This has not sufficiently been demonstrated by the buyer. 1(1)(a) CISG) to determine such place. The number and the amount of customs duties that would have to be paid were factors that the Buyer had to take into account in its commercial consideration. The Court of first instance (Tribunal de Commerce de Montereau. 1ÉRE CHAMBRE. In addition. COUR D’APPEL DE PARIS. The parties agreed that the goods had to be delivered “EXW” (ICC-INCOTERM “Ex Works”) at the seller’s factory. the Court held that the obligation of conformity of the goods to their ordinary use is not independent from the obligation of delivery. it is doubtful whether the buyer would have needed to pay additional customs duties if the customs seal had been damaged in Kenya for an examination of the goods. The Buyer has not even specified how high the customs duties in Kenya would have been. The seller objected to the jurisdiction of the French courts. 04-11-1997) declined jurisdiction in favour of the German courts. FRANCE. the decision on provisional enforceability on 709 ZPO. Moreover. The Buyer had to consider whether the deal would be profitable with respect to the purchase price and the resale price. the seller had 85 . The buyer appealed on the issue of jurisdiction. The Court of Appeals applied Art. SECTION D. the buyer brought an action against the seller before a French court alleging that the goods were defective. 38(3) CISG does not lead to an extended period for examination and notice. SOCIÉTÉ FRANCO-AFRICAINE DE DISTRIBUTION TEXTILE V MORE AND MORE TEXTILFABRIK GMBH. Uganda and not Mombassa. 1968). HGB = Handelsgesetzbuch [German Commercial Code]. this does not automatically make the examination unreasonable. Apart from that. The Buyer also cannot reduce the price. The lack of a timely notice of non-conformity has not been supported by an acceptable excuse by the Buyer (Art. 13 MARCH 1998 A French buyer and a German Italian seller concluded a contract for the sale of clothing. Even if double customs duties would have had to be paid. the claim had to be declined. The Court held that the obligation in question was the seller’s obligation to deliver conforming goods. Consequently. Kenya as the destination of the goods. cannot be followed because the obligation to pay customs duties does not represent a lack of a reasonable opportunity in the sense of Art. actually handed the goods over to a carrier on its own premises. under Art. 86 . 31(a) CISG the obligation to deliver conforming goods was to be performed at the seller’s place of business in Germany. On this ground the Court concluded that the jurisdiction to hear the case was vested in the German courts. Therefore. com/reference/incoterms/ on 14 May 2014 3.Incoterms 2010 87 © SeaRates LP.searates. sourced from http://www.3 . Article 67 (1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place. the loss or damage is at the risk of the seller. the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. by notice given to the buyer or otherwise. the risk does not pass to the buyer until the goods are clearly identified to the contract. However. whether by markings on the goods. (2) Nevertheless. Nevertheless. the risk does not pass to the buyer until the goods are handed over to the carrier at that place. the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract. Article 69 (1) In cases not within articles 67 and 68. if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer. if the buyer is bound to take over the goods at a place other than a place of business of the seller.4 PASSING OF RISK CHAPTER IV. (3) If the contract relates to goods not then identified. articles 67. the risk passes to the buyer when he takes over the goods or. if the circumstances so indicate. 88 . unless the loss or damage is due to an act or omission of the seller. (2) However. from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. Article 70 If the seller has committed a fundamental breach of contract. if he does not do so in due time. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. Article 68 The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. If the seller is bound to hand the goods over to a carrier at a particular place. the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. PASSING OF RISK Article 66 Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price. 68 and 69 do not impair the remedies available to the buyer on account of the breach. by shipping documents. the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. D. the “system will be delivered cold and fully functional. with regard to risk of loss or damage.  the  U. and (2) neither party chose. Olivieri Footwear Ltd. 71 F. The Passing of Risk: A Comparison Between the Passing of Risk under the CISG and German Law (Heidelberg.html. Where parties. DiMatteo. at *4 (S. which led plaintiffs to conclude that the MRI had been damaged in transit.. See Annemieke Romein. 1998 WL 164824. “Acceptance subject to Inspection. Illinois. App.cisg.” its contractual obligation. Thereafter.3d 1024. Moreover. In its application regard is to be paid to comity and interpretations grounded in its underlying principles rather than in specific national conventions. No.N. 133 (1997). 7(1). According to the complaint. 111. stating. allegedly initialed by Raymond Stachowiak of Shared Imaging.ST.. When it reached its destination of Calmut City. including: “Product.  U. 1(1)(a). Apr. ended when it delivered the MRI to the vessel at the port of shipment and therefore the action must be dismissed because plaintiffs have failed to state a claim for which relief can be granted. GMBH UNITED STATES 26 MARCH 2002 FEDERAL DISTRICT COURT [NEW YORK] SIDNEY  H. June 1999). art. entered into a contract of sale for a Siemens Harmony 1. retained title subsequent to delivery to the vessel at the port of shipment and thus. 96 Civ. See CISG. Yale J.” and “Applicable Law. Germany has been a Contracting State since 1991. Neuromed manifestly retained the risk of loss. The one page contract of sale contains nine headings.A.” Preceding this clause is a handwritten note.000 .” Under “Delivery Terms” it provides.000 . Plaintiffs respond that the generally accepted definition of the “CIF” term as defined in Incoterms 1990.” “Disclaimer. “CIF New York Seaport. pursuant to the contract.Y. supra.0 Tesla mobile MRI. insure and provide customs entry service for the MRI. See Romein. 8052. (2).N.upon acceptance by Siemens of the MRI system within 3 business days after arrival in Calmut City. law. under “Disclaimer” it states. 1995). Plaintiffs originally named those entities as defendants. to opt out of the application of the CISG.edu/cisg/biblio/romein. is inapplicable. and Germany are Contracting States to that Convention. nonnation specific language.downpayment to secure the system.  District  Judge:  …  Shared Imaging. the MRI was loaded aboard the vessel “Atlantic Carrier” undamaged and in good working order. see also Claudia v. 1998). Neuromed is the sole remaining defendant.” Under “Payment Terms” it states. US$744. Int’l L. See CISG art. but the action has been discontinued against them by agreement of the parties. Rotorex Corp. see also Delchi Carrier SpA v.C.” “Payment Terms. an American corporation. reprinted in 15 U. by express provision in the contract. both parties engaged various entities to transport. at http://www. 7.” Under “Product” the contract provides. the buyer will arrange and pay for customs clearance as well as transport to Calmut City.S. as here. 1998 U.S.. The Law of International Contracting. it is comprised of rules applicable to the conclusion of contracts of sale of international goods. US$93. 206 (2000) (hereinafter Contracting).” … Neuromed contends that because the delivery terms were “CIF New York Seaport.S.  Convention  on  Contracts  for   the International Sale of Goods (“CISG”) governs this transaction because (1) both the U. designate a choice of law clause in their contract — 89 . The CISG aims to bring uniformity to international business transactions. The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings. “By money transfer to one of our accounts. it had been damaged and was in need of extensive repair. To that end. with following payment terms: US$93.  STEIN. PAUL GUARDIAN INSURANCE CO V NEUROMED MEDICAL SYSTEMS & SUPPORT. 1028 (2d Cir. and the CISG is an integral part of German law.prior to shipping. a German corporation.000 .pace. Dist.” In addition.S. and Neuromed. LEXIS 4586. See Larry DiMatteo. …  The  parties  concede  that  pursuant  to  German  law. plaintiffs suggest that other provisions of the contract are inconsistent with the “CIF” term because Neuromed. Larry A. “system including all accessories and options remain the property of Neuromed till complete payment has been received. using simple.” “Delivery Terms. insurance and freight. Conceding that commercial practice attains the force of law under section 346 of the German Commercial Code (Handelsgesetzbuch [HGB]). (citing OLG Koblenz 17 September 1993. not transfer of title.edu /cisg/thesis/Oberman. . App. unless otherwise agreed. UCC and Incoterms. published by the International Chamber of Commerce (“ICC”). to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to. See CISG art. “CIF” requires the seller to obtain insurance only on minimum cover.cisg. Charles Debattista. but the risk of loss or damage to the goods passes from seller to buyer upon delivery to the port of shipment. Thus. which stands for international commercial terms. at http://www. supra — concluded that a clause “fob” without specific reference to INCOTERMS was to be interpreted according to INCOTERMS “simply because the [INCOTERMS] include a clause ‘fob’. INCOTERMS. 67(1). …   “CIF. 9(2). Nonetheless.” These “trade terms are used to allocate the costs of freight and insurance” in addition to designating the point in time when the risk of loss passes to the purchaser.A. 86 (2000). To hold otherwise would undermine the objectives of the Convention which Germany has agreed to uphold. plaintiffs’ expert concludes that the opinion of the BGH “amounts to saying that the [INCOTERMS] definitions in Germany have the force of law as trade custom. At the time the contract was entered into. the passage of risk is likewise independent of the transfer of title.” CISG.selecting the law of a Contracting State without expressly excluding application of the CISG — German courts uphold application of the Convention as the law of the designated Contracting state. “It is accepted under German law that in case a contract refers to CIF-delivery. art.C. OLG Koln 22 February 1994) at http://www.law. entitled “Passing of Risk. …   Plaintiffs   argue   that   Neuromed’s explicit retention of title in the contract to the MRI machine modified the “CIF” term.cisg. reprinted in 15 U.html.. Incoterms 1990 was applicable. Plaintiffs’ legal expert contends that INCOTERMS are inapplicable here because the contract fails to specifically incorporate them.” As encapsulated by defendant’s legal expert. pursuant to CISG art. The aim of INCOTERMS. INCOTERMS define “CIF” (named port of destination) to mean the seller delivers when the goods pass “the ship’s rail in the port of shipment. 9(2). INCOTERMS are incorporated into the CISG through Article 9(2) which provides that. Chapter IV of that Convention. file Nr.edu/cisg/biblio/karollus.” The use of the “CIF” term in the contract demonstrates that the parties “agreed to the detailed oriented [INCOTERMS] in order to enhance the Convention. Transfer of Risk From Seller to Buyer in International Commercial Contracts: A Comparative Analysis of Risk Allocation Under CISG. however.” Neil Gary Oberman. parties to contracts of the type involved in the particular trade concerned. Incoterms and Documentary Practices.html. published in WM 1975 page 917). only address passage of risk.” explicitly defines the time at which risk passes from seller to buyer pursuant to Article 67(1). VIII ZR 34/74.” which stands for “cost. the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in 90 . INCOTERMS definitions should be applied to the contract despite the lack of an explicit INCOTERMS reference in the contract.” is a commercial trade term that is defined in Incoterms 1990. See Martin Karollus. he cites and acknowledges that the German Supreme Court (Bundesgerichtshof [BGH]) — the court of last resort in the Federal Republic of Germany for civil matters.pace.S. “If the contract of sale involves carriage of the goods and seller is not bound to hand them over at a particular place. Plaintiffs’ legal expert mistakenly asserts that the moment of ‘passing of risk’ has not been defined in the CISG.” (citing 18th June 1975.” The seller is responsible for paying the cost.pace. Under the CISG. freight and insurance coverage necessary to bring the goods to the named port of destination. in Incoterms 2000: A Forum of Experts 63. such that Neuromed retained title and assumed the risk of loss. see Karollus. and regularly observed by..law. “The parties are considered. the parties refer to the INCOTERMS rules . Further. is “to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Judicial Interpretation and Application of the CISG in Germany 1988-1994. …   Citing   the   “Delivery Terms” clause in the contract. Had the CISG been silent. “A reasonable recipient. The passing of ownership is not regulated by the CISG according to art. That is incorrect. it instead serves to qualify the terms of the transfer of title. would understand that the buyer wanted to make sure that receipt of the GOOD should not be construed as the acceptance of the buyer that the GOOD is free of defects of design or workmanship and that the GOOD is performing as specified. however. The parties are therefore left to negotiate these obligations.as translated by plaintiff’s expert -. but rather. art 67(1).” Accordingly. the handwritten note does not modify the “CIF” clause. They each refer to section 447 of the German Civil Code (Bugerliches Gesetzbuch [BGB]). plaintiffs’ assertions falter.” CISG.  “Acceptance upon inspection.accordance with the contract of sale. Neuromed’s retention of title did not thereby implicate retention of the risk of loss or damage.A. 67(1). Moreover. 91 . the CISG. Pursuant to the CISG. the carrier or to the otherwise determined person or institution for the transport.” obliging buyer to effect final payment upon acceptance of the machine. upon buyer’s acceptance of the machine in Calumet City. which specified that final payment was not to be made upon seller’s delivery of the machine to the port of shipment. according to Article 67(1).” CISG art. supra. and specific German law. As such. …  Plaintiffs  next   contend  that  even  if  the   “CIF” term did not mandate that title and risk of loss pass together. In fact.” Inclusion of the terms of payment in the contract does not modify the “CIF” clause. This addition does not relate to the place of delivery. well after the date of passing of risk and after receipt of the goods by the buyer.that “the risk of loss passes to the buyer at the moment when the seller has handed the matter to the forwarder. …  Finally. a provision dealing with long distance sales. a clause defining the terms of customs clearance neither alters nor affects the “CIF” clause in the contract. pursuant to INCOTERMS. These terms speak to the final disposition of the property. 4(b).S. acting in good faith. plaintiffs posit that had the parties intended to abide by the strictures of INCOTERMS there would have been no need to define the buyer’s obligations to pay customs and arrange further transport. as the seller’s retention of “documents controlling the disposition of the goods does not affect the passage of risk. despite plaintiffs’ arguments to the contrary.” Romein. 4(b). providing in part -. the Court would have been required to turn to German law as a “gap filler. Article 4(b) provides that the Convention is not concerned with “the effect which the contract may have on the property in the goods sold. As defendant’s expert correctly depicts.” Accordingly. the other terms in the contract are evidence that the parties’ intention to supercede and replace the “CIF” term such that Neuromed retained title and the risk of loss. but rather simply establish that the buyer bears an obligation to “pay the price as provided in the contract of sale.” upon its placement within the contract and express terms. Plaintiffs’ argument.  plaintiffs  emphasize  the  handwritten  note. German law also recognizes passage of risk and transfer of title as two independent legal acts. it is standard “practice under German law to agree that the transfer of title will only occur upon payment of the entire purchase price.” CISG art.” Support for this proposition of German law is cited by both experts. “the risk passes without taking into account who owns the goods.C. is undermined by Incoterms 1990. which provides that “it is normally desirable that customs clearance is arranged by the party domiciled in the country where such clearance should take place. If the seller is bound to hand the goods over to a carrier at a particular place. App. as plaintiffs’ expert claimed. the passage of risk and transfer of title need not occur at the same time. reprinted in 15 U. INCOTERMS do not mandate a payment structure. the note must serve to qualify the final clauses of the “Payment Terms. …  Plaintiffs  also  cite  to  the  “Payment Terms” clause of the contract.” There again.” The “CIF” term as defined by INCOTERMS only requires the seller to “clear the goods for export” and is silent as to which party bears the obligation to arrange for customs clearance. the risk does not pass to the buyer until the goods are handed over to the carrier at that place. not to the risk for loss or damage. The goods. Claimant delivered the goods at the place of business of the Danish company. the appellate Court held that according to Art. which remained the time of loading aboard the ship. in no case it could amount to a fundamental breach of the contract according to Art. this was confirmed by the fact that the buyer had concluded an insurance policy for transportation risks. with a C & F delivery clause. claiming that Claimant had failed to deliver the goods at the place indicated in the contract. as indicated in the invoices and delivery notes to which Defendant never objected. INCOTERMS. 25 CISG. ARGENTINA. in the case at hand. After the delivery of the goods the Danish company turned bankrupt and Defendant never received either the raw salmon or the smoked salmon. Moreover. but did not change the time of passing of risk. Claimant’s delivery of the goods at the place of business of the Danish company had been tacitly accepted by Defendant. since it did not deprive Defendant of what it was 92 . CÁMARA NACIONAL DE APELACIONES EN LO COMERCIAL. the MRI machine under the contract passed to Shared Imaging upon delivery of the machine to the carrier at the port of shipment and (2) it is undisputed that the MRI machine was delivered to the carrier undamaged and in good working order. Neuromed’s motion to dismiss for failure to state a claim is hereby granted. The fact remains that the CISG. As in the first instance decision. 66 CISG. Due to economic difficulties of the Danish company. As to the merits of the case the Court found that Defendant was not entitled to avoid the contract. as deterioration of the goods occurred after the passing of risk and the buyer had not proved that deterioration was due to an act or omission on the part of the seller. or damage to. and German law all distinguish between the passage of the risk of loss and the transfer of title. 1 (1) CISG). …   For   the   foregoing   reasons. The Court finally held that according to Art. 22 SEPTEMBER 1998 (SMOKED SALMON CASE) The German Defendant had been in a longstanding business relationship with a Danish company producing smoked salmon which it usually bought from the Norwegian Claimant. the buyer was not discharged from its obligation to pay the price. because (1) Neuromed’s risk of loss of. The contract provided for delivery of the goods at a public warehouse at buyer’s disposal. Thus. 31 OCTOBER 1995 A German seller and an Argentinian buyer concluded a contract for the sale of dried mushrooms to be shipped to the buyer. BEDIAL SA V PAUL MUGGENBURG & CO GMBH. Defendant accepted. OBERLANDESGERICHT OLDENBURG. The Court also held that the C & F clause obliged the seller to deliver the goods for shipment and to pay the freight. 2 U 54/98. The Court held that CISG was applicable as both parties had their place of business in contracting States (Art. 67 CISG the risk for deterioration of goods passes to the buyer from the time the seller delivers the goods to the first carrier. deteriorated during shipment.The terms of the contract do not modify the “CIF” clause in the contract such that the risk of loss remained with Neuromed. The buyer commenced an action against the seller claiming damages and alleging non conformity due to defects of the goods which caused deterioration during transportation. Moreover. Claimant contacted Defendant offering to sell directly to it a certain quantity of raw salmon for further processing by the Danish company.   Neuromed’s motion to dismiss for failure to state a claim is granted and the complaint is dismissed. First of all. Defendant refused to pay and asked for avoidance of the contract. which were shipped from Hong Kong to Buenos Aires. SALA C. GERMANY. Requested by Claimant to pay the price of the raw salmon. Notwithstanding that. 69(2) CISG. However. SWITZERLAND. payable upon presentation to a bank along with a certificate issued by an independent surveillance authority (Société Générale de Surveillance). The Court found that CISG does not expressly settle the matter of burden of proof regarding conformity of the goods (Art. Therefore Defendant was not discharged from its obligation to pay the price according to Art. The contract contained an Incoterm CIF (Cost. CISG is the expression of a general principle which can be used to fill this gap in the Convention. The goods arrived at their destination in Italy one month after shipment. which in the case at hand led to the application of Swiss law. attesting the quality of the goods specifically agreed by the parties. the risk had passed to Defendant according to Art. the risk had passed to the buyer when the identified goods were handed over to the carrier in Ghana for transportation.entitled to under the contract: indeed. In fact. 93 . the buyer declared the contract avoided and commenced legal action against the seller claiming restitution of the purchase price and interest. 35 et seq. TRIBUNALE DI APPELLO DI LUGANO. which found that the goods (examined by sample) possessed the agreed quality. once processed. the Court found that even under Swiss domestic law the burden of proof lies on the buyer. while the buyer was still entitled to examine the goods upon their arrival at the Italian port and to give notice of any nonconformity under Art. 66 CISG. and which party is to provide evidence thereof. The Court noted that some scholars maintain that this is a matter governed but not expressly settled by the Convention and that Arts. as the sale involved carriage of the goods. the goods were closed in containers and shipped from Ghana.97. pursuant to Art. Before shipment. As the seller failed to do so. upon their being handed over the carrier. The Court also found that the goods arrived at destination in Italy in such conditions that the buyer could not make any use of them. 12. 67 CISG. the Court found that Defendant had at any rate lost its right to declare the contract avoided since it had not done so within a reasonable time according to Art. The buyer appealed. 15 JANUARY 1998 (COCOA BEANS CASE) A Swiss seller and an Italian buyer concluded a contract for the sale of Ghana cocoa beans. but also that they were to be delivered. The Court of Appeals held that. Three weeks later. The Court also noted that other scholars maintain that. The Court of first instance (Pretore del distretto di Lugano. in the case at hand it was necessary to ascertain whether or not the goods lacked conformity. The analysis made by the buyer upon receiving the goods revealed that their quality was well below the agreed margin of tolerance. 49(2)(b) CISG. this matter is to be decided in conformity with the domestic law applicable by virtue of the rules of private international law. a certificate of analysis was issued by the surveillance authority. 38 CISG. 13-03-1997) held CISG applicable (Art. namely. given that the contract not only made it clear that the goods remained in Defendant’s property. at the time of the contract it did not appear to endanger Defendant’s position. 7(2) CISG). whereby the seller was to arrange for transportation of the goods by ship from Ghana to Italy. 1(1)(a) CISG) and rejected the buyer’s claim. SECONDA CAMERA CIVILE. The mere fact that the conformity of goods had been certified by the surveillance authority before shipment was no evidence of the buyer accepting the goods as such. The price had to be paid by irrevocable letter of credit. that the burden of proof lies on the buyer. In this connection.00193. Finally. Insurance and Freight) clause. in either latent or apparent manner (Art. The buyer gave notice of non-conformity to the seller requiring delivery of substitute goods within a given period of time. in the absence of a general principle. The seller then presented the letter of credit along with the quality certificate and obtained payment from the bank. the certificate of quality was intended only for the seller to receive payment by letter of credit. Since Claimant had fulfilled its contractual duty by delivering the goods to the Danish company. 36 CISG). to Defendant. LW Loyd Co Inc (Loyd) and Sunlight China Products Ltd (Sunlight).The Court also found that the seller. or in the event that the goods were deteriorated during the three-week period before their being closed into the containers and shipped. and to restitution of the price paid under the contract (Art.01. in the case at hand Swiss domestic law. The buyer was also entitled to interest on the price. There was also a bill of lading dated 21 April 1995 in which Yuen Loong Hong was described as the shipper and the consignee was described as ‘TO ORDER OF SHIPPER’. either in the event that the analysis made before shipment was mistaken. The issue common to the plaintiffs’ claims is whether they had the title to the fireworks at the time of the collision. the owners of the fireworks claimed against the owners of ‘Tang He’ for the value of the damaged fireworks. accruing from the date on which the price was paid (Art. so that the seller was in breach for non-conformity. On these grounds. The plaintiffs will have the title to sue if they were the owners of the cargoes at the time of the collision: The Charlotte [1908] P 206. There was a packing list dated 18 94 . Page 1 of the invoice stated. No written contract was produced. by letter sent to the buyer after delivery. and an invoice dated 18 April 1995 for the value of FOB Hong Kong US$ 20. The second lot of fireworks was purchased from Po Sing Fireworks (Hong Kong) Ltd (Po Sing).970.01. or in the event that the goods lacked conformity upon passing of the risk but the defects became apparent only after their arrival at the port of destination. ‘BY ORDER AND FOR ACCOUNT RISK OF: WALD & CO INC’. The collision occurred shortly after it set sail. As a result of the collision. In respect of this sale. Therefore.129. in all these cases the goods were defective when handed over to the carrier for transportation.129. the Court found this to be a matter not governed by the Convention and to be settled in accordance with the law applicable by virtue of the rules of private international law. a collision occurred between two vessels in the Hong Kong harbour. The claim of Wald Wald purchased the fireworks from two companies in Hong Kong. In respect of this sale. among other things. there was a confirmation note dated 20 September 1994 in which the price was described as ‘FOB Hong Kong’. the fireworks caught fire and were destroyed. In this action. The two vessels were ‘California Luna’ and ‘Tang He’. the documents produced included a packing list and an invoice both dated 21 April 1995. the Court held that the buyer was entitled to declare the contract avoided (Art.80. 81(2) CISG) as well as to payment of expenses as further damages (Arts. 84(1) CISG). had implicitly admitted that the goods lacked conformity at the time of shipment and that they could not have been deteriorated during transportation. The invoice value was US$ 20. 5 PASSING OF PROPERTY THE TANG HE [2000] 4 HKC 701 CHEUNG J: Facts On 16 April 1995. The plaintiffs who claimed to be owners of the fireworks are Wald & Co Inc (Wald). 49 CISG). The owners of ‘Tang He’ admitted liability for the damaged fireworks to the extent of 70% of their invoice value. As to the rate of interest. The ‘California Luna’ carried containers which had fireworks inside. 74 and 81(1) CISG). The first company was Yuen Loong Hong Firecrackers Ltd (Yuen Loong Hong) who sold to Wald 816 cartoons of fireworks at an invoice value of US$12. The invoice described the term of sale as ‘FOB Hong Kong’. one that is ‘unconditional’ in the sense that the seller does not reserve a ‘right of disposal’. The payments in respect of the two consignments were arranged on 26 July 1995. either through the banks or simply by courier. and in a deliverable state. it had done business with both of these Hong Kong companies before. Sale of Goods Ordinance The following are some of the relevant sections of the Sale of Goods Ordinance (Cap 26) (the Ordinance) which deal with the transfer of property between the seller and the buyer: 18. According to Wald. (2) For the purpose of ascertaining the intention of the parties.  (1)  Where  there  is  a  contract  for  the  sale  of  unascertained  or  future  goods  by  description. i. Again. Property passes when intended to pass (1) Where there is a contract for the sale of specific or ascertained goods. and the circumstances of the case. 95 . Sometimes payment would be made after Wald’s receipt of the goods. the property in the goods thereupon passes to the buyer. 19. and ‘appropriation’ is used both in a ‘contractual’ and in a ‘proprietary’ sense. contract goods are ‘appropriated’ to a contract in the ‘contractual’ sense (so that the seller is irrevocably bound to deliver those goods under the contract) on shipment at the latest. the property passes on shipment: Halsbury’s Laws of England (4th Ed. Passing of property in FOB contract It is accepted by both parties that the fireworks were unascertained goods. Payment was made through Mark Twain Kansas City Bank (Mark Twain Bank) who arranged for a bank draft to be supplied to Yuen Loong Hong. indicate his intention to retain a right of disposal. Vol 41 at para 351. prima facie.. contract cannot pass before such appropriation and will pass if the goods have been shipped and there has also been a ‘proprietary’ appropriation. Wald would then make payment following receipt of the shipping documents. The rationale for this is in fact based on r 5(1) of s 20 of the Ordinance in that the goods had been unconditionally appropriated when they were shipped. Property under an f.e. In the case of an f.April 1995 and a bill of lading dated 24 April 1995. or by the buyer with the assent of the seller. either by the seller with the assent of the buyer.  and   goods of that description. are unconditionally appropriated to the contract. for the seller may. The question whether goods are unconditionally appropriated to the contract depends on the intention of the parties.b. there was no written contract of sale. Payment was made to Po Sing by way of a telegraphic transfer to their account from Mark Twain Bank as well. The usual arrangement with them was for the paperwork for the shipments to be forwarded to Wald. regard shall be had to the terms of the contract. Goods must be ascertained Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained.b. and may be given either before or after the appropriation is made. the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer — …  Rule  5. the conduct of the parties. Reissue). Such assent may be express or implied. But often there will be no such ‘unconditional’ appropriation on shipment..o. They endorsed the bills of lading and sent them to Wald. In a FOB (free on board) contract. 20. A discussion on this topic can be found at para 20-057 of Benjamin’s Sale of Goods (5th Ed): . by the manner in which he deals with the shipping documents. the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.o. In the bill of lading the shipper was described as Po Sing and the consignee was ‘TO ORDER OF SHIPPER’. Rules for ascertaining intention Unless a different intention appears. 1979. Notwithstanding that in an ordinary f. 208 in which the retention of a jus disponendi in a f.b. 8. 1995 . as where the seller takes or deals with the bill of lading in such a form or manner as to show that he did not intend to appropriate the goods to the contract. was inferred. If this were not the case. that the balance of the price be paid. were received on Dec. so that it is theoretically possible for property to pass on shipment despite the fact that the bill of lading made the goods deliverable to the seller’s order. the authors dealing with the equivalent of our s 21(2) stated that the prevailing view is that the section can apply to an FOB contract: Under such a contract the seller is not bound to pass the property in the goods at any particular time: he can perfectly well ship the goods ‘in performance of his contract’ and so perform his duty to deliver without simultaneously making an unconditional appropriation so as to pass the property. argued that this prima facie rule is rebutted because in the bills of lading. presumably. the consignee described as ‘To the order of the seller’. s 21(1) of the Ordinance provides that notwithstanding the delivery of the goods to the buyer. whether they are for payment in cash or by acceptance of a bill of exchange or under a letter of credit. that has the result that the property did not pass to the buyers until the condition imposed by the sellers was fulfilled. 19(2) of the Sale of Goods Act. Section 19(2) (i. contract as envisaged in s. the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.o.b. counsel for the defendants. 1995.o. considerable difficulties would arise in financing f. The current view is that property normally passes only on payment in full. The vessel sailed on Dec. if the bills of lading are deliverable to the order of the seller. and a number of earlier authorities which at first sight may appear to support a different view are.o. 11. The bills. 96 . contract title passes on shipment if the seller retains a jus disponendi. explicable on other grounds. sales.If the property had passed to Wald then it clearly had the title to sue. In Halsbury’s at para 351 it is stated that: Prima facie the property passes to the buyer on shipment. Staughton LJ at 213 held that: Here by the bills of lading the goods were deliverable to the order of the sellers: consequently the prima facie presumption is that they reserved the right of disposal.A. Unless the presumption is displaced. but as in a cif contract the inference may be rebutted and the moment of the passing of the property postponed. following payment. terms. (The Ciudad de Pasto). It is to be inferred that had they not been paid. Where in a contract goods are appropriated to the contract and where the seller reserved the right of disposal of the goods until certain conditions are fulfilled.. In The Ciudad de Pasto [1998] 2 Lloyd’s Rep 208. it is submitted. Ltd. or to a carrier for the purpose of transmission to the buyer. Keller of Fetim stated in his statement that the purchase took place when payment was made on Dec. prima facie. Mr. our section 21(2)).. The presumption that property passes on shipment.o. however. 18. the seller is. That condition was. which were to the sellers’ order. Under s 21(2) of the Ordinance.e. In Benjamin’s Sale of Goods (5th Ed) para 20-064. In The Starsin [2000] 1 Lloyd’s Rep 85 Colman J held at 104: Fetim purchased its Port Klang cargo on f. or that he has reserved a right of disposal until performance of the contract terms of payment.b. But where the buyer has not yet paid for goods shipped under such a bill this result would follow only in highly exceptional circumstances.b. however. I infer that the sellers retained a jus disponendi. v. Flota Mercante Grancolonbiana S. [1988] 2 Lloyd’s Rep. is only a prima facie presumption and can be rebutted. Bills of lading deliverable to the order of the seller Mr Sussex SC. title passes on payment of the price: see Mitsui & Co. embodies only a prima facie rule. they would not have been obliged to send the bills to the buyers. deemed to have reserved the right of disposal. But in my view. I accept that the previous manner in which Wald transacted its business with its suppliers is a relevant consideration. Please make payment of this invoice as you normally would through Mark Twain Bank. 97 . This would involve the discovery of previous transactions relied upon by Wald.The parties’ position Mr Sussex argued that because of the reservation by the sellers in the bills of lading. The starting point is that the current view is that where there is a reservation of disposal by the seller. The plaintiffs had supplied its list of documents in January of this year. There is no chance for the defendants to test the accuracy of the statement in court by cross-examination. and inadequate to establish a contractually binding course of dealing affecting the legal rights of the parties as to the passing of the property. so as to displace the general rule. Yuen Loong Hong stated that: We presented the above invoice through our Hong Kong Chinese Bank to your Mark Twain Bank for payment. This strongly suggested that the seller did intend to reserve the right of disposal in the goods until they had secured or even received payment. particularly when one of them was prepared to endorse the bill of lading and sent it by courier to Wald even before it received payment. Wald had not provided documentary evidence in respect of the previous dealings. Mr Smith. the property would only pass with payment in full. Wald had not provided any discovery to support the suggestion of a course of dealing. ‘Where evidence is wholly inadequate the impact of the burden of proof assumes critical importance. despite request from the defendants. He further relied on a letter dated 29 March 1995 from Po Sing to Wald which stated that ‘would you kindly either open your L/C covering the above shipment or if possible. we would prefer that you wire transfer the money to us immediately after shipment effected’. The statement of Wald was admitted by way of hearsay notice. property had not passed at the time of the collision. Hopefully your insurance company will settle the claim before the bill comes due. Yuen Loong Hong stated that: The shipping company confirmed that the container is a total loss. Furthermore. it would not be too useful to look at the dealings with the bills of lading after the collision because although the bills of lading were documents of title. I shall dismiss the claim of Wald. counsel for the plaintiffs. and it will be forwarded to you through the banks as we normally do. but the defendants only chose to make the request for additional documents in September which was shortly before the trial. surely the burden must be on Wald to establish its claim by credible evidence.’ In my view Wald has failed to show that property had passed to it at the time of the collision. Wald had not produced credible evidence in support of its contentions. stated that the defendants had made the request for discovery rather late which made the task of the plaintiffs providing the documents impossible. Very sorry. Such evidence of a course of dealing is brief. We are preparing the paper work for this shipment. I can only repeat the observation of the judge at p 215 of Ciudad de Pasto. Thank you. Evidence lacking In my view. the goods no longer existed when the bills were sent to Wald. It is not simply a matter of the defendants making the request for documents late. He also referred to two faxes by Yuen Loong Hong to Wald. In the fax dated 18 April 1995. In the fax dated 21 July 1995. in ascertaining the intention of the parties. The problem in this case is particularly acute because Wald did not give any oral evidence. In this case Wald had not made the payment before the collision. The transactions between the parties took place in 1995. What this claim boils down is really this: has Wald provided evidence which would rebut the presumption that property had not passed because of the reservation of disposal by Yuen Loong Hong and Po Sing. Page 4 of the invoice stated that: Total 1139 ctns. freight) contract. the property in the goods. I shall dismiss the claim by Loyd. In an FOB contract. the goods were sold on ‘C & I terms’.00 Grand Total: C & I OMAHA. Same problem In my view. prima facie.33 The bill of lading was dated 15 May 1995. This contract was in the nature of an FOB contract.694. The normal procedure would be for Loyd to send a cheque to Po Sing upon receipt of the original documents. According to Loyd. Loyd sent a cheque to Po Sing on 24 July 1995. the claim by Loyd faces the same problem as the claim by Wald. B HongKong US$ 43625. The bill of lading in respect of the fireworks shipped on the ‘California Luna’ was dated 24 April 1995. According to Mr Wilson Wai Shing Mao of Sunlight. According to Loyd.The claim of Loyd Loyd purchased the fireworks from Po Sing as well. In my view. however on occasion it had taken the liberty of paying after receipt of the goods. insurance. the seller had again reserved the right of disposal which precluded the passing of property at shipment. He confirmed that Sunlight had received no payment from the buyer in USA. Mr Mao produced a packing list dated 18 April 1995 in respect of the shipment and also the invoice dated 21 April 1995. The order was placed with Po Sing in August 1994. Mr Mao said that it was not the practice of Sunlight to send the original bills of lading until they received the wired funds from the buyer.33 Plus: Insurance US$ 144. Page 1 of the invoice stated ‘Payment Term -. on the other hand. It would only do so when 98 . It was stated that its agreement with Po Sing was to send the payment upon receipt of the documents. If the property had already passed to the buyer. The purchase price was US$53.51. whose witness statement was admitted by way of the hearsay notice only. The shipper was Po Sing while the consignee was again described as ‘TO THE ORDER OF SHIPPER’. NE (ie Nebraska) BY TT WIRE’.C & I OMAHA. Po Sing would endorse the bill of lading and send it to Loyd by DHL courier. Among the documents related to the sale was an invoice and packing list both dated 18 April 1995 issued by Po Sing. the buyer was responsible for the freight. US$ 43769. The defendants were precluded from cross-examining Loyd. The evidence is wholly inadequate. In this case. He further submitted that the taking of a bill of lading to the buyer’s order suggests that it was the intention of the parties that property would pass on shipment. the shipper was Sunlight and the consignee is ‘TO ORDER OF GREG SHELTON’. the previous dealings alleged by Loyd were not supported by documents. Mr Smith. O. argued that a ‘C&I contract’ is akin to a CIF (cost. passes to the buyer on shipment. then Sunlight does not have the title to sue. Total: F. The claim of Sunlight Sunlight agreed to sell the fireworks to Greg Shelton in the USA. it had done business with Po Sing for several years. following shipment. Nature of the contract Mr Sussex argued that the contract being a C&I (cost and insurance) contract. The sale was FOB Hong Kong. The property in the goods had not passed at shipment. since the contract was on c.the bill of lading is subsequently endorsed to the seller. The only cause for uncertainty is the fact that the claimants had a right to reject goods in excess of the stipulated quantity. the seller reserves the right of disposal of the goods until certain conditions laid down at the time of the contract or appropriation are fulfilled.. terms. that in such a situation the property in the entire cargo would pass conditionally to the claimants. in a transaction involving a CIF contract. The presumption that property passes on shipment may also be rebutted where the facts of the case show that the seller never intended the mere act of shipment to operate as an appropriation of the goods to the contract either conditionally or at all. Bowen LJ held that: . A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. ordinarily when the seller transfers the bill of lading. When an agreement is made for the sale of specific goods in a deliverable state on cif terms. whenever it is the intention of the parties that the property should pass. subject to a retransfer of any excess if the claimants so elected. The provisions as to the passing of an undivided share in goods which form part of a bulk should. for the cargo was ascertained and appropriated from the outset. and the general rule is that under a c. it is not an unconditional contract.. In The Elafi [1981] 2 Lloyd’s Rep 679. and that this would be sufficient to found a claim in tort in respect of all such cargo as the claimants chose to accept. namely to put the goods on a ship. and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo.. Mr Mao had clearly stated that it was not the practice of Sunlight to send the original bill of lading until they receive payment from the buyer. it is only a prima facie rule that the property would pass on shipment. be borne especially in mind. As pointed out in Benjamin’s at para 20-070: 99 . special attention should be given in the context of cif sales to the provisions as to the right of disposal. In Sanders Brothers v Maclean & Co (1883) 11 QBD 327. The retention of the bill of lading.i. My view In my view. however. there is no presumption that where a bill of lading is made to the order of the buyer. Further. Even if the contract in question is in the nature of an FOB contract. Paragraph 342 of Halsbury’s has a further discussion on the parting of properties in CIF contract: The general statutory rules as to the passing of property under a contract for the sale of goods do not greatly assist in ascertaining the moment at which the property passes where goods.f. Unlike the situation where a bill of lading is made to the order of the seller which creates a prima facie presumption that the seller reserves the right of disposal of the goods. just as under similar circumstances the property would pass by an actual delivery of the goods. the seller is treated to have given up his right of disposal. so that it would not be possible to know during the voyage whether any individual portion of cargo might not ultimately revert to the vendors. however. Property in the goods passes by such indorsement and delivery of the bill of lading. where. it is very probable that the property would have passed to the claimants when the shipping documents were negotiated. which is a document of title. as is generally the case in a cif contract. whether specific or unascertained.. Likewise. because the commercial meaning of cif imports an undertaking by the seller to do something more. the bill of lading by the law merchant is universally recognised as its symbol. and this postpones the passing of the property until at least the goods are shipped by the seller. are sold on cif terms. it would not be too useful to attach too much importance to the label of the contract. I believe. During this period of transit and voyage. given the frequency with which goods sold on cif terms are shipped in bulk. Here. the property does not pass until fulfillment of the conditions.f contract the property passes with the documents.i. Mustill J (as he then was) held that: . until payment has been received is clearly an indication that Sunlight did not intend the property to be passed on shipment to the US buyer. Conclusion The claims by Wald and Loyd are dismissed. in about June.638. without the sum for loss of profit.. is agreed at a figure which I think is £ 89 7s. who is receiver for a debenture-holding company. to the plaintiffs.i. whether the sum described as loss of profit can. the plaintiffs agreed to buy and the defendant company agreed to sell and deliver at a price of 1820 U. cycles. while the seller is normally entitled to direct the carrier to deliver the goods to a different consignee. The only remaining issues are (1) whether the ownership of certain goods passed from the defendant company. As Lord Sumner said in a case involving a c. As stated in par. and the contest has been between the plaintiffs and the second defendant. dols. Sunlight had discharged the burden of proof on a balance of probability that it was the owner of the goods at the time of the loss. It therefore does not follow that property will pass on shipment merely because the bill of lading is made out to buyer’s order. £ 646 5s. namely. as stated in par. (2) if there is liability. It is clear that payment by the insurers to them have no relevance in this case. Justice PEARSON: In this case the basic facts are agreed and all the evidence is contained in agreed documents. if it is to be added. Its practice was to send the bills of lading when payment was received. 6 of the statement of claim.f contract: ‘in spite of the insertion of the consignee’s ( i.e. in the event of liability being established. Insurance Wald. The defendant company has taken no part in the trial. the buyer’s) name in the bill of lading. certain goods which are set out in that paragraph of the statement of claim. There shall be interest at judgment rate from the date of  the  service  of  the  writ  until  payment.769. the figures of damage. be included in the damages. pursuant to the said agreement. 1953. in which case both defendants would be liable to the plaintiffs for conversion of their goods. as stated in par. tricycles and certain accessories. retention even of such a bill of lading gives the seller considerable control over the goods. As stated in par. are agreed at. 1 of the statement of claim. who were at all material times carrying on business as merchants in Costa Rica. I think. dated June 25. In my view. At the time of shipment. Hence.53 (70% of the invoice value of US$ 43. Costa Rica. the plaintiffs on or about 100 . Then. it has the title to sue in this action and recover the loss from the defendant. as sellers. The defendant company at all material times in the early part of 1953 carried on business as manufacturers of children’s bicycles and tricycles at Lye in the County of Worcester..8d.’ It is submitted that where the contract provides for payment against bill of lading the normal inference would be that the seller had reserved a right of disposal until payment in accordance with the contract had been made. the plaintiffs are a company incorporated in San Jose. Loyd and Sunlight had received payment from the insurers in respect of the loss of the firework. the intention to reserve the jus disponendi to the seller til the documents are taken up is manifested by the way in which the transaction is carried through with regard to the presentation of the documents. and admitted in the defence. and an acceptance in writing of the said order from the defendant company to the plaintiffs. 4 of the statement of claim. 5 of the statement of claim and admitted in the defence.33). as buyers.. 1953.  … CARLOS FEDERSPIEL & CO SA V CHARLES TWIGG & CO LTD [1957] 1 LLOYD’S REP 240 Mr. 1953.. There shall be judgment to Sunlight for US$ 30. for the buyer is not normally entitled to demand delivery of the goods from the carrier without presenting the bill. Each of them had signed a subrogation form in favour of the insurers.S. Sunlight had not received payment. and that sum. Then it is also common ground that. under any guise. the agreement was contained in or evidenced by an order in writing from the plaintiffs to the defendant company dated June 16. 1955. but as to the date more accurate than.July 1. 18(5) of the Sale of Goods Act 1893 but the defendant company and the defendant Patience none the less failed and neglected to deliver the same to the plaintiffs and wrongfully and in breach of the said agreement detained and still detain the same. 3 of the statement of claim. that is to say. H. denies that any bicycles or tricycles were made available to the plaintiffs or appropriated to the said agreement. Mr. the defendant company have taken no part in the trial. admitted — that the plaintiffs demanded the goods from the receiver. the second defendant. and the receiver and the defendant company refused to deliver them up. This defendant admits that no bicycles or tricycles have been delivered to the plaintiffs pursuant to the said agreement but he denies that he or the defendant company detain wrongfully or in breach of the said agreement any goods belonging to the plaintiffs. . the company being insolvent. . 1953. I should have said that the defence to which I have referred is the defence of the defendant Patience only. because the matters referred to will be mentioned in due course. Then par. at any rate. Then it appears from par. 5 it is said: This defendant denies that the property in any bicycles or tricycles manufactured by the defendant company passed to the plaintiffs either as alleged or at all. but I do not have to refer to them here. 2 of the defence. Some further and better particulars were given of the acts and matters relied further and better particulars are dated June 6. 2. 1953. of par. On Oct. 5 of the defence. a compulsory winding-up order was made. that on July 28. refused to deliver to the plaintiff company any goods in fulfilment of the contract of sale which had been made in June. 1953. Patience. The plaintiffs’ claim. 17. That. which is similar to. Mr. which availability and appropriation were duly notified to the plaintiffs by letters to the plaintiffs dated the 27th August and the 14th September 1953 from the defendant company and/or the defendant Patience as receiver and manager thereof. 1953. The issue in the case appears from par. which were charged to the debenture holders by virtue of their debentures. was appointed receiver and manager of the defendant company by the debenture holders. Thereafter all goods belonging to the defendant company. there was conversion by the defendants. I think. in its essence. appears from par. 101 . and they did not even deliver a defence at the earlier stage. It is admitted that if the goods were the property of the buyers. 4: This defendant [Patience] . the receiver. passed into his management and control. Then it is alleged — and this is. par. Then on Nov. In par. paid the said price to the defendant company by cheque of that date. 19538 the second defendant. the plaintiff company. As I have said. and the receipt of it was acknowledged by the defendant company on July 7. is the main issue: whether or not the goods were appropriated to the contract by the sellers with the consent of the buyers so as to pass the ownership to the buyers. Patience. 1953. 8 of the statement of claim alleges: The property in the said goods in the premises passed to the plaintiffs by virtue of Sect. I should perhaps read also part. therefore. 7 of the statement of claim which alleges: Pursuant to the said agreement the said goods were duly manufactured by the defendant company and thereafter were made available to the plaintiffs and appropriated to the said agreement. J. and the buyers are the plaintiff company. there is the sellers’ price list. He said. and found that the cycles and tricycles are made of a good quality and are satisfactory. Imperial Ottoman Bank. and nothing remains to be done in order to pass it. that if goods are ordered by a person. For the above mentioned. the moment the goods. your last catalogue and complete price list. in which there was a discussion by Baron Parke which is of considerable interest.D. It is necessary. it must be shown in this form of action . provided the corn answered the character of that which was agreed to be delivered. (1848) 2 Ex. That only states the price. at p. That contract would be satisfied by the delivery of any 500 quarters of corn. according to the intention of the parties to the bargain. according your invoice No . property does not pass until there is a bargain with respect to a specific article. the property passed. It may be admitted.…  This  is  a  case  in  which  the  contract  is  for  the  sale  of  unascertained  goods  by  description. There was an old case called Wait and Another v. 18. from the buyers to the sellers. and to be delivered to a common carrier to be sent to the person by whom they have been ordered. 1. I think it is convenient just. 9. that the goods should agree with the contract. and the sellers at one time apparently expected to use them in fulfilment of the contract. 172. of course. at p. . Then he discusses the different senses in which the word “appropriation” is used.b. in effect. Baker. 18 by reading a short passage from an old case. or by part payment.the action being for the recovery of the property . although they are to be selected by the vendor. we would like to place a new order and would appreciate very much if you would send us by airmail. where he says: Under a contract for sale of chattels not specific the property does not pass to the purchaser unless there is afterwards an appropriation of the specific chattels to pass under the contract. are delivered to the carrier. Later.o. The only significance of that is. and that matter admits of no doubt whatever. that at this early stage. In order. We do not have it complete and would like to place the new order for rush shipment. I think. and everything is done which. Then there is a letter of May 20. at some subsequent time. was necessary to transfer the property in it. or subsequently by part acceptance. The question is whether there was an appropriation of those goods to the contract by the sellers with the assent of the buyers within the meaning of Rule 5 of Sect. to lay a foundation for the understanding of the exact meaning and effect of Sect. so I think it is not of great significance. Mirabita v. he says on this subject: The law of England is different: here. 1953. then there is no doubt that the property passes by such delivery to the carrier. . 7: it is perfectly clear that the original contract between the parties was not for a specific chattel. unless both parties agree as to the specific chattels in which the property is to pass. In the case of such a contract the delivery by the vendor to a common carrier. as one will find throughout the correspondence.  for   the sale of future goods probably still to be manufactured. or chartered for. Afterwards certain goods were manufactured. the carrier becomes the agent of the vendee. therefore. to deprive the original owner of the property. no property passed. on p. (1878) 3 Ex. First. The relevant passage is from the judgment of Lord Justice Cotton. that is. which have been selected in pursuance of the contract. either by note in writing. the purchaser. which quotes the prices f. Now I will come to the set of documents in this case which constitute the contract. 164. is an appropriation sufficient to pass the property. saying: To-day we are able to inform you that we received your first shipment. and such a delivery amounts to a delivery to the vendee. and if there is a binding contract between the vendor and vendee. or (unless the effect of the shipment is restricted by the terms of the bill of lading) shipment on board a ship of. therefore. the emphasis is on shipment as 102 .that. having referred to Roman law. By the original contract. English port inclusive. I think it is convenient to read only a short passage from it. This will enable you to remit to us. sets out the shipping mark and numbers as before: “C. Payment: In advance. which is the acceptance. It is addressed by the buyers to the sellers. This commission would be in addition to the 21/2 per cent. San Jose. value. on which we have given the approximate c. and 21/2 per cent.b. U. Port Limon. & Co.As per your letter dated 16.Costa Rica. (on the f. cash discount on the same sum for payment in advance. . The material parts of the letter from the sellers to the buyers are at the beginning: Dear Sirs.F. and so on.i. being cycles. and it says: Gentlemen.” Then there is the enclosed pro forma invoice. we have placed the order on our works and can assure you that we will have the goods ready for shipment at the earliest possible moment.o.K. This has been entered by us under reference P/1052 and we are enclosing herewith our official acknowledgment form. exclusive of packing. and they say. Freight: Extra. and it contains these provisions: Shipping Marks: C. 5 per cent. Confirmation of export order was enclosed. San Jose . Port Limon.f.i. We thank you for your letter of the 16th June and are very pleased to have your second order for cycles and tricycles.o. and 21/2 per cent. as soon as you receive you advance payment remittance. as suggested. 4. Attached also is our pro-forma invoice. and there is the provision: “All shipments will be invoiced at prices ruling at the date of despatch.” Then there is a deduction made for the two commissions.indicating the intention of the parties that shipment should be a decisive act of performance by the seller. Then there is the provision: “All boxes have to be marked: C. There is a letter and an enclosed confirmation of export order and an enclosed pro forma invoice..f. Packing: Extra.” The answer. San Jose. Port Limon. Delivery: F. and then there are these words: “Approximate c. we have pleasure in offering you a commission of 5 per cent. charges — £ 60. as we should very much like to extend our business relationship with your goodselves. saying: 103 . & Co. . on the f. value exclusive of packing) on all orders which you place with us..6. and we look forward to receiving your cheque in due course. is on June 25. Regarding to your letter dated June 6th. charges and deducted the 5 per cent. . 1/up. The goods are set out. Meanwhile.No. but hope that in a very near future you are going to accede to our request — naming us your exclusive agents for this territory. . Costa Rica. On June 16 there is the offer.. For the following order we beg you to send us two pro-forma invoices to be able to make advance payment reducing the 5 per cent.F.F. Then they set out the goods for which the order is given.o. cash discount. which sets out the goods.b. & Co. discounts.53.As per our pro-forma invoice dated 25. Insurance: Extra. commission and 2 1/2 per cent.Port. Costa Rica. we are agreed at the present with your indications in regard to the representation. Please prepare shipment to be able to ship with direct ship to our Port Limon. irrespective of anything shown to the contrary on your order sheet.6.” Then certain packing charges are set out. . cash discount which we allow for payment in advance or by confirmed irrevocable letter of credit. Then on July 1 there is a letter from the buyers to the sellers.53.b. Then there is the letter of June 6 from the sellers to the buyers. in duplicate. among other things: . Your instructions regarding marks. beginning on p. The relevant passage is in the majority judgment of Chief Baron Pollock.b. we think they did perform it. Carlos Federspiel & Co.To-day we received your letter dated June 25th from which we separate your two pro forma invoices. Then on July 9 the sellers write to the buyers. To avoid difficulties with the custom house it is indispensable that you send us with the five invoices.. etc. and the intention seems to be that they should charge the cost price to the buyers. but freight and insurance are to be extras.o. To cover this pro forma invoices we are sending you herewith our cheque 2376 against our account at the National City Bank of New York in the amount of U. in my view. we remain. contract. The first question is: when would the property pass under that contract of sale in the absence of any further development subsequently? I will have to consider later whether the subsequent developments make any difference. dated July 7. features attached to it. a decision of the Court of Exchequer. Yours truly. but one has to add that it has some c. at any rate. Lyell that fundamentally it is to be regarded as an f. at the time the oil was shipped at Rotterdam. 104 . There is the case of Browne and Another v.. in the first instance. There is authority which shows quite clearly that normally.b. so that any rise or fall in rates of freight or insurance would be for the account of the buyers and of no interest to the sellers. and the question arises: what is the nature of this contract? I agree with Mr. and you can then remit to us any balance which may be due. 484. Please follow the shipping instructions given on our order of June 16th regarding marks. and the property in the oil passed from them to the defendants.i. the plaintiffs had intended to continue their ownership. When we forward the documents we will let [you] have a statement showing the actual position of the account.b. (1858) 3 H. and had taken the bill of lading in the terms in which it was made for the purpose of continuing the ownership and exercising dominion over the oil. It is. will be complied with and immediately we have some definite information as to the date of shipment we will write to you again.f.. etc. S. Baron Martin and Baron Channell. We beg you to acknowledge receipt of this remittance any difference will be paid as soon as we receive your definitive invoices and two original shipping documents. The delivery expressly is to be f. Hare and Another.A. but if when they shipped the oil they intended to perform their contract and deliver it “free on board” for the defendants. and they are stated at an approximate figure of£ 60. contract.) that would help us very much. You may be assured that the order is having our best attention. It would seem that the intention is that the sellers are. saying: We thank you for your letter of the 1st July together with cheque for the amount of $1820 and have pleasure in enclosing our official receipt..o. they would in our opinion have broken their contract to ship the oil “free on board. Thanking you in advance for the soon shipment of that order. under an f. but one can also consider what the position would be if that is a wrong view and if it is in truth to be regarded as predominantly a c. and we anticipate that the goods will be ready for despatch in the very near future. to arrange the insurance and the contract of affreightment. contract.o. That is the end of the contractual documents.A. $1820. and they are to pay the freight and insurance and charge them as extras to the buyers.i. That seems to be the nature of the contract. etc.o. with the indication of the No. 5 packing lists indicating what contains on each box.f. 1953. 498: If.S. Then there is the receipt for the cheque.” and the property would not have passed to the defendants. of each cycle (serial No. contract the property passes on shipment. an f.b. & N. that is. at p. it is not denied but that the words “free on board. and not upon the seller? I can see no reason why he should not. and if such a contract can be made. where he says: It has not been denied that. Now that is the meaning of those words “free on board” in a contract with regard to specific goods. 822. ‘free on board. Hamburg with the port of destination Bristol. would mean more than merely that the shipper was to put them on board at his expense. had an insurable interest. give some meaning to those words “free on board. but the goods as put on board were not separated as between the two contracts. That is the first authority.o.” meaning in such a contract “I sell you twenty tons out of fifty upon the terms that you shall pay such a price for those twenty. who was the buyer. Mr.” one must. but at some other time. a Bristol merchant. because this was an action by the plaintiff.” He went on to discuss the special problem which arose from the fact that the seller. and under that we think the property passed when the goods were placed “free on board. who was the shipper. That is what was said in the Court of Exchequer.b.” The contract was for the purchase of unascertained goods.I ought to have explained that this was a contract for oil to be shipped free on board at Rotterdam.” What meaning can be given to them with regard to the unseparated part of the goods which is the subjectmatter of the contract. There is a passage on p. For the answer the contract must be resorted to. they would mean that he was to put them on board at his expense on account of the person for whom they were shipped. M. Then it went to appeal. and he says. But it has been 105 . 564.” in performance of the contract. 573 from the judgment of Sir Baliol Brett. apparently to the Court of Exchequer Chamber. and the question has been. where the contract deals with specified goods. I paying the costs of the shipment. with regard to that contract. Then there is the case of Stock v. even though the payment is not to be made on the delivery of the goods on board. which is therefore of high authority. (1884) 12 Q. 829: “In this case we are of opinion that the judgment of the Court below should be affirmed. and the question was whether the plaintiff. can there be a contract with the terms “free on board” which can be fulfilled without the delivery of specific goods at the time of shipment? Is there any mercantile or legal reason why a person should not agreed to sell so much out of bulk cargo on board or ex such a ship upon the terms that if the cargo be lost the loss shall fall upon the purchaser.” according to the general understanding of merchants. Justice Erle delivered the judgment of the Court. a decision of the Court of Appeal. and although the bill of lading is sent forward by the seller with documents attached in order that the goods shall not be finally delivered to the purchaser until he has either accepted bills or paid cash. Inglis. the introduction of the provision that they are to be “free on board” places the goods at the risk of the buyer. That is a case where the difficulty arose in this way: there were two contracts each providing for 200 tons of sugar to be loaded f.D. and the possible doubt as to the date of passing of the property arose from the fact that the seller took the bill of lading to his own order but indorsed it specially to the other party. but the same meaning as is given to those words with regard to goods attributed to the contract? What is there unreasonable or contrary to business or law in those words “free on board. Then the question arises. (1859) 4 H.B. 575 in Lord Justice Baggallay’s judgment.. & N. where he says: Now if the goods dealt with by the contract were specific goods.R. and in a contract to buy and sell a certain quantity ex ship or ex bulk there is put in the terms “free on board. and the question was at whose risk the sugar was. and in that case the goods so put on board under such a contract would be at the risk of the buyer whether they were lost or not on the voyage.’ and you bearing the risk of whether they are lost or not?” Then there is a passage on p. and in that case the goods are at the purchaser’s risk. took the bill of lading to shipper’s order but indorsed it to the buyers. against a Lloyd’s underwriter under a policy of insurance. when the property passed. There is an express and clear decision on the subject by Mr. 406. [1911] 1 K. 956. the effect of the authorities is that the property would pass not earlier than shipment. where he said: It seems clear that in the absence of special agreement the property and risk in goods does not in the case of an f. That is one mode of performing it. Then this is important. There is also Law & Bonar. In the House of Lords they could not find anything inconsistent with the view expressed by Lord Justice Lindley in the Court of Appeal. 200 tons of sugar might be shipped “free on board” a vessel at Hamburg. 934.B. 302. 743. 495. it was to be expected that the ownership of the goods would pass to the buyers on shipment of the goods. packed.o.suggested that such is not the case when the goods are not specific. Overseas Exporters.f. is reported. 747. v. but 200 tons of sugar. The material passage is at p.i. Green. and the property would then pass to the buyer. 608. (1872) L. Hare.o.B. (1859) 4 H. And I should say that would be the ordinary mode of performing it.Cas. I think the argument which was addressed to us by Mr. and Lord Justice Kennedy’s dissenting judgment was approved in the House of Lords ([1912] A. Inglis v. Rosenberg & Sons..B.i.. 743.f. that if and so far as this contract was in its true nature an f. Wimble v. and there is an express reference to what is called “approximate c. [1913] 3 K. (1885) 10 App. 759. [1916] 2 K. marine insurance for the sea voyage. 605. 263. They were. where several useful cases are collected. [1921] 3 K. Rosenberg.L. when the bill of lading and insurance policy and final definitive invoice would be handed over to the buyers. There the House of Lords were more specifically dealing with the question of the passing of the risk than the passing of the property. or possibly at some later time. the natural time at which the property would pass would be on shipment. Undoubtedly this contract also contained some c. and without reference to any particular course of trade. as they were in the present case. at p.B. Blythe..i. British American Tobacco Company. contract pass from the seller to the buyer till the goods are actually put on board: see Browne v. That is the passage that is quite clear in that case. Ltd. therefore. 18). 395. the material passage is at p. 6th ed. The case went to appeal. It follows. the sugar.R. but are. 785. No particular sugar is specified. [1913] 3 K. 576: Let us look at that contract by itself. 512 and 515. at p. contract. 307. San Jose. Livingston. Then there is Arnhold Karberg & Co. sup.. provided it answered the description contracted for. Costa 106 . contract is.f.i. features. Stock.Cas. The goods were not in fact shipped. charges” in the pro forma invoice. and be shipped so as to be appropriated at the time of shipment. (1885) 10 App. under the contract.F. But for the purpose of the present case there is no need to consider whether it would be on shipment or at some later time.. at pp. Ltd. at p. and in that case. a certain proportion of goods to be delivered out of a larger quantity. it can be found in George Ireland and Others v. v. and the packages were marked “C. v. and I apprehend that that contract might be performed in one of two ways. Jourdain & Co. Justice McCardie in Colley v. There is the case of Wimble. Inglis.B.f. perhaps later than shipment. Stock. and is reported under the name of Inglis v.C. What authority is there for a suggested difference between the case of specific goods. would be appropriated at the time of shipment. and indeed they were not even dispatched from the sellers’ works to the port of shipment. Sons & Co.b. 822. E. If and in so far as it was a c. the material passage being at p. The insurance referred to in a c.B. [1916] 1 K. 5 H. and of course would be at his risk. Therefore. Although authority is hardly required for that. and goods of the class which I have just now mentioned? Why should there be any difference between the two? Then Lord Justice Lindley said. There is also Lord Justice KENNEDY’s dissenting judgment in Biddell Brothers v. and I think it is not necessary to read the passages. Reid in reply was a very forcible one. however. 263. Benjamin on Sale. p. & N. I will merely refer to two other cases. & Co. at p. of course. contract. Clemens Horst Company. where the passage from the Master of the Rolls’ judgment in Stock v.b. Ltd. at Birmingham. 1953. Most of the items are available but others are still in course of production and. Thanking you for your prompt answer. 24 the buyers write to the sellers: Herewith we beg you to indicate us when you expect to execute our pending order of toys. 27 shipping instructions were given by the sellers to Messrs. There again there is the contemplation that the order will be executed by shipment. I will first go through the relevant further documents which bear on this question. On July 29. we are unable to proceed at the present time as our works are closed for the annual holiday of two weeks. They were packed. F. The document says. You may be assured that the order is having our best attention. It refers to shipment and says: Your instructions regarding marks. not as intended appropriation. been unable to despatch the goods against your recent order.. It is of interest to note that the form of execution of the pending order to which reference is made is. Houlder Brothers & Co. However.b. there was an appropriation of the goods to the contract by the sellers with the assent of the buyers. saying: We thank you for your letter of the 22nd July and regret that we have. we can assure you that we will endeavour to complete your order at the earliest possible moment after the re-opening of our factory on August 10th. and the shipping instructions state that the goods are to be consigned by bill of lading to Carols Federspiel & Co. 107 . When we forward the documents we will let [you] have a statement showing the actual position of the account. It was contended that in August or September. Thanking you in advance for your co-operation.” There were some answers to interrogatories which admitted certain facts. and so on. and we will write you further immediately we have some definite information regarding the date of shipment. the buyers write to the sellers: Regarding your letter of July 9th we would appreciate very much if you would execute our pending order as soon as possible with direct ship to our Port Limon. 1953. etc. As we are in a big urgency of these toys.. charges payable by us. as soon as possible. Then I will consider certain decided cases that were cited and then I will endeavour to apply the principles which emerge from those cases to the present case now under consideration. and you can then remit to us any balance which may be due. we remain. “with direct ship to our Port Limon. the plaintiffs. or the first letter after the conclusion of the contract.” That is consistent with the assumption that the intention still was that the performance of the order should be by shipment. which may be regarded either as the final contractual letter. will be complied with and immediately we have some definite information as to the date of shipment we will write to you again.o. we will appreciate very much if you ship it. referring to the sellers: Freight payable by us. On Aug. we remain. but as being preparation for the shipment. as yet. On July 22. or Puntarenas. and they were marked with these shipping marks.. the sellers write to the buyers.. unfortunately. of June 16th 1953.Rica. Then on Aug. Goods to the quantity and proper description required had been manufactured. and we anticipate that the goods will be ready for dispatch in the very near future. showing that the preparatory steps towards shipment had been taken by the sellers. The steps can be regarded. Please insure for L arranged by us. I have already read the letter of July 9. Port Limon. wrote to the buyers in these terms: Dear Sirs. under the terms of a debenture dated the 2nd September. Then there are forwarding instructions. the sellers write to the buyers: Further to our letter of the 29th July. in accordance with your instructions. Houlder Brothers & Co. we have registered the consignment for shipment and we will write you further immediately we have some definite news regarding the name of the vessel and the date of sailing. the receiver. Then the identification of the undermentioned consignment is: “C. Liverpool. On the same date. We thank you for your letter of the 24th August which crossed ours of the 27th and we also acknowledge your letter of August 31st.Then the shipping marks are given. & Co. please send it. and the amount received was to be received as stated. 1952. together with that of Aug. They go on: Shipment may however be arranged with transhipment at Cristobal or New York. 1953. the second defendant. to the order of Houlder Brothers & Co. 28. by the plaintiffs in their pleading. Port Limon. via New York. Messrs. or the deciding act of performance of the contract. 108 . Ltd. Then on Oct. However. 2.. unfortunately. 1/19. In accordance with your instructions we are now arranging to ship the consignment via New York and we hope to let you have some definite information regarding the date of shipment. 14. the agents. and the fact that cash had been received was mentioned and the parties’ names. Insurance is not being effected. On Aug. 31 there is a letter from the buyers to the sellers. 27. Then from the form of registration of the consignment for shipment one can see that it did refer to a proposed shipment of cycles and tricycles. the steamship Britannic. wrote to the sellers: We thank you for shipping details covering the undermentioned consignment. which matter is receiving our attention and required instructions will be sent to you as early as possible. Assuring you of our co-operation at all times. if there is not boat sailing direct to Port Limon. I have to inform you that I was appointed receiver and manager of this company on the 28th July. we have pleasure in advising you that the goods against your order are now available but. at Huskisson Dock... Ltd. San Jose. Messrs. there is the letter especially relied upon. saying that the goods were then to be sent to the particular ship. within the course of the next few days. as soon as possible. 3. Houlder Brothers write to the sellers telling them that there were no direct sailings from Liverpool to Port Limon. I am informed that you are awaiting shipment of tricycles and adult bicycles. 1953. There again the emphasis is on shipment as constituting the performance. which says: Referring to your letter of August 27th 1953 we beg you when you have the shipment ready. 27. On Sept. It is written by the sellers to the buyers.” On Aug. On Sept.. and it says: Dear Sirs. Costa Rica. Aug. there is no boat sailing direct to Port Limon until the end of September.F.. etc. in this transaction. he does so as bailee for the buyer. S. our sales office have had these goods manufactured. and I think the rest of the correspondence need not be read. I much regret my own legal position compels me to adopt this attitude. which I do not suppose you will wish to exercise. is for these goods to be shipped against a fresh payment.. Mr. Carlos Federspiel & Co. at p. I should. I much regret to have to inform you that I cannot release these goods as they are claimed for the debenture holders under the terms of the debentures. London. 2. 1. where it is said: 109 . There is a passage in Chalmers’ Sale of Goods Act. In the circumstances. did not accept the offer contained in the last paragraph of the receiver’s letter of Oct. not unnaturally. As you are already aware this payment was received by the company before my appointment as receiver and manager. 1953. If the seller retains possession. 1953. is made. 2d. he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract. 2. You will rank.W. Whilst I fully appreciate the points set forth in your letter of the 2lth October. It appears from the letter I am about to read that the Board of Trade had been informed of the matter. a winding up order was made for the compulsory liquidation of the company. If that is all. 12th ed. … I think one can distinguish these principles. in respect of the remittance you made of $1820. First. and the goods were made up and completed for shipment after that time. containing strong protests at the treatment which the foreign buyers were receiving from the two English companies. Rule 5 of Sect. Patience. To constitute an appropriation of the goods to the contract. may be said always to involve an actual or constructive delivery.A. an appropriation by the seller. On that correspondence. so that those goods and no others are the subject of the sale and become the property of the buyer. I am unable to dispatch them. the receiver and manager of the debenture holders. it is by agreement of the parties that the appropriation. 2. Secondly. wrote a letter to the receiver or to the defendant company or to both. Belgrave Square. There are some further letters which show that the shipping instructions for the Britannic had been cancelled. or be reasonably supposed to have had. 1953. S. an intention to attach the contract irrevocably to those goods. the sellers and the debenture holders. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. which would make this air entirely new transaction with me as receiver and manager of the company. to the British and Latin American Chamber of Commerce: Dear Sirs. An alternative. Then I was informed that some Chamber of Commerce. 27. I would add that on the 9th November. although in some cases the buyer’s assent to an appropriation by the seller is conferred in advance by the contract itself or otherwise. with the assent of the buyer. at Canning House. with the other creditors of the company. 18 of the Act is one of the Rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer unless a different intention appears. the parties must have had.. and that Federspiel’s claim as a creditor has been passed to the Official Receiver who was appointed liquidator. Thirdly. mention that the foreign buyers. Therefore the element of common intention has always to be borne in mind. 75. I have now informed the Board of Trade that I have been advised that I am unable to dispatch goods to the above against the payment of 1820 dollars made by him. writes on Nov.From a lack of understanding of the legal position. the sterling equivalent of which is £ 644 19s. however. the British and Latin American Chamber of Commerce. involving a change of ownership. the question is whether there was an appropriation of the goods to the contract by the sellers with the consent of the buyers after the conclusion of the contract and before the letter of Oct. 435C(4). 20 of the Sale of Goods Act. that there was no appropriation  of  these  goods  and  therefore  the  action  fails. The goods were received by Rosedown in October 1992. that the goods were. namely. which are particularly relied on by the plaintiff. there is no actual or constructive delivery. that is the assent to the appropriation. my decision that the prima facie inference which one would have drawn from the contract is that the property was not to pass at any time before shipment. Fourthly. the intention was that the ownership should pass on shipment (or possibly at some later date) because the emphasis is throughout on shipment as the decisive act to be done by the seller in performance of the contract. the appropriating act is the last act to be performed by the seller. that is quite possible. it is impossible to find in this correspondence an agreement to a change of ownership before the time of shipment. there is no suggestion of the goods being at the buyer’s risk at any time before shipment. were not performed. Rosedown fell into arrears with its payments before the end of 1992. Fourthly. one has to remember Sect. whereby the ownership and the risk are normally associated. namely. and Langton v. do not contain any provision or implication of any earlier change of ownership.In the second place. Thirdly. For instance. Johnson. Aldridge v. Firstly.  … RODER ZELT. an important and decisive act to be done by the seller.. sup. So there may be first an appropriation. there has been an actual or constructive delivery of the goods to the buyer. On 6 October 1993 the second respondent. no suggestion of the seller becoming a bailee for the buyer. if the decisions be carefully examined. is in my view not displaced by the subsequent correspondence between the parties. But if there is a further act. was appointed the administrator of Rosedown under s.3A of the Law (ss.436A of the Corporations Law (“the Law”). sup. on the construction of the relevant documents. Thereupon the company came under administration under Part 5. that there may be after such contractive delivery an actual delivery still to be made by the seller under the contract. it will be found that in every case where the property has been held to pass. still at the seller’s risk.UND HALLENKONSTRUKTIONEN GMBH V ROSEDOWN PARK PTY LTD [1995] 17 ACSR 1.435-458): see s. and the payment schedule was rearranged. It follows. Roder alleges that the contract contained a term for the retention of title in the goods by Roder until the purchase price had been paid in full. Roder immediately advised Mr Eustace that ownership of the goods remained with Roder. Fifthly. Applying those principles to the present case I would say this. then there is prima facie evidence that probably the property does not pass until the final act is done. Mr Eustace. In June and July 1992 the applicant (“Roder”) agreed to sell goods to the first respondent (“Rosedown”) to the value of Deutschmark 609. 110 . Therefore. and when I say that I have in mind in particular the two cases cited. Fifthly. whereas appropriation transfers ownership. at all material times. whereby the seller becomes bailee for the buyer. the last two acts to be performed by the seller. no suggestion that the buyer should insist on the seller arranging insurance for them. Of course. Therefore as it appears that there is reason for thinking. subject only to this possible qualification. sending the goods to Liverpool and having the goods shipped on board. and then a subsequent actual delivery involving actual possession. therefore. 27 and Sept. 14. The letters.00 with payment to be made by a deposit and installments after delivery. especially those of Aug. Higgins. and if the buyer agrees to come and take them. if delivery is to be taken by the buyer at the seller’s premises and the seller has completed his part of the contract and has appropriated the goods when he has made the goods ready and has identified them and placed them in position to be taken by the buyer and has so informed the buyer.102. that is prima facie an indication that the property had not passed to the buyer. constructive delivery. I think that is right. usually but not necessarily. Secondly. because delivery is the transfer of possession. 3A providing for a moratorium on payment of pre-6 October 1993 debts to all creditors until March 1994 on conditions as to minimum future trading performance specified in the Deed. charging. and time was lost whilst applications of security for costs and for the transfer of the proceedings to another registry were dealt with. It is implicit in affidavits read at trial that Mr Eustace is the administrator of the Deed. 6. and various consequential orders including damages.3A in detail later in these reasons. Mr Eustace in an affidavit sworn on 9 November 1993 deposed that: “If I am unable to use the equipment which the Applicant now claims in and about my administration of the First Respondent’s business then the Deed of Company Arrangement will immediately fail and cease to operate which will be to the detriment of the creditors of the First Respondent.444A(2).439A could have resolved that the administrator of the Deed be someone other than the administrator of the company: see s. however. The statement of claim was filed on 13 December 1993.000 and interest of DM 9. denied both Roder’s claimed interest in the goods and its right to possession. 4.5A (ss.3A. The rights and duties of the creditors thereafter were governed by Div. On 8 November 1993 Roder commenced the present action against Rosedown and Mr Eustace claiming a declaration that the property in the goods remained with Roder.440C of the Law granting leave to Roder to take possession of the goods. On 9 November 1993 by specially returnable notice of motion Roder sought interlocutory injunctions restraining the respondents from removing certain of the goods from South Australia. it appears from the conduct of these proceedings that this did not happen. it should be noted that whilst the meeting of creditors convened under s. Upon the execution of the Deed the administration of Rosedown came to an end: s. times limited for procedural steps were not met.439C(c) requiring Rosedown to enter into the proposed Deed of Company Arrangement. In the preparation and presentation of their cases the parties have given little attention to the provisions of Part 5.9). 5. and asserted that Roder was merely an unsecured creditor for the outstanding balance of the purchase price. The orders were opposed by the respondents. and the evidence is silent about events that have occurred in the administration after 9 November 1993. and under the Deed of Company Arrangement. that in the circumstances 111 .975 due on 30 November 1993 (the latter payments falling due after the commencement of the administration and these proceedings) (para. an order pursuant to s. In the statement of claim it was alleged that Rosedown in breach of contract failed to assign certain moneys to Roder.” 3.10 of Part 3. Mr Eustace disputed the existence of a retention of title term in the contract. or otherwise dealing with the goods. upon an undertaking being given by Mr Eustace to secure and maintain the goods in good working order but subject to fair wear and tear and to continue current insurance.439A of the Law was to be held on the following day to consider a resolution directing Rosedown to enter into a Deed of Company Arrangement pursuant to Part 5. including directions as to pleadings and the filing of affidavit evidence. On the hearing of the notice of motion. Thereafter numerous delays occurred. and directions were given to prepare the matter for trial.435C(2). failed to pay interest due on the installments and failed to pay DM 266. and for immediate delivery of the goods into the possession of Roder. 2. and that the moratorium period was at some later stage extended from 31 March 1994 to 31 March 1995. It will be necessary to return to the provisions of Part 5.440D(1)(b) of the Law giving leave to Roder to proceed with this action notwithstanding Mr Eustace’s administration of Rosedown.and Roder claimed possession. all claims for relief were stood over pending a trial. an order was made pursuant to s. and from selling. an order for delivering up of the goods to Roder.444A to 445) and by the terms of the Deed. At this point. A meeting of creditors convened under s. In the meantime it seems (from statements made from the bar table during the trial) that the creditors passed a resolution under s. that in the premises Roder was entitled to immediate possession of the goods (para. and in consequence of the respondents’ refusal to give up possession of the goods.11).318.10).A1 p. It was pleaded in the statement of claim and admitted by the respondents that Mr Eustace was on 6 October 1993 appointed as administrator of Rosedown. Particulars of the loss and damage were not pleaded but it was said that particulars would be given prior to trial (paras. 9.266(1) of the Law. no such term had been agreed. He could not be a party to the counter claim in that capacity as the administration had ended before the counter claim was filed.Rosedown had repudiated the contract and Roder had accepted the repudiation thereby determining the contract (para. Roder suffered loss and damage. as was Roder’s entitlement to possession. This is the only reference in the pleadings to his standing in the proceedings. and that in October 1993 Roder requested Rosedown to deliver up the goods and further requested Mr Eustace’s consent to it retaking possession which requests were refused (para. property in the goods had already passed to Rosedown. (iii) such charge was never registered in compliance with s.500: see Ex. and (iv) such charge is void against Mr Eustace under s. and an installment of DM 72.13 and 14). These were amended at trial when a counter claim was also pleaded by both respondents.263(1) of the Law or s. The allegations of loss and damage were denied.75. 11. 7. The claim for “damages” was made without further indication of the nature or legal basis for that claim or against which of the respondents it was made. It was pleaded that in consequence of the breaches of contract by Rosedown. (ii) in any event. suggests the installment was DM 66. and for interest were either denied or not admitted. or alternatively the term was too vague or unclear to be of any contractual effect. Presumably he is a party as administrator of the Deed of Company Arrangement. since property had already passed to Rosedown. 10. Reliance on s. although the evidence. Further it was pleaded that if there were a term as to retention of title then (i) at the time when the term became part of the contract. the engrafting of such a retention of title term into the contract constituted the creation by Rosedown of a charge over its property. Finally it was pleaded that if it is held that the applicant is entitled to the return of the contract goods then the respondents or either of them are entitled to the return of the moneys paid to Roder in respect of the goods (pleaded to be a deposit of DM 66.500. Repudiation of the contract by Rosedown was denied. such as it is. 8. As will appear later in these reasons. That section provides that a charge is not enforceable on property of a company during the administration of a company except with the consent of the administrator or with the leave of the Court. 12. for payment.12). and that such moneys should be set off against the damages claimed. The relief sought was that claimed in the application.440B of the Law was pleaded. The counter claim was for the return of these moneys in the event that it is held that Roder is entitled to the return of the goods. The provisions of the Convention govern the rights and obligations of the parties arising from 112 .201(1) of the Companies (Victoria) Code. the contract for the sale of the goods is one to which the United Nations Convention on Contracts for the International Sale of Goods (“the Convention”) applies. (ia) prior to then. Defences were filed by Rosedown on 11 April 1994 and by Mr Eustace on 1 July 1994. By the defences the allegations relating to the terms for retention of title.42) upon a consideration that has totally failed. 500 . The assessment of damages in either case. are somewhat different to those stated in the pleadings. 13. in the event that it is held that the contract of sale included a valid and effective retention of title term. The goods. There was no dispute at trial that the purchase price was to be paid as follows: . or to the effect of Part 3.000 . Counsel made only passing reference to the Convention at trial.3A of the Law. included aluminium tent profiles and covers for five very large tents.DM 133. are expressed in the language and concepts of the common law.500 and interest DM 1. a German company. The Court was informed that Roder had assumed that the trial was to resolve the liability issue. In these circumstances I propose to decide the disputed questions of fact raised by the pleadings.3A of the Law. would. has continued to use the goods in its business.DM 66. and also a consideration of “rental value” as Rosedown.hence no attempt had been made to give particulars of loss and damage prior to trial. and the claims for relief in the statement of claim and in the counter claim. It was said that the claim for damages included a claim for damages against Mr Eustace personally in tort for the wrongful failure to give up possession of the goods when requested in October 1993. 14. The affidavits filed by the parties before trial concentrated solely on the events and documents that evidenced or recorded the transaction for the sale of the goods. The affidavits dealt with the issue of liability and not the issue of damages or other consequential relief.000 and interest DM 9.DM 133. under Mr Eustace’s administration. at all material times carried on business in Germany at Budingen.496. and is one of the largest hire companies in Australia specialising in major events such as the Australian Grand Prix and the Moomba and other large festivals. in practical terms. I shall return to this topic after resolving the disputed questions of fact. including that of damages. in part. involve a determination of the value of the goods on their eventual return. resolved at the one trial. It is one of the major manufacturers and suppliers in the world of large tent halls and party marquees. It is common ground that the applicant.25 . and then to stand the matter over for further consideration. 30 November 1992 . Ltd v Brisford Entertainments Ltd (1952) 1 All ER 796) or in conversion (cf Clough Mill Ltd v Martin (1984) 3 All ER 982) but gave most emphasis to a claim in conversion.DM 66. The Court was informed that very shortly before trial counsel for the respondents informed Roder that the respondents wished to have all aspects of the case. As discussion developed between counsel and the Court it became plain that neither side had worked through the implications of the provisions of Part 5. In his opening counsel for Roder argued that consideration of damages and other relief should be stood over for further enquiry after liability had been resolved because the assessment of Roder’s loss would. not in those of the Convention. 30 March 1993 . counsel submitted. Rosedown is a company incorporated in Victoria. The business has been in operation for many years. Victoria. No attention was given in the affidavits to the claim for loss and damage alleged by Roder. Counsel was not precise whether the claim against Mr Eustace was one in detinue (cf Strand Electric and Engineering Co. It is the trustee of the G S Tucker Family Trust which traded as Geoff Tuckers Hire and Catering from premises in Dandenong. on placing the order . and to aspects of German law. the subject of these proceedings. and that damages and consequential orders would be considered at a later date . Was there a retention of title term in the contract? 15. and they (especially counsel for Roder) were not able at that time to present other than the case on liability. It is admitted in the pleadings that Rosedown agreed to buy the goods from Roder. 30 November 1993 . involve assessing the difference in the value of the goods at October 1993 and when they are returned. to discuss a number of the provisions of the Convention and Part 5.5A of the Law on the rights and obligations of the parties in the event that Roder established the alleged retention of title term.the contract. The pleadings. extra gable infills and other accessories.975 113 . Upon consideration of the case I have concluded that the issues to be addressed. 16. However insofar as the contract is governed by the Convention. 114 . and. the Australian agent of Roder. 30 November 1994 . Under Article 18 an acceptance of an offer becomes effective at the moment the indication of the assent reaches the offerer. from Mr Eustace. and under Article 24 a declaration of acceptance or other indication of intention “reaches” the addressee when it is made orally to him or delivered by any other means to him personally. Rosedown had hoped to do so from rental received from the Grand Prix. Rosedown was unable to pay the next installment of DM 133.” 21. Relevantly in the present case the offerer was Roder.1). 17. the Convention is not concerned with the effect which the contract may have on the property in the goods sold: Art. 30 March 1994 .500 and interest DM 7. in the absence of such principles.). from Ms Erna Charlotte Mayer. The parties were agreed that the contract for the sale of the goods was one to which the Convention applied. an administrator of the company was appointed prior to that date.DM 66. which is now part of the municipal law of Australia. the meaning of that law. That installment was deferred to 30 November 1993 with the intent that following the 1993 Grand Prix Rosedown would pay two installments totalling DM 266. Article 7 (2) provides that: “Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or. However the Convention governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract.481. Geoffrey Stewart Tucker (“Mr Tucker”).25 . part of the law of Victoria by virtue of the Sale of Goods (Vienna Convention) Act 1987 (Vic. They were delivered to Rosedown in Australia on about 3 October 1992. 20. from Michael John Fielding who at material times was the business manager of Rosedown responsible for its day to day management and administration under the supervision of the managing director. The Convention is not to be treated as a foreign law which requires proof as a fact.. but money earmarked for that purpose had apparently been used to pay freight and import duty on the goods.DM 143. The Convention applies to contracts for the sale of goods between parties whose places of business are in different contracting States (Art. in conformity with the law applicable by virtue of the rules of private international law. The tentage was urgently required in Australia to fulfil contractual commitments of Rosedown at the Adelaide Grand Prix in November 1992. is to be determined by this Court. and from Mr Nicholas Giasoumi. and it is common ground between the parties that the acceptance occurred in Germany. That Convention has become part of the law of Australia.500 was paid by Rosedown to Roder on 20 August 1992. in particular.4. As already noted.000 due on 30 November 1992.602 and interest DM 23. 18. relevantly for the purposes of this case. On the contentious issue concerning retention of title the applicant read affidavits from Mr Jamie Watts. The respondents read affidavits from Mr Tucker.22. to his place of business or mailing address. a chartered accountant in the employ of Mr Eustace. Both Germany and Australia are contracting States. and from Dr Thomas Hoene. It was also common ground that the deposit of DM 66.000.694. 19. and its application to the facts. a German lawyer specialising in commercial and corporate law in Germany. Further there was no dispute that the goods were ultimately supplied “ex works” from Budingen on 27 and 28 August 1992 whence they were freighted overland to Rotterdam where they were loaded on board ship on 3 September 1992. Dr Hoene’s affidavit expresses his opinion upon the application of the Convention to the facts of this case as disclosed to him in correspondence and affidavit material most of which was introduced into evidence at trial. an interpreter who translated invoices and shipping documents from the German language to the English language. It is not a matter for expert evidence. . (2) . title to the goods would not pass under a retention of title clause to the purchaser until payment.24. Under German law. Romalpa Clauses: The Fundamental Flaw (1994) 68 ALJ 404. but ones to be determined having regard to certain further provisions of the Convention. The parties accepted that it was relevant therefore to receive evidence of German law insofar as it dealt with the effect which the contract may have on the property in the goods sold. Under German law. and in particular: “Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. they operate so that title does not pass until the payment requirement of the condition relating to retention of title is fulfilled: Aluminium Industrie Vaassen BV v Romalpa Aluminium Limited (1976) 1 WLR 676. 25..e. generally speaking. Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. Article 15 (1) An offer becomes effective when it reaches the offeree.. determined by German law for as long as the items sold are in Germany. It may be proved by any means. Under Australian law.... According to German private international law the property law effect is to be assessed under Australian law when the goods are in Australia. and the content of that term are questions of fact. According to the opinion of Dr Hoene the property law effect of a retention of title agreement is determined.aside questions of ambiguity and uncertainty . and The Goods Act 1958 (Vic. therefore.(numerous references to authority are cited). The overriding view in the literature is that the law of the destination applies (in this case Australia).. and. the validity of retention of title clauses .. Dr Hoene continues: “The property law effect of agreements of the parties is.) s. the law of the place in which the relevant property is situated. as are all property related transactions and relationships. but see Prof. Whether a term as to retention of title was agreed between Roder and Rosedown. (2) If the preceding paragraph is not applicable. It is unclear which law applies to agreements which are entered into during the transportation of goods. statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. 24. including witnesses. However once the goods arrived in Australia the property law effect of the agreements reached between the parties is to be determined by Australian law. If under German law a retention of title agreement had been entered into when the item arrives in the other country the law of the other countries (sic) determines the continuing existence of retention of title agreement and the content and performance of this agreement. 22. Armour and Another v Thyssen Edelstahlwerke AG (1991) 2 AC 339...and that the contract of sale was made in Germany.” 23. the property law effect of the retention of title is that the transfer of title. (3) . Di Everett.is recognised.. according to German private international law by the lex rei sitae.. i. 115 . If an item is brought to another country following agreement on retention of title the validity of the retention of title agreement is determined initially by the law of the country in which the item purchased was located at the time the retention of title agreement was entered into. This means that the title only passes to the buyer when the purchase price has been paid in full to the seller.takes effect on condition precedent that the purchase price be paid in full. . There was difficulty raising funds even for the deposit. The above document was then faxed to Roder. which were mainly conducted by him on behalf of Rosedown. (2) . and in certain of his correspondence with Roder he sought to evade the issue of the retention of title clause. by letter dated 20 August 1992. took place throughout on the clear understanding that property in the goods would not pass until payment in full had occurred. was not signed by him. He says that the negotiations between Roder and Rosedown. He says a letter written by Rosedown on 10 June 1992. early in the negotiations. (2) . Rosedown was in dire financial straits and he in collaboration with Mr Tucker. which included the sentence “I am also happy for you to treat the stock as rental stock (and therefore you maintain ownership) until I complete my payments” although purportedly under his hand. in his evidence.. Mr Tucker was fully aware of this fact as negotiations progressed. To help me.. promissory notes that had been sent sometime before for signature for the balance of the purchase price and a “signed declaration for the ownership”.. says that he was not informed on any occasion prior to 20 August 1992 that a term for the retention of title by Roder was under discussion. Yours sincerely. It will be necessary to say more about the terms of the documents dated 21 August 1992. Mr Fielding says that the document was signed by Mr Tucker along with the promissory notes which had been with Rosedown since mid-July 1992. and the extensive correspondence that took place over several months leading up to the dispatch of the goods from the Roder works. overlooks the fact that Mr Fielding was acting in the course of his employment and within his apparent authority as business manager when he was dealing with 116 . The effect of his evidence is that he at no time authorised such a term. When the deposit was belatedly paid on 20 August 1992 Roder required. Geoff Tucker’s Hire and Catering Geoff Tucker” 27.” 26. I will be bringing the stock into my books as each category of Structure is paid for.. He also denied that he had signed the document dated 21 August 1992. moreover. Mr Fielding’s affidavit explains at length the course of negotiations with Roder.Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. (3) . Mr Tucker on the other hand. (His evidence. This is to certify that the goods you are shipping to me now will remain as your ownership until full payment is made. and a copy together with the promissory notes were posted. could you do a split up of the whole order giving me the price of each size category and fax that back to me next week. at times made representations to Australian financiers which were inconsistent with a retention of title clause. Nevertheless he maintains that it was clearly understood throughout the discussions with Roder that there would be a term as to retention of title and. Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties. Mr Fielding thereupon prepared a document in the following terms: “Mr Heinz Roder GMBH Dear Heinz. and about the terms of a subsequent retention of title clause that was signed in September 1992. 28. Silence or inactivity does not in itself amount to acceptance. Mr Tucker knew that the goods could not be obtained except on that condition as Rosedown was in no position otherwise to finance the purchase. Insofar as correspondence prior to that date made reference to such a term he said that the correspondence had not been brought to his attention.. and the respondents’ case. Both Mr Fielding and Mr Tucker were cross-examined on their affidavits. The inference from his affidavit and his crossexamination is that Mr Fielding had forged Mr Tucker’s signatures to the letter of 10 June 1992 and to the document of 21 August 1992. I have therefore scrutinised with care the evidence of Mr Fielding before accepting it. That company had a business similar to that of 117 . 30. Caution has also been necessary as Mr Fielding discloses in his affidavit that in about September 1993 he was engaged by Roder to find an agent to assist Roder in its business matters. 32. Mr Tucker claims that it was signed on about 14 September 1992. Mr Fielding by profession is an accountant but in recent years he has worked predominantly in the entertainment industry. and the support which his story broadly receives from the written documents persuade me that I should accept his evidence notwithstanding his participation in the making of false representations. When cross-examined as to his reason for asserting that the signatures to those documents were not his. and “to assist in cleaning up the Rosedown matter if any such opportunity arose”. In substance it was represented to financiers that the goods to be supplied by Roder would become the property of Rosedown on delivery so that they could immediately be charged to secure other loans.000 sometime before his affidavit was prepared. 31. the day on which Rosedown posted the original of the document back to Roder . Mr Tucker concludes his affidavit by saying that he considers Mr Fielding was conducting his own negotiations for his own purposes with Roder and without keeping Mr Tucker informed. as business manager. nor was it seriously suggested that Mr Fielding’s evidence was coloured by this agreement in respect of which he had received a lump sum payment of $4. The frank explanations he gave for his conduct. 29. Mr Fielding acknowledged that at times misrepresentations of a serious nature had been made to Australian financiers and that he participated in the making of those representations. 33.Roder). the day on which Mr Fielding says it was signed by Mr Tucker and faxed to Roder. was his on a letter to Rosedown’s bank manager. The high water mark of the improbability of these denials came when he denied that a signature. Precisely what those purposes might have been is not identified. He says that he became aware of Roder’s requirement for retention of title first on 20 August 1992 when he saw the letter from Roder requesting a certificate to that effect but denies that he authorised or gave such a certificate until he signed one in September 1992. The nature of the letters and his evidence about them makes it highly improbable that the documents were not signed by him. What this expression means was not explored in cross-examination. From 1988 to 1992 he was employed by a company.a date well after the goods had left Germany. in recovering moneys that were still owed to it by another company in Australia. and it appeared to me that he was making up explanations as he went along which he perceived to be supportive of his case. and on another to Mr Heinz Roder written after Mr Fielding had ceased his employment with Rosedown. “Geoff Tucker”. and accepting the account of events given by Mr Fielding in his affidavit. As I have already indicated. When it was pointed out to him that there were several other letters written to Roder whose authenticity he had not questioned in his affidavit that were signed “Geoff Tucker” he then disputed their authenticity and said that he did not think the signatures were his. he observed that they were signed “Geoff Tucker” whereas he signed documents “G S Tucker”. Having seen and heard Mr Fielding and Mr Tucker cross-examined on their affidavits I have no hesitation in rejecting the evidence of Mr Tucker where it conflicts with that of Mr Fielding. In deference to the submissions of counsel for the respondents that the Court should find that Mr Fielding’s evidence should not be accepted it is necessary to consider the evidence in further detail. Trade Structures Pty Ltd (“Trade Structures”). In relation to that certificate he disputes signing it on 2 September 1992. . and it was necessary for Rosedown to obtain tent structures from other sources to fulfil its Grand Prix commitments. I find that it did. Mr Tucker denies that this conversation occurred. Then followed further correspondence in which the product to be acquired was 118 . It was decided that Mr Tucker would visit the three major tent manufacturers each of whom is in Europe. and stating price. When Trade Structures ran into difficulties an agreement was reached between that company and Rosedown that structures owned by Trade Structures would be transferred to Rosedown for a monthly fee. and a schedule for payments and interest charges.. Upon Mr Tucker’s return to Australia correspondence occurred between the two companies wherein Rosedown negotiated the purchase of particular structures at a favourable price and according to a schedule of deferred payments. delivery dates. Mr Fielding reported that conversation to Mr Tucker in Europe including that Mr Roder would extend time for payment only if he retained ownership of the structures until paid in full. At this time Roder had given a quote for specified items.You know the type of structure that we want and we would like to deal with you. Mr Tucker denies that he had this conversation or that there would have been any reason for it as he had a financial adviser with him. By 23 June 1992 the point had been reached where Roder wrote a lengthy “confirmation of order letter” detailing product. and Mr Fielding was involved in making arrangements. Mr Tucker .” 35. Mr Tucker was overseas from 16 to 27 May 1992. Mr Tucker said “That’s OK”.I don’t want the Trade Structures experience to be repeated. The proposed arrangement with Trade Structures fell through. Mr Fielding . you can retain ownership of the structures until you have been paid in full. Whilst Mr Tucker was overseas he telephoned Mr Fielding and asked him to telephone Mr Roder and negotiate a deal with him. Mr Fielding commenced employment with Rosedown. particularly with Roder.OK.That’s fine Heinz.” 38. 37. I can probably get a terms deal but Roder will want to retain ownership until the terms deal was settled given what happened with Trade Structures. As requested Mr Fielding telephoned Mr Roder and a conversation to the following effect occurred: “Mr Fielding . When Mr Tucker went overseas he took with him two other employees of Rosedown and a financial adviser to the company.Rosedown. and that in the following conversation Mr Fielding was acting within the scope of his authority.Given my dealings with Roder at Trade Structures I can probably arrange for Roder to sell you the structures on the basis of payments being made over time whereas I think the others will want their money upfront. and was involved in leasing tent structures to the Adelaide Grand Prix prior to 1992. I find that the conversation occurred as Mr Fielding says. including Roder who had supplied Trade Structures with tentage. and a series of communications followed by fax between them commencing on about 20 April 1992. 34. you give to me the proposed payment terms and we will take it from there. 39.Good. and at about the same time. Shortly after the conversation Mr Fielding spoke with Mr Heinz Roder by telephone seeking prices. 36. Mr Fielding . However he acknowledged in his crossexamination that he left the negotiations with Roder generally to Mr Fielding and authorised him after his return to Australia to conduct the negotiations with Mr Roder. Mr Roder . March 1992. Before Mr Tucker left Mr Fielding said to him words to the effect: “. for Mr Tucker’s visit. Mr Roder . The opening letter on 10 June 1992 contained the statement already referred to that Roder could maintain ownership until Rosedown completed its payments. If Rosedown fails I have to be protected and I have to get the structures back.I will speak to Roder before you go and get some prices from him to see what’s possible. The company fell on hard times and was unable to pay extensive debts due to creditors. and asking for the initial payment of DM 66. 43. one for one structure to the value of DM42.and nightshifts. So dismal did the prospect of obtaining the deposit appear that on 3 August 1992 it was suggested to Roder by Messrs Fielding and Tucker that Roder might consider purchasing a majority share in Rosedown. 40. The interpretation I place on the evidence is that Roder did not understand the purpose of the request. It is argued on the respondents’ behalf that this indicates that no such term was contemplated. At first Roder refused but under considerable pressure from Mr Fielding in communications to an employee of Roder (who. you know we have produced the structures for your company in day . It is contended that the fact that Roder was prepared to do this indicates that it did not intend there to be a retention of title clause. a suggestion which Roder promptly rejected.500 due on placement of the order. and in both instances the representations already referred to were made to the effect that Rosedown would obtain property in the goods on delivery which could then be used as security for a further advance. because the delivery was very urgent and we wanted to fulfill (sic) this first order from you in time. Rosedown was at first unable to raise the deposit payment. Roder sent a fax to Rosedown in the following terms: “Dear Geoff. On 13 July 1992 Roder wrote confirming the variations. and that the making of them does not evidence a belief by Mr Fielding that the representations were true.300 and the other for the balance of the goods.) Roder then agreed to split the purchase between two invoices. may have been a clerical or secretarial assistant to Mr Roder. I find nothing in the communications which occurred on that day which throw any doubt on Mr Fielding’s evidence that it was clearly understood that there would be a term as to retention of title if the goods were supplied pursuant to the order then awaiting the deposit payment. To have the prepayment and the promisery (sic) note as well as a declaration from your side that the goods stay in our owner ship untill (sic) the whole purchase price is paid. On 6 August 1992. dear Michael. In the course of endeavouring to obtain finance from Beneficial Finance Corporation Limited Mr Fielding asked Roder if it would send a separate invoice for one of the tent structures (it being Rosedown’s intention that the invoice would then be used as the basis for a lease transaction to raise the invoice price to fund the deposit). I accept Mr Fielding’s evidence that the term was assumed throughout his dealings with Mr Roder. 119 . it appears. 2. By fax dated 21 July 1992 Roder made it plain that the goods would not be delivered until the deposit was paid. as the deposit had still not been paid. I accept Mr Fielding’s evidence that these misrepresentations were made with Mr Tucker’s knowledge as part of an attempt to keep Rosedown afloat. In none of the correspondence following the letter of 10 June 1992 is any reference made to a term that Roder would retain title until payment in full. is condition for the refinancing deal.varied. 44. We have made a refinancial deal with our bank which includs (sic) the fact that we have to show the agreed prepayment from your side. 41. enclosing five promissory notes for the five deferred payments. 1. as was the overall price and payment schedule. As events turned out Beneficial Finance Corporation Limited refused to enter into a lease agreement until the invoiced goods had arrived in Australia. I do not accept this submission. and that he purposely omitted to refer again to it in his correspondence as he hoped that the failure to mention it might later prove to Rosedown’s advantage. 42. Beneficial Finance Corporation Limited and Rosedown’s bankers were approached. because I was still of the belief that as the goods were leased. on a fair reading of the letter Roder could not have been aware that it was the intent of Rosedown to agree only to a staged retention clause. Then followed the request for the promissory notes and declaration of ownership which led to Mr Tucker signing the document dated 21 August 1992 set out earlier in these reasons. Once again we are not very happy to make this experience. Between 6 and 20 August 1992 Mr Tucker persuaded Rosedown’s banker to extend further credit to the company to enable the deposit to be paid. no papers have been signed on declaration of ownership.3. The letter does not state when the “refinancial deal” was made. I interpret the letter as an explanation for Roder’s position. 5. the requirement for promissory notes and the deposit payment.” Mr Tucker had earlier said that Mr Fielding had led him to believe that once the goods were in Australia they could be leased to finance companies to raise money to pay the later installments . However given the earlier communications between the parties. I do not hope that the various warnings we got from Australia do now become reality. But even accepting that Mr Tucker genuinely held the belief he asserts.” In the context of the events that had happened there can be no doubt as to the goods to which this certificate refers. it nevertheless involves the proposition that on delivery Roder retained title to the goods. Of the three conditions for the refinancing deal stated in paragraph 2 of the letter. were you then clear in your mind that Roder required a declaration of ownership?--I believe so. it was Rosedown’s 120 . Indeed that was not the real intention of Rosedown at the time. the two other than the retention of title term were clearly specified in the letter of 13 July 1992. 46. However in his cross-examination he conceded reading the letter on about 6 August 1992. Moreover the answer to the last of the above questions indicates that by 6 August 1992 Mr Tucker was aware of the requirement of Roder. Mr Fielding gave evidence that he was endeavouring to manoeuvre a situation where Roder could be persuaded later that the condition had that meaning. but a “staged retention clause” whereby property would pass in one structure after another as amounts equal to the purchase price thereof were paid. We regret that we cannot ship the goods as long as we do not have the prepayment and the papers from you.” A fair interpretation of Mr Tucker’s affidavit (para. and that occurred by bank draft on 20 August 1992. However it is argued by counsel for the respondents that the next two sentences of the letter indicate that what was intended was not a condition retaining ownership until payment in full. The proper inference is that the refinancing deal referred to was one already arranged at that time. including the rejection of the offer to purchase a majority interest in Rosedown. an innocent victim of someone else’s dishonest proposal. I accept Mr Fielding’s evidence that Mr Tucker was fully aware of the nature of that scheme and was not.there has always been talk.16 and 17) is that he was unaware of this letter at the time. i. 4. 45. Roder Zelt-Und Hallenkonstruktionen GmbH Heinz Roder. It is reasonable to assume that for an order of this size some financial accommodation had to be arranged by Roder before manufacture commenced. I do not accept this submission. and said: “You do not mean by that in your affidavit that you had not received and read the letter of 6 August that we have just been talking of?---What I was saying is that there was no papers to . Rather. Counsel for the respondents argued that the reference to a “refinancial deal” in this letter indicates that the question of retention of title had arisen for the first time at that stage in consequence of the requirements of Roder’s financier.e. The opening sentence of that letter is crystal clear “This is to certify that the goods you are shipping to me now will remain as your ownership until full payment is made. they would be released. Well. In case you could not fulfill our agreement we would have to inform the context you have asked us to go in touch with Kind regards. as he would have it. having received that communication. and not something of very recent origin. and would do so unless and until goods were “released” for the purposes of being leased to a financier. The invoices then issued for each shipment do not contain a split up of the order or parts thereof to give a price for each size category as requested in the letter of 21 August 1992. protect. 48. or any other provision of these Conditions. The understanding of a reasonable person in the position of Roder on reading the letter would be that the condition demanded by it had been fulfilled: see Convention. so he does not see any problem on your side to sign that. the last paragraph seems to be a bit onerous in that you could claim all the goods back even though we had kept to all the terms of the agreement. and shall keep the goods separate from those of the Buyer and third parties and shall properly store. Until such time as property in the contract goods passes to the Buyer. August 1992” On 27 August 1992 Mr Fielding sent the following fax to Roder: “We have looked at the document you sent regarding the ownership of the goods and we have no basic problems with the wording. He had worded this agreement. I know that is not your intention and you certainly wouldn’t do that to us. The document read as follows: “P R O P E R T Y = = = = = = = = Notwithstanding delivery and the passing of risk in the goods. to enter upon any premises of the Buyer or any third party where the goods are stored and to repossess the same. However a consideration of the invoices in conjunction with the shipping documents makes it clear that there were three invoices because there were three separate containers each of which required a separate bill of lading and shipping documents. Article 8(1) and 8(2). We have asked him about your inquiry but he told us that this right to take the goods back is only given in case that you fail to pay the partial amounts which we have agreed. The property agreement is based on a proposal of our lawyer in England. The receipt of this reply caused Mr Fielding to have Mr Tucker sign the certificate which.” 49. four days after the certificate of 21 August 1992 had been faxed to Roder. the Seller shall be entitled at any time to require the Buyer to redeliver up the goods to the Seller and. and no further request was made for such a division by Rosedown. On 25 August 1992. So we ask you kindly to sign this agreement and send it back. Until such time as the property in the contract goods passes to the Buyer. we would be responsable (sic) for all damages and losses on your side. but could you redraft the last paragraph so that we are not potentially placed in that situation. In case we would take this right without you have given us a reason in not paying the due amounts. It was also suggested by counsel for the respondents that the fact that when the goods were shipped a few days later three invoices were issued indicates that Roder was complying with the “staged retention clause” proposal. no steps were ever taken by Roder to comply with the request that the whole order be split up with separate pricings for each size category. However. the Buyer shall hold the goods as the Seller’s fiduciary agent and bailee. insure and identify the same as the Seller’s property and as against the Seller’s invoices. Until that time the Buyer shall be entitled to resell or use the contract goods in the ordinary course of its business but shall account to the Seller for the proceeds of sale or otherwise thereof and shall keep such proceeds separate from any monies or property of the Buyer and third parties. Roder forwarded a document described in Roder’s covering letter as a “declaration of the property of the tents you have purchased” to Rosedown and asked that Mr Tucker sign it. was completed and returned by fax to Roder on 2 September 1992 with the following covering note from Mr Fielding on behalf of Rosedown: “Thank you for your fax dated 1st 121 .intention to convey the appearance that it had agreed to the condition required by Roder. 47. property in the contract goods shall not pass to the Buyer until the Seller has received in cash or cleared funds payment in full for the price of the contract goods and all other goods agreed to be sold by the Seller to the Buyer for which payment is then due. 25.” On 1 September 1992 Roder replied as follows: “Thank you very much for your fax of 27th August 1992. In further support of this conclusion. if the Buyer fails to do so forthwith. Budingen. as I have found. 266(1) of the Law. In my opinion there was no lack of clarity in the circumstances as to the meaning and intent of the term first anticipated in discussions in May 1993 between Mr Fielding and Mr Roder. 1992 and with your assurance that the property will never be claimed back providing we stick to the terms of the agreement the original agreement has now been signed and posted back to you. 53. and seeks support for that submission from Compaq Computers Ltd v Abercorn Group Ltd.” Legal effect of the term/s as to retention of title 50. The modification contained in the second sentence of the second paragraph of the new clause. and Clough Mill Ltd v Martin.29(1)) in the terms stated in the first paragraph of the new clause would not alter the situation that property remained with Roder and would do so until the condition as to payment was fulfilled.102 was paid in full. ownership. a modification of the contract (see Art. that is property in the goods (see Clough Mill Ltd v Martin at 986 e-f). I reject the allegation that the term was too vague or unclear in its form or application to be of any contractual effect: Armour and Anor v Thyssen Edelstahlwerke AG at 352-353. In my opinion it is not necessary to decide whether the second sentence of the second paragraph constitutes a charge over proceeds of sale or use as Roder is not seeking to enforce that term. In my opinion. If property had not passed before 2 September 1992 because of the term confirmed in writing in the document dated 21 August 1992. whilst the goods remained unsold in the hands of the dealer. was probably extracted from a reputable precedent for trading terms between a manufacturer and dealer in goods (cf the retention clauses considered in Compaq Computer Ltd v Abercorn Group Ltd (t/a Osiris) and Others (1993) BCLC 602 at 609-610 and Modelboard Ltd v Outer Box Ltd (in liq. In Compaq Computers Ltd v Abercorn Group the plaintiff supplier was claiming the proceeds of sale of the goods. and finally formally confirmed in writing in the document signed on 21 August 1992 that the goods “will remain as your ownership until full payment is made. 51. not the goods themselves.” As the term simply conveyed. Does the signing of this new clause alter the position which would otherwise have existed? I think not. although inappropriate insofar as it deals with resale. Counsel for the respondents argues that the second sentence as it purports to operate on the proceeds of sale (and possibly also on rental proceeds) constitutes a charge that required registration. nonetheless is there and cannot be ignored. drafted by the English solicitor. remained with Roder until the purchase price of DM 609. did not confer a charge on the goods in favour of the plaintiff. It is argued that as one part of the new clause constitutes a charge the failure to register that charge means that the clause in its entirety is void as against Mr Eustace under s. Even though Mummery J held that the provision in the dealer agreement under which the plaintiff made its claim to the proceeds of sale was to be construed as a charge.. then stated in writing on 10 June 1992. Similarly in Clough Mill v Martin each member of the Court of Appeal held that the first 122 . at 614 he held that on the true construction of the dealer agreement. if the new clause signed on 2 September 1992 had not been proposed by Roder there would be no room for doubt that the contract for the sale of the goods was subject to a valid and effective term for the retention of title.September. the plaintiff retained full legal and beneficial ownership of them. and moreover the condition in the first paragraph went beyond that which had been agreed by providing for the retention of ownership until payment in full for “.” 52.. As property in the goods did not pass to Rosedown before the term was agreed no question of the retention of title clause being a charge arises: Armour and Anor v Thyssen Edelstahlwerke AG. which were similar to the first paragraph of the present new clause. stated again in the fax of 6 August 1992. but the terms in the second sentence of the second paragraph were inappropriate to the present situation where the goods were not supplied for the purpose of resale. and that the relevant provisions of the retention of title clause. The new clause signed on 2 September 1992.all other goods agreed to be sold by the Seller to the Buyer for which payment is then due.) (1993) BCLC 623 at 626-627). the seller is not deprived thereby of any right he may have to claim damages for delay in performance. and the respondents deny. .3A of the Law effects the enforcement of the rights and remedies following from the ownership retained by Roder after the appointment of the administrator on 6 October 1993.. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. that the contract of sale was “repudiated” by Rosedown.266(1) of the Law.. which dealt with the goods whilst they remained in the identifiable form in which they were originally supplied. It remains necessary however to consider how the provisions of the Convention and of Part 5.. and not a charge. It was agreed that interest calculated at the rate of 13 % p.496.000 originally payable on 30 November 1992.. Relevantly the Convention provides: “Article 25 A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract. the seller may: (a) exercise the rights provided in articles 62 to 65. resort to any remedy for breach of contract. The term for the retention of title in the goods which Roder now seeks to enforce was not a charge and is not void as against Mr Eustace under s.3A 55.990d-e. was a valid and enforceable retention of title clause. Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention. even if a later sentence of the clause constituted a charge over manufactured items which incorporated the goods supplied: see p. the failure to register that charge is of no relevance in the circumstances of this case. the first payment for a six 123 . Whilst Roder alleges. Avoidance and remedies under the Convention and Part 5.a. the seller may not. (b) claim damages as provided in articles 74 to 77. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed.” Immediately prior to 6 October 1993 Rosedown was in continuing breach of the contract of sale in that interest payments were overdue...25 had become payable on 30 March 1993. Even if the second sentence of the second paragraph of the new clause constitutes a charge. Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other party.sentence of the clause under consideration.. during that period. and that Roder has “accepted the said repudiation”. these common law concepts and the common law remedies which could follow upon the acceptance of a repudiation of the contract by Rosedown are replaced by the provisions of the Convention. ... Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations... However. would be paid on that sum. An amount of DM 1. Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract. (3) . 54. . 993d and 994e. or.. The other overdue interest payments related to interest payable under a further variation of the contract made on about 10 May 1993 when Roder agreed to extend until 30 November 1993 the time for payment of DM 133. Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. 991a-b. in the absence of notice to perform under Art.3A of the Law is stated in s.. and the placement of the company under administration.441J. Whilst the provisions of Part 5.440E. in the circumstances of this case. The denial by Mr Eustace as agent for Rosedown (see s.440D(1).436A. charges are unenforceable: s. or as much as possible of its business. or (b) if it is not possible for the company or its business to continue in existence . constituted fundamental breaches that would justify avoidance of the contract of sale immediately prior to 6 October 1993. 58. 57. Thus the company cannot be wound up during that period: s.7). and rights which are not modified or suspended may be exercised as if the administration had not occurred. The object of Part 5. and thereafter interest was to be paid quarterly. 63. but that was something that could be done effectively after 6 October 1993.3A seeks to prevent creditors. The provisions operate only according to their terms. in my opinion none of the provisions of the Law prevented Roder from notifying a declaration of avoidance of the contract. from resorting to legal proceedings or selfhelp measures to enforce their rights against the company.repudiation”.. it would probably constitute 124 . Further. No demand had been made for these payments. i.440A. The contract of sale remained on foot when the administrator was appointed.440C curtailed Roder’s right to recover the goods from Rosedown during the administration. resulted in such detriment to Roder as substantially to deprive it of what it was entitled to expect under the contract.e. I am not satisfied that these breaches of contract.440C (but see Div.000 on 30 November 1993. secured and unsecured. In my opinion the appointment of an administrator by Rosedown constituted a fundamental breach of the contract within the meaning of Article 25 which would justify Roder notifying a declaration of avoidance. Whilst s.440F. in August 1993 and the final payment with the installment of DM 133. See also s.3A control the circumstances in which the property of the company may be recovered or taken by other parties. The pleadings give no indication of the act which is said to constitute the “acceptance of the.440B. Rosedown had not at 6 October 1993 assigned income expected to be received from the November 1993 Grand Prix to Roder. 59. and the administrator is not liable for damages if he refuses consent: s. continuing in existence.435A: “435A The object of this Part is to provide for the business.results in a better return for the company’s creditors and members than would result from an immediate winding up of the company. 56. Whatever that act was. Generally. assuming there was one. property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company. Enforcement processes in relation to the company are generally suspended: s. That fact. The resolution of the directors making that appointment amounted to an acknowledgment by them that the company was insolvent or was likely to become so. and owners and lessors cannot recover property used by the company: s. Proceedings in court against the company or in relation to any of its property cannot be begun or proceeded with except with the administrator’s written consent or with the leave of the court: s.437B) of the term as to retention of title also amounted to a fundamental breach of the contract. and a letter from Roder to Rosedown dated 27 September 1993 made no reference to these overdue payments.” In furtherance of that object upon the appointment of an administrator under s. and in the relatively short interim period whilst the company remains under administration (which in this case came to an end when the Deed of Company Arrangement was executed) the Law in Div. they do not freeze or suspend the exercise of every right held by a creditor.month period becoming due in late May 1993.6 of Part 5. In any event no declaration of avoidance had been notified to Rosedown before 6 October 1993. and their solicitors. and if it were thought necessary to apply for leave to bring proceedings for declaratory relief (which it also did). or (b) the Court orders under subsection 444F(2). except: (c) with the leave of the Court. No action can lie against either Mr Eustace (see s. the company. being that governed by Div.440C. so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i). The correspondence concerns Roder’s claim to possession of the goods . and (d) in accordance with such terms (if any) as the Court imposes. (The day specified in the Deed is 6 October 1993) (2) Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security. this section applies to a person bound by the deed. The only redress open to Roder was to apply to court for leave to take possession (which it did).444A to 445). (3) The person cannot: (a) begin or proceed with a proceeding against the company or in relation to any of its property.a claim which could have been made pursuant to the contract and not only as a consequence of avoidance: see Clough Mill Ltd v Martin at 988. As I have earlier observed. 444F 125 . (4) In subsection (3): ‘property’ in relation to the company. the evidence led by the parties hardly touches on the administration. Other provisions of Div. It was a refusal sanctioned by the Law. I have already noted the power of the creditors to resolve that the administrator of a deed may be someone other than the administrator of the company. except so far as: (a) the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed. includes property used or occupied by. The rights and obligations of creditors and the company under a deed of company arrangement are likely to be quite different: cf Commissioner of Taxation v B and G Plant Hire Pty Ltd and Others (1994) 14 ACSR 283 at 290. 61. except so far as: (a) the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed.3A (ss.6 of Part 5.. I do not think the correspondence between Roder and Rosedown. or (b) begin or proceed with enforcement process in relation to property of the company. the protections afforded to the property of Rosedown under Div.440E) or Rosedown in respect of the refusal to deliver up the goods during this period. and does not deal at all with events after 9 November 1993. The evidence does not disclose whether this was during or after the period when Rosedown was under administration. Whilst Rosedown was under administration Roder’s rights to possession of the goods whether pursuant to the contract or on avoidance were suspended by s. or in the possession of. 444E (1) Until a deed of company arrangement terminates. (2) . in October and early November 1993 can be construed as a declaration of avoidance. That refusal was not unlawful. If there were no earlier notification of a declaration of avoidance I consider the filing of the statement of claim should be so construed as it makes it plain that Roder at that time treated the contract as at an end. A new legal regime then came into force. or (b) the Court orders under subsection 444F(4).notification of a declaration of avoidance. The statement of claim was filed on 13 December 1993.10 of Part 5. Upon the administration coming to an end when the Deed of Company Arrangement was executed..10 of direct relevance are: “444D(1) A deed of company arrangement binds all creditors of the company. 60.3A came to an end. (3) Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property. that such an owner was not bound by the deed in respect of its claim as owner under s. (2) . either by way of applications for leave under s. (7) An order under this section may only be made on the application of: (a) if paragraph (1)(a) applies . or applications for orders limiting actions by owners or secured creditors under s. The supplier argued that leave was unnecessary as it was the owner of the goods within s. His Honour said at 466: “.I have come to the view that s. where those persons are creditors with claims arising on or before the day specified in the deed. rights that existed before 6 October 1993.(1) This section applies where: (a) it is proposed that a company execute a deed of company arrangement. Insofar as additional or other relief is sought against Mr Eustace this action is one “in relation to any of its property”: see s.444E only applied to persons so bound. to some extent..444E(3).. (6) An order under this section may be made subject to conditions. so that the court which is overseeing the administration of the deed will have general control of such proceedings. would encourage self-help and resort to extracurial enforcement or recovery procedures. and s.444E(3). In deciding whether to give leave under s. and (ii) the terms of the order. or is in the possession of.the deed’s administrator. There is some force in the submission. for declaratory relief.. However..444D(2) and (3) do not have the effect of removing the requirement for secured creditors and owners or lessors to obtain the leave of the court under s. and where these claims are associated with the security or property.444F a secured creditor or owner will be restrained from extra-curial action only if the court is satisfied their interests will be adequately protected.444E(3) in respect of court proceedings to enforce their rights as secured creditors or owners or lessors. delivery up and damages for wrongful detention) this action is obviously a “proceeding against the company”. insofar as remedies are now sought against Rosedown (e. (3) .444E(4). So a precondition to the pursuit of this action is leave under s. or (b) if paragraph (1)(b) applies . The action has throughout been prosecuted on the footing that the leave to proceed given under s.444D(1). or (b) a company has executed such a deed..” 62. In J and B Records Ltd v Brashs Pty Ltd (1995) 15 ACLC 458 Hodgson J in the Supreme Court of New South Wales considered whether a supplier of goods under a retention of title clause to a company that was later placed under administration.. a court will have regard to the circumstance that under s. For the purposes of s.” With those conclusions I respectfully agree.the administrator of the company. the company not to take possession of the property or otherwise recover it. and then executed a deed of company arrangement.. In the present case however.that this would have the result of setting up a scheme which.444F. (4) The Court may order the owner or lessor of property that is used or occupied by.444E(3). In the particular circumstances of that case leave was held to be unnecessary as the cause of action was based on an undertaking given by the administrators after the day specified in the deed. No point to 126 .g.444E to a secured creditor or owner.444E. required leave to begin or proceed with an action under s. I think the preferable view is that those three sections were intended to set up something of a code relating to court proceedings in relation to matters concerning claims arising on or before the day specified in the deed. and (iii) any other relevant mater. the essential rights which Roder seeks to enforce are its rights as owner of the goods. and (b) having regard to: (i) the terms of the deed. (5) The Court may only make an order under subsection (4) if satisfied that: (a) for the owner or lessor to take possession of the property or otherwise recover it would have a material adverse effect on achieving the purposes of the deed.440D(1)(b) on 9 November 1993 fulfils this condition.. and if so on what conditions. the interests of the owner or lessor will be adequately protected. which is somewhat contrary to the trend of legislation and judicial decisions in recent times.444D(3). suffered by the other party as a consequence of the breach. the contract of sale not providing for any rent or other periodic payment to recompense for actual use of the goods).. Roder is entitled to enforce the rights and obligations which arose on the avoidance of the contract under the Convention. As Hodgson J observed in J and B Records Ltd v Brashs Pty Ltd (supra) the provisions of s. In my opinion the leave given under s.444E(3).440C. and against Mr Eustace as administrator of the company.444F(4) or offer of recompense for the continuing use of the goods.” and secondly as to restitution: 127 . recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. and as there has been no application under s. and such an order may only be made if the court is satisfied as required by s. Under s.443B(2) was of doubtful application. First. the administrator of the deed may not be the administrator of the company: s. the buyer has bought goods in replacement or the seller has resold the goods. 64. If. first as damages: “Article 74 Damages for breach of contract by one party consist of a sum equal to the loss.444F came into operation.444F(4) on application of the appropriate administrator (s. When the administration came to an end. in the light of the facts and matters of which he then knew or ought to have known. Article 75 If the contract is avoided and if.444E(3) then came into operation so as to require a further grant of leave. (2) . the party claiming damages may. s. including loss of profit.440C. However once the administration ended. as a possible consequence of the breach of contract.444A(2). so did the restrictions imposed by s. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. As the case has been conducted throughout on the footing that the requisite leave had been obtained. Secondly. the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.the contrary has been taken by the respondents in their pleadings or otherwise. Relevantly the Convention provides. the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance.444F will be a consideration in deciding whether to give leave under s.444F(7)). if he has not made a purchase or resale under article 75.444F(5). it may be appropriate to grant leave nunc pro tunc from the day after the administration of Rosedown came to an end (see s.447A). Then s. The absence of an order giving leave to proceed is a matter which Roder must now address. At 9 November 1993 there appeared an urgent need to address the entitlement of the owner (if Roder could establish ownership) to recover its depreciating goods as no adequate recompense was offered by the administrator for the continued use of the goods. So too is Rosedown.. Subject to the question of leave. however.440D(1)(b) only authorised the prosecution of the action against the company whilst under administration. in a reasonable manner and within a reasonable time after avoidance. Article 76 (1) If the contract is avoided and there is a current price for the goods.444F the owner of goods in the possession of the company is not prevented from recovering them unless the court so orders under s. the party claiming damages has avoided the contract after taking over the goods. 63. and no other provision of the Law appeared to offer an avenue for ordering recompense to Roder during the continuance of the administration (s. different considerations will apply in many cases when considering the merits of the enforcement of the proposed claims. For example in the present case one claim made in the proceedings at the time of the order on 9 November 1993 was a claim under s. That further leave was required is readily explained by at least two considerations. I will hear the parties on this question. s. The conventional measure of damages for conversion is the value of the goods at the date of the wrong: McGregor on Damages 15th Ed.3A. Both Mr Eustace personally and Rosedown are liable to Roder for the tort of conversion for interfering with the possessory rights of Roder. In the result Roder has established that the contract of sale included a valid term for the retention of title until payment in full. By Regulation 5. Paragraph 1 of Schedule 8A provides that in exercising the powers conferred by the Deed and in carrying out the duties arising under it..444A(5) the Deed is taken to include the prescribed provisions.. they must do so concurrently.” There is no evidence before the Court which enables the application of these provisions to be further discussed. the appropriate date at which to assess the net result of applying the above Articles could be the date of return of the goods.unless the fortunes of Rosedown have now so improved that Roder is content to await payment by the company of its entitlement assessed under the Convention. except so far as it provides otherwise. Roder will obviously wish to obtain judgment against Rosedown and Mr Eustace in respect of their respective liabilities . and that may be of some assistance to the parties in the application of Article 76 should that be appropriate. 66. absent an order under s. I have already indicated that Mr Eustace incurred no liability for the refusal to return the goods whilst Rosedown was under administration. The tort is committed by an agent even where the agent acts in good faith without any intention to commit a wrong: J G Fleming. it has been entitled to immediate possession of the goods from the time when the Deed of Company Arrangement was executed.. 20th Ed. he has denied Roder’s claim for possession and delivery up. until the goods are returned.. A draft of the Deed (the only evidence of its terms before the Court) did not otherwise provide. 65. If the value of the goods at that date and interest thereafter is allowed. 67. If the goods are now 128 . and has defended these proceedings. (2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. It is necessary therefore to consider the liability of Rosedown and of Mr Eustace for the refusal to return the goods to Roder. 111. 68.444F(4). In addition Roder would be entitled to interest under the Federal Court of Australia Act 1976 (Cth). it is difficult to follow how Roder would have any additional right to compensation for “rental value” from that date. By s.51A from that date. Roder complains that its loss and damages are ongoing. See generally Bowstead on Agency 15th Ed. at 56.“Article 81 (1) Avoidance of the contract releases both parties from their obligations under it subject to any damages which may be due. The Law of Torts 8th Ed. there would be no practical point in Roder pursuing a claim against Mr Eustace. nor make restitution as required by Article 81.in this case the value of the goods at the date when the Deed was executed.. he must also pay interest on it. at 386 and 495 ff. On the other hand if the net result is in favour of Roder. and under paragraph 2(a) the administrator has the power to enter upon and take possession of the property of the company. 1298 ff . that it is the owner of the goods. from the date on which the price was paid. and will continue until the goods are returned. paras. If both parties are bound to make restitution. Article 84 (1) If the seller is bound to refund the price. The affidavit evidence of Mr Eustace read at trial indicates that in his capacity as administrator of the Deed.440C and 440E. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them. and even though he does not act on his own account or for his personal benefit: Salmond and Heuston on the Law of Torts. In the unlikely event that the net result were in favour of Rosedown.06 the prescribed provisions are those set out in Schedule 8A. when he became the administrator of the Deed he lost the protection of ss. the administrator (of the deed) is taken to act as agent for and on behalf of the company. However. and that. I note that immediately upon his appointment as administrator Mr Eustace obtained an “auction realisation” valuation of the plant and equipment of Rosedown. and agent of Rosedown. As Roder cannot resell the goods for the purpose of Article 75. when assessed. 129 .returned. and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. will be entered jointly and severally against both Rosedown and Mr Eustace. he is liable for damages resulting from such non-receipt. So if Rosedown is able to discharge the judgment against it that will also satisfy the judgment against Mr Eustace. EXEMPTIONS Article 79 (1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. Mr Eustace will remain liable to discharge the judgment against him. (4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. Roder cannot recover more than its full loss. I publish these reasons and my associate will communicate with the parties to arrange a convenient time to relist the matter. (5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention. It cannot recover its loss in full under a judgment entered against one respondent. If the loss and damage of Roder against Rosedown under the Convention provisions is assessed at the date of return of the goods there is likely to be some overlap between the judgment entered against Rosedown on that cause of action. credit will have to be allowed for their present value. that party is exempt from liability only if: (a) he is exempt under the preceding paragraph. 69. and the judgments entered for conversion. Article 80 A party may not rely on a failure of the other party to perform. The judgment for damages for conversion. If not. (2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract. and then recover further moneys under a judgment against the other respondent. (3) The exemption provided by this article has effect for the period during which the impediment exists. to the extent that such failure was caused by the first party’s act or omission. 6 FRUSTRATION SECTION IV. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment. As in the past. VIII ZR 121/98. As to the one contract which incorporated the standard terms of the trade concerned (MPC conditions). 5000 kg. On the contrary. The buyer partly used the delivered wax on its own vines fields and partly sold it on to other vine nurseries. the Court held that this question was not governed by CISG (Art. As to the seller’s allegation that the contracts were invalid. on appeal the judgment was reversed in the buyer’s favor. The Court stated that according to private international law rules. that the vines had been damaged by a cause beyond its control. In order to satisfy a Singaporean ban on food imports polluted by radioactivity. Dutch law and therefore CISG was applicable (Art. and did not deliver them to the buyer. as the seller was well aware of such regulations before conclusion of the contract and therefore took the risk of not being able to supply conforming goods. which the seller’s supplier had entrusted with the production. GERMANY. a contracting State. 4 CISG) and denied the invalidity under the otherwise applicable domestic law (Dutch law). RECHTBANK’S-HERTOGENBOSCH. 79 CISG alleging that the Singaporean regulations were to be considered an impediment exempting the seller from performance. the buyer complained thereof to the seller. It was delivered to the buyer in its original packaging directly from a third party. The seller objected. While the first instance court rejected the claim. then filed an action for damages. BUNDESGERICHTSHOF. After a large quantity of plants treated with the wax had suffered severe damage. the buyer was ready to take delivery in the free trade zone in case the authorities of Singapore would consider that the radioactivity was too high and to open a letter of credit in order to guarantee payment. which they thought would be accepted as non-polluted by the authorities of Singapore. the parties agreed that the milk powder was to contain less than a certain percentage of radioactivity. which it regularly used in order to prevent excessive drying out and limit danger of infection. The Court further rejected the seller’s defence that it had the right to withheld performance under Art. The seller appealed to the Supreme Court. After conclusion of the contracts the seller encountered difficulties in finding the required goods. 130 . The buyer was awarded damages for breach of contract by the seller. 1(1)(b) CISG). 2 OCTOBER 1998 A Dutch seller and a buyer from Singapore concluded several contracts for the sale of milk powder. the buyer asked the seller to send an offer concerning “ca. inter alia. NETHERLANDS. The wax was neither received nor inspected by the seller before delivery. Finally. 24 MARCH 1999 (VINE WAX CASE) An Austrian owner of a vine nursery (the buyer) was in a longstanding business relationship with a German company (the seller) for the purchase of a special kind of wax. 9981 HA ZA 95-2299. the Court held that CISG was also applicable since the standard terms contained a choice of law clause in favour of the law of the Netherlands.MALAYSIA DAIRY INDUSTRIES PTE LTD V DAIREX HOLLAND BV. black vinewax”. 71(1)(b) CISG because it could not be proved that the buyer would not perform a substantial part of its obligations to take delivery and pay the price. The buyer commenced an action for damages. the Court held that the seller could not rely on Art. The Court rejected the contention that the seller had not produced the wax itself and therefore it should not be liable for its lack of conformity. the Court remanded the case to the lower courts in order to ascertain the facts. According to Art. and should not have remanded it to separate proceedings concerning the amount of the claim. BELGIUM. 77 CISG must be considered ex officio and may lead to exclude the seller’s liability altogether. In the Court’s opinion this is supported by the German domestic law rules on contributory negligence. by which the seller is obliged to deliver (conforming) goods. and because such a general exclusion would be invalid according to German domestic law. Finally the Court held that the lower instance court should have dealt with the issue of mitigation of damages by the buyer (Art. Failing the required opening of the letter of credit. Art. 77 CISG). VITAL BERRY MARKETING NV V DIRA-FROST NV. since the issue is a procedural one. RECHTBANK VAN KOOPHANDEL. 131 . 2 MAY 1995 A Chilean company (the seller) concluded a contract with a Belgian buyer for the delivery of frozen raspberries. This was not proved in the case at hand. HASSELT AR 1849/94. The Court moreover observed that the seller’s failure to inspect the goods before delivery was of no consequence (contrary to the lower court’s opinion). As to the seller’s claim that the buyer had used part of the wax for a purpose other than that intended. the seller refused to accept a reduced price.The Supreme Court confirmed the lower instance decisions as to the existence of a lack of conformity of the goods under Art. declared the contract avoided and commenced an action to recover damages. because its obligation is to be construed as a warranty and does not depend on fault. both because they were not part of the contract. since the wax did not meet the industry standards that were known to and applied by both parties. 7(1) CISG). the seller has to bear the risk of a lack of conformity deriving from its own suppliers’ non-performance. or whether its application has to be excluded for lack of conformity.e. Art. The contract provided that the buyer should pay through letter of credit. After further communications between the parties. the Court avoided to decide expressly whether Art. Art. 79 CISG was not considered applicable because the seller did not prove that the impediment lay beyond its control. 35(2)(a) CISG. 79(2) CISG. 79 CISG covers all possible cases of nonperformance. there would be no causal connection between the lack of conformity and the damage and consequently no liability of the seller concerning young vine fields. which are applicable notwithstanding the principle of autonomous interpretation of CISG (Art. the seller did not proceed to ship the goods. If this were indeed the case. nor had the seller successfully excluded liability through its standard terms. The buyer itself asked for a delay in the delivery and requested the company which had acted as mediator to negotiate with the seller for a lower price. alleging a significant drop in the world market price for the purchased goods. 79 CISG does not alter the contract’s distribution of risks. The case was thus remanded to the appellate court for decision on the alleged buyer’s failure to mitigate damages by not stopping to use the wax as soon as it became aware of its damaging effects. for treatment of young vines. unless it brings evidence that the impediment did not lie in its and its supplier’s control. In reaching this conclusion. i. In any event. one party is entitled to require performance of any obligation by the other party. taking into account the probability of a cover sale by the seller at a price significantly lower than the one agreed upon in the contract. Fluctuations of prices are foreseeable events in international trade and far from rendering the performance impossible they result in an economic loss well included in the normal risk of commercial activities. unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. The Court determined the amount of lost profits ex aequo et bono. No written modification agreement. 7 BREACH. CANCELLATION AND REMEDIES SECTION III. The Court held that as Chile had made a declaration pursuant to Art. Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other party. request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances. 96 CISG and being the seller’s place of business in Chile. in accordance with Art. Article 28 If. 12 CISG the contract had to be modified in writing. however. as the parties at trial expressly agreed on CISG as the applicable law. The buyer alleged that the contract had been modified by agreement between the parties regarding the amount of the price. in accordance with the provisions of this Convention. Article 27 Unless otherwise expressly provided in this Part of the Convention. The seller had therefore a right to avoid the contract and was also granted damages. GENERAL PROVISIONS Article 25 A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract. REMEDIES FOR BREACH OF CONTRACT BY THE SELLER … CHAPTER I. if any notice.The Court held that the contract was governed by CISG. had been produced by the parties. 79 CISG. The Court further held that the significant drop in the market price of the purchased goods after the conclusion of the contract did not constitute a case of force majeure exempting the buyer for non-performance under Art. including the expenses incurred in storing the undelivered frozen goods and lost profits. a court is not bound to enter a judgment for specific 132 . a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication. (3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract. (2) If the goods do not conform with the contract. the seller may. the buyer may: (a) exercise the rights provided in articles 46 to 52. the buyer may not. even after the date for delivery. the buyer retains any right to claim damages as provided for in this Convention. However. However. (2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time. … Article 45 (1) If the seller fails to perform any of his obligations under the contract or this Convention. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. Article 47 (1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. resort to any remedy for breach of contract. remedy at his own expense any failure to perform his obligations. the seller may perform within the time 133 . the buyer may require the seller to remedy the lack of conformity by repair. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (b) claim damages as provided in articles 74 to 77. (2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer.performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention. (2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed. unless this is unreasonable having regard to all the circumstances. Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties. Article 48 (1) Subject to article 49. the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. However. a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct. the buyer is not deprived thereby of any right he may have to claim damages for delay in performance. (3) If the goods do not conform with the contract. during that period. Article 46 (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. resort to any remedy which is inconsistent with performance by the seller. or after the buyer has declared that he will not accept performance. if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed. the buyer may take delivery or refuse to take delivery of the excess quantity. the buyer may take delivery or refuse to take delivery. (ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47. (b) in respect of any breach other than late delivery. that the buyer make known his decision. (2) However. If the buyer takes delivery of all or part of the excess quantity. Article 52 (1) If the seller delivers the goods before the date fixed. the buyer may not reduce the price. (2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract. Article 51 (1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract. articles 46 to 50 apply in respect of the part which is missing or which does not conform. the buyer loses the right to declare the contract avoided unless he does so: (a) in respect of late delivery. within a reasonable time: (i) after he knew or ought to have known of the breach. … 134 . (3) A notice by the seller that he will perform within a specified period of time is assumed to include a request. or after the seller has declared that he will not perform his obligations within such an additional period. if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles. The buyer may not. within a reasonable time after he has become aware that delivery has been made. or (b) in case of non-delivery. during that period of time. (4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer. Article 49 (1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract. or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48. in cases where the seller has delivered the goods. he must pay for it at the contract rate. under the preceding paragraph. (2) If the seller delivers a quantity of goods greater than that provided for in the contract. the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.indicated in his request. However. Article 50 If the goods do not conform with the contract and whether or not the price has already been paid. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. (2) However. take delivery or perform his other obligations. resort to any remedy for breach of contract. unless the seller has resorted to a remedy which is inconsistent with this requirement. after receipt of such a communication. the seller may. or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63. within a reasonable time: (i) after the seller knew or ought to have known of the breach. make the specification himself in accordance with the requirements of the buyer that may be known to him. measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller. before the seller has become aware that performance has been rendered. Article 65 (1) If under the contract the buyer is to specify the form. within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63. or (b) in respect of any breach other than late performance by the buyer. or after the buyer has declared that he will not perform his obligations within such an additional period. or (b) if the buyer does not. Article 62 The seller may require the buyer to pay the price. during that period. he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer. in cases where the buyer has paid the price. without prejudice to any other rights he may have. REMEDIES FOR BREACH OF CONTRACT BY THE BUYER Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention. the seller is not deprived thereby of any right he may have to claim damages for delay in performance. If. However. Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. or if he declares that he will not do so within the period so fixed. (3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract. the seller may: (a) exercise the rights provided in articles 62 to 65. (2) If the seller makes the specification himself. the specification made by the seller is binding. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed. perform his obligation to pay the price or take delivery of the goods.SECTION III. the buyer fails to do so within the time so fixed. 135 . the seller may not. Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract. (b) claim damages as provided in articles 74 to 77. PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER SECTION I. The present paragraph relates only to the rights in the goods as between the buyer and the seller. he may declare the contract avoided for the future. those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract. including loss of profit. whether before or after dispatch of the goods. Article 72 (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract. ANTICIPATORY BREACH AND INSTALMENT CONTRACTS Article 71 (1) A party may suspend the performance of his obligations if. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of 136 . if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment. the other party may declare the contract avoided with respect to that instalment. the other party may declare the contract avoided. suffered by the other party as a consequence of the breach. (3) A party suspending performance. he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. by reason of their interdependence. Article 73 (1) In the case of a contract for delivery of goods by instalments. (2) If time allows. the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. at the same time.… CHAPTER V. (2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident. provided that he does so within a reasonable time. after the conclusion of the contract. it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness. SECTION II. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations. or (b) his conduct in preparing to perform or in performing the contract. (2) If one party’s failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments. (3) A buyer who declares the contract avoided in respect of any delivery may. must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance. DAMAGES Article 74 Damages for breach of contract by one party consist of a sum equal to the loss. declare it avoided in respect of deliveries already made or of future deliveries if. in a reasonable manner and within a reasonable time after avoidance. resulting from the breach. in the light of the facts and matters of which he then knew or ought to have known. without prejudice to any claim for damages recoverable under article 74. Article 76 (1) If the contract is avoided and there is a current price for the goods. EFFECTS OF AVOIDANCE Article 81 (1) Avoidance of the contract releases both parties from their obligations under it. if there is no current price at that place. including loss of profit. the party claiming damages may. the current price is the price prevailing at the place where delivery of the goods should have been made or. the other party is entitled to interest on it. the party claiming damages has avoided the contract after taking over the goods. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract. (2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. if he has not made a purchase or resale under article 75. making due allowance for differences in the cost of transporting the goods. the price at such other place as serves as a reasonable substitute. the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance. … SECTION V. subject to any damages which may be due. Article 75 If the contract is avoided and if. however. as a possible consequence of the breach of contract. the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. If both parties are bound to make restitution. they must do so concurrently. the buyer has bought goods in replacement or the seller has resold the goods. If he fails to take such measures. INTEREST Article 78 If a party fails to pay the price or any other sum that is in arrears. Article 77 A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss. (2) For the purposes of the preceding paragraph. Article 82 (1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. (2) The preceding paragraph does not apply: 137 . SECTION III.the contract. If. the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74. (2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them. and the seller is either in possession of the goods or otherwise able to control their disposition. the seller must take such steps as are reasonable in the circumstances to preserve them. SECTION VI. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them. where payment of the price and delivery of the goods are to be made concurrently. he must take possession of them on behalf of the seller. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. Article 86 (1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them. he must also pay interest on it. Article 84 (1) If the seller is bound to refund the price. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer. Article 83 A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention. from the date on which the price was paid. or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them. he must take such steps to preserve them as are reasonable in the circumstances. provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity. If the buyer takes possession of the goods under this paragraph.(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission. Article 87 A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable. his rights and obligations are governed by the preceding paragraph. PRESERVATION OF THE GOODS Article 85 If the buyer is in delay in taking delivery of the goods or. (b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38. but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods. Article 88 (1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking 138 . if he fails to pay the price. the difference between the contract price and the price in the substitute transaction (Art. according to the Court. In the case at hand. After the contract was concluded. RG 97008146. The seller replied on September 3 and 5.possession of the goods or in taking them back or in paying the price or the cost of preservation. stating that. the buyer proposed that the taking of delivery be postponed until September 11. May through December. In this connection. 74 CISG. The Court further held that. the amount which the buyer was entitled to be paid as damages had to be partially compensated (set-off) against the lower amount to be paid by the buyer as purchase price for the goods received before the contract was avoided (terminated). 75 CISG). (3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. 4 FEBRUARY 1999 A Spanish seller and a French buyer concluded a contract for the sale of pure orange juice to be delivered by installments. the buyer had purchased pure orange juice of the same season even in the December substitute transaction. since the buyer had failed in taking delivery by the end of August. 139 . (2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense. from September through December. FINAL PROVISIONS [not included] EGO FRUITS SARL V LA VERJA. the Court held that the buyer had agreed on the seller’s request that the goods be taken in delivery by the end of August simply to obtain a reduction of the purchase price. However. as the seller had refused to deliver the goods so that the buyer had had to buy goods in replacement. In the case at hand. The buyer appealed. Moreover. the seller had never advised the buyer that the pure orange juice was unstable and needed to be concentrated after August. To the extent possible he must give notice to the other party of his intention to sell. it had to purchase pure orange juice in replacement at a higher price. CHAMBRE COMMERCIALE. the seller was not entitled to avoid (terminate) the contract. PART IV. before its reply of September 5. a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. On September 2. the seller was not entitled to avoid (terminate) the contract on the ground of Art. 64(1)(a) CISG. Having failed to do so. FRANCE. so that the seller was unable to deliver pure orange juice after August. However. The Court of Appeals held that the seller’s reply of September 3 amounted to a declaration of avoidance (termination) of the contract. the buyer could not foresee that a few days delay in taking delivery of the goods could result in a substantial detriment to the seller and thus in a fundamental breach of the contract (Art. the end of August. He must account to the other party for the balance. provided that reasonable notice of the intention to sell has been given to the other party. the buyer was entitled to damages under Art. as the buyer’s breach in taking delivery of the goods by the end of August did not amount to a fundamental breach of contract under Art. the parties agreed on a reduction of the price and that part of the goods be delivered at an earlier date. the orange juice had been concentrated to preserve it. 25 CISG. 25 CISG). However. 63 CISG). The court of first instance held that the seller was entitled to payment of the purchase price. COUR D’APPEL DE GRENOBLE. Therefore. namely. A dispute arose between the parties as the buyer refused to pay the price for the goods delivered before August alleging that. the seller should have fixed an additional period of time to the buyer for taking delivery (Art. Plaintiff interprets the “Restricted Area” as North America. the trade gallon line was intended to manufacture 2. The non-competition agreement contained no covenants for the buyer. notices. based on other exhibits filed by the parties and their briefing. 2000. Count One alleges breach of the non-competition agreement and specifically that Defendants are soliciting customers of Plaintiff in North America for the purpose of selling equipment subject to the agreement.200. The noncompetition agreement also stated that it was to be interpreted and enforced in accordance with the laws of the State of Michigan.5 liter pots and the double line was intended to manufacture 11 centimeter pots on one line and 4 inch pots on the other line. each premised on diversity jurisdiction. The jurisdictions included in the Restricted Area as of the date of this Agreement are listed on Schedule I hereto. the Court notes for clarification sake that. warranties. The Answer also contends that Defendant INA Plastics has dissolved and is no longer in business. DISTRICT COURT (MICHIGAN) RICHARD ALAN ENSLEN. Plaintiff’s Complaint is stated in three state law counts. the parties entered into a noncompetition agreement which contained various covenants of the seller not to engage in selling its equipment and processes within the “Restricted Area. Plaintiff. and not to disclose or use trade information and customer lists of the buyer. 2000. The Court’s preliminary assessment is that this controversy is governed by the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). The goods sold in this case are commercial goods of the type subject to the Convention. The equipment included a “double line” having an annual output capacity of 1. who is a citizen of Michigan. The Answer contests most of the factual allegations. expenses. Count Two alleges breach of the purchase agreement and more specifically both that Defendants have not provided all of the services required under the agreement and that the equipment has not performed as promised. further clarified that jurisdiction was proper in that Plaintiff had only one member. but required the further execution of a noncompetition agreement.” No Schedule I was attached to the document. Defendants have also answered the Complaint. According to the Complaint. did not manufacture to the contract specifications and failed to meet industry standards for manufacturing. with one exception. The exception is the legal question of the enforcement of the non-competition agreement.” not to disclose its technical manufacturing processes to others.800.M. Count Three alleges a breach of warranty as to the equipment in that the equipment was not in good working order. This assessment is based on the several pertinent facts. non-competition. The aggregate purchase price for the equipment was $ 1. during hearing. Although it was not alleged in the Complaint.000 for the trade gallon line. Count One is pertinent to the request for Preliminary Injunction since it includes the request that the Court temporarily and permanently enjoin violation of the non-competition agreement.SHUTTLE PACKAGING SYSTEMS V JACOB TSONAKIS INA SA 2001 U. but admits jurisdiction and venue.000 lbs. Calvin Diller. the non-competition agreement specifies the 140 . interest. Plaintiff alleges that under the purchase agreement Defendants were required to supply thermoforming line equipment for the manufacture of plastic gardening pots together with the technology and assistance to use the equipment. While the purchase agreement does not specify the application of any body of law as to the purchase. The United States and Greece are signatories to the Convention.270. on November 2.L. it agreed to a purchase agreement with Defendants. and a “trade gallon line” having an annual output capacity of 3. or in which Seller has reason to know the Company expects to engage in.000 lbs. United States District Judge: Plaintiff’s Verified Complaint alleges that on November 1. but listed the payment of the purchase price under the purchase agreement as the consideration.800. 671 (May 1980). The “Restricted Area” was defined as “any jurisdiction throughout the world where the Company is. the Business.  the Court must make an initial and preliminary assessment of the likely source of law to be applied to this controversy. which is governed by Michigan law under the parties’ forum selection clause. and an integration clause.000 for the double line and $ 1.S. …  To  begin  this  discussion. The Contract also included other terms relating to payment schedules. 19 I. The non-competition term did not include the specific terms for non-competition. federal courts have determined that international sales agreements under the Convention are not subject to the parol evidence rule and are to be interpreted based on the “subjective intent” of the parties based on their prior and subsequent statements and conduct. This related argument concerns Articles 38 and 39 of the Convention. Inc. the parties’ subsequent conduct and discussions revealed an intent to apply this restriction to the United States’ market. The wording of the Convention reveals an intent that buyers examine goods promptly and give notice of defects to sellers promptly. With this backdrop. However. Doc. Although the meaning of the non-competition agreement was confused because the parties never attached the schedule describing the extent of the restrictions.N. Second. delivered in installments and subject to training and on-going repairs. Long before the July 6 correspondence. the outer limit of two years is set for the purpose of barring late notices. they are in apparent agreement as to this choice of law. as such. Law 1 & n. which require the buyer to “examine the goods . the statements and conduct of the parties reveal an intent to require Defendants not to compete as to the United States’ market. In this case. . . 1998). A/Conf. Secretariat’s Commentary on the Draft Convention.” Article 39 also provides a two-year time period as the outer limit of time for a buyer to notify the seller of a lack of conformity (unless the goods are subject to a longer contractual period of guarantee). Ceramica Nuova d’ Agostino. Furthermore. Articles 8 and 9. The machinery was complicated. One argument made by Defendants is that the non-competition agreement is ineffective because of lack of consideration for the agreement. 29. under the Convention. it is not entitled to suspend payment of money owed under the purchase agreement. CSIG. given the law cited by the parties. 1387-1391 (11th Cir. This related argument fails.3d 1384. J.p. This argument is not apt in the context of the Convention and the facts of this case. v.N. The international cases cited by Defendants are not apposite to this discussion because they concern the inspection of simple goods and not complicated machinery like that involved in this case. It is also wrong to say. a contract for the sale of goods may be modified without consideration for the modification. 97/5 (1979)). Another argument made by Defendant is that the non-competition agreement is unenforceable because the document failed to specify the jurisdictions in which seller was required not to compete. unique. First of all.. there was a steady stream of correspondence between the parties relating to the functioning of the equipment which may have constituted sufficient notice of the complaints.A. Art. Int. but only as to the enforcement of the non-competition agreement. U. the Court must assess whether Defendants now have a legal right to compete for this business in North America. Defendants make several arguments in opposition to the Motion. there was ample reason for a delayed notification. This argument fails. S. See CSIG. In this case. the noncompetition agreement was made part and parcel with the purchase agreement and assumed that the consideration for the non-competition agreement was the consideration for the purchase agreement. MCC-Marble Ceramic Center. For this reason. The Plaintiff’s employees lacked the expertise to inspect the goods and needed to rely on Defendants’ engineers even to use the equipment. 144 F. Michael Van Alstine. within as short a period as is practicable in the circumstances” and which further state the buyer “loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time …  . Also. it is also clear from the statute that on occasion it will not be practicable to require notification in a matter of a few weeks. 141 . in light of this record. As such. Defendants also make a related argument that because Plaintiff delayed in complaining about the performance of the equipment. …  Defendants’ final  argument  …  is  that  the   Plaintiff  committed  the  first  material  breach  of   the contract and. given the wording of the Convention.application of Michigan law. that notification did not occur until July 6. 37 Va. 2001.47 (Fall 1996) (reaching this conclusion based on the U. the failure to specify the precise jurisdiction does not render the agreement invalid. Defendants are no longer bound by the terms of the non-competition agreement. 800 Rotorex model K39A593A compressors. the machinery has been successfully operated with Defendants’ assistance and Plaintiff is a cash-strapped business raising performance questions only after formal inquiries have been made as to non-payment — tends to show that complaints about performance were opportunistic and not genuine in character.:  … I.3d 1024. the Court concludes that the evidence submitted best supports the proposition that these complaints did not constitute either a fundamental or even a substantial breach of the contract by the seller. Rotorex sent a first sea shipment of 2. on the whole. This is particularly true since the context for this dispute — namely. In preparation for producing Arieles using Rotorex compressors. Delchi and Rotorex entered into a contract under which Rotorex agreed to sell 10. to be delivered in three installments by May 15.Nevertheless. the Court does accept Defendants’ contention that the Plaintiff’s non-payment of progress payments on the machinery did constitute a “fundamental breach of contract.” Article 25 of the Convention defines a “fundamental breach of contract” as one “which results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract.  J. [Order denying the Motion for Preliminary Injunction. Delchi informed Rotorex that Delchi was ordering the Rotorex compressors for use in the production of Delchi’s “Ariele” line of portable room air conditioners to be sold in the summer of 1988.” The Convention affords the buyer a right to avoid the contract under Article 49 for a fundamental breach. Maryland. In January 1988. no additional notifications are required for avoidance of the contract. 1028 (2nd Cir. Defendant Rotorex Corporation (“Rotorex”) is a New York corporation with its principal place of business located in Frederick. 5. FINDINGS OF FACT 1. On March 26. the Court determines that it is likely that non-payment of the large sums due for the performance payments was a fundamental breach of contract and that it excused Defendants’ performance of noncompetition obligations under the purchase agreement and non-competition agreement.46 in the form of letters of credit from Delchi in payment for the shipment.000. In this case. Article 64 is also specifically worded to give the implication that non-payment of the purchase price is the most significant form of a fundamental breach by a buyer. On the other hand. 2. 3. .822 lire to acquire special insulation materials and tubing for use in Arieles to be produced with Rotorex compressors. 1988. 6. As such. 142 . It likewise affords both buyer and seller the right to suspend or avoid an installment contract due to fundamental breach under Articles 71-73. Plaintiff Delchi Carrier.] DELCHI CARRIER SPA V ROTOREX CORP (1995) 71 F3D 1024 HOWARD  G. Rotorex Corp. 71 F. This is a significant definition in that Article 64 provides the seller a right to declare the contract avoided due to a “fundamental breach of contract. the buyer has had some legitimate complaints concerning the machinery throughout the delivery and training process. and shortly thereafter received $ 188. 7.  SR. Delchi also spent 27.923. . 1988. .129.  MUNSON.000 lire for special tooling. Delchi spent 39. since. 1995) (discussing definition). the Court concludes that Plaintiff is unlikely to succeed on the merits.” See Delchi Carrier v.. However. as to a serious non-payment.438 compressors to Delchi. Italy. 4. SpA (“Delchi”) is an Italian corporation with its principal place of business located in Villasanta. 142 lire for inspection and testing of Rotorex compressors above what normally was expected (582 additional hours at 20. 1988.845.000 lire.877.600 ordered for sea shipment by June 30. 23. 20. and shortly thereafter received from Delchi $ 129.103. and storage. 1988. Delchi received only 19.874. Delchi incurred expenses in the amount of 18. Delchi paid for shipment of additional Rotorex connectors. Delchi spent 2. 1988. of which 1. Delchi paid 519. Delchi held the second installment in storage. 14. Delchi incurred expenses of 11. 24.520 lire related to customs and inland shipment of the first lot of 2.081 lire/hour). 11. 1988.790. Italy on April 20. 1988. 1988. Delchi’s assembly line shut down from May 16 to May 19.851 lire was unreimbursed. That figure represents the difference between the total cost of shipping. As of April 12. Italy factory. and therefore expected a total of 27. 21.687. After abandoning its unsuccessful attempts to cure the defective Rotorex compressors. Delchi’s 1988 cost to manufacture one Ariele unit with a Rotorex compressor was 478. 19. and therefore rejected the compressors and cancelled the contract. 12. thereby filling part of the void left by Rotorex’s breach.400 fewer than it reasonably expected.096.75 hours at 20. 25. 22.322 in unproductive assembly worker wages (1. customs. Although Delchi failed to establish the precise cost of storage of the second shipment of Rotorex compressors. On or about May 9.991 lire to ship substitute Rotorex grommets to its Villasanta plant. 15.102.999 Ariele units in 1988.8. Rotorex’s first shipment of compressors reached Delchi’s facility in Villasanta.783 lire. 1988).081 lire/hour).000 lire to modify the electrical panels of Arieles for use with the substitute Sanyo compressors. 13.665 lire for accelerated air shipment of previously ordered Sanyo compressors. 1988 (7. and the total expenses of the second shipment. Sea shipment of the Sanyo compressors would have cost 15. When Rotorex’s second installment of compressors arrived in Genoa in May 1988. 18.683 lire is a reasonable estimate of Delchi’s expense. Delchi spent 11. Italy to Delchi’s Villasanta. 10. at a cost of 15. In a further attempt to cure the defect. 17. incidental expenses.5 man hours inserting special Rotorex grommets for Rotorex compressors from May 3 to May 10.536 Sanyo compressors by August 1. and thus suffered a loss in the volume of Arieles it was able to manufacture for the 1988 selling season.680 compressors to Delchi.60 in the form of letters of credit for the second shipment. customs and incidental expenses attributable to the first shipment of Rotorex compressors. 143 .170 lire. In an attempt to cure the defect in Rotorex’s compressors. Delchi workers spent 790. Delchi expected 10. 2.144.438 Rotorex compressors from the port of entry at Genoa.400 lire storing the rejected compressors contained in Rotorex’s first shipment.309. Because it had no compressors with which to manufacture Arieles.030 lire (20.936 already shipped plus 9.016. Additionally. at a net cost of 183. 8. Delchi discovered that the Rotorex compressors from the first lot were nonconforming. 16. 1988.081 lire/hour). While Rotorex’s second installment of compressors was en route to Italy. 26.800 compressors from Rotorex before August 1. In its efforts to cure the defect in the Rotorex compressors. 9. costing Delchi 22. Delchi spent 1. Delchi was unable to obtain substitute compressors from other sources in time for the 1988 selling season for Arieles.216 compressors by August 1. Delchi sold 22. thereby incurring expenses.985. Delchi was able to expedite shipment of previously ordered Sanyo compressors.616 compressors by August 1. Delchi reasonably could have planned for delivery of 17.540. 1988 Rotorex shipped a second installment of 1. including shipping. 876 lire.769 sale price minus 478. as Delchi had cancelled those orders before discovering Rotorex’s breach. 4. and the average commercial and financial costs associated with the sale of one White-Westinghouse brand unit was 23. minus 7. GAOR. Delchi paid White-Westinghouse a royalty of 799 lire per unit on its 1988 sales.644 lire. representing 280. Delchi paid no commission on orders from Carrier affiliates throughout Europe. Reg.814 lire. Supp. minus 23.783 manufacturing cost. representing 31.. 1355 n.280 lire (1. of which only 250 units were delivered. As a result of Rotorex’s breach of contract. 604 were for Delchi brand Arieles. and 653 were for White-Westinghouse brand Arieles. UNCCISG. 726 F. 32. 1344. Delchi is entitled to collect monetary damages for Rotorex’s breach in “a sum equal to the loss. 1987).C.035. 1988 was 1. The average commission paid by Delchi on the sale of one WhiteWestinghouse unit in Italy was 93.C. 40.783 lire manufacturing cost).T. art. minus 9.861 lire (654. 33.840 lire in lost profit. minus 93. 1991)./97/18 Annex I (Apr.035.Y. See 144 .230 lire. Filanto.A.039 lire. Delchi’s average 1988 gross unit sales price for White-Westinghouse brand Ariele units in Italy was 1.612 lire in lost profit. v. UN Doc. Thus Delchi’s expected profit on a sale of one Ariele unit to a Carrier-affiliated European company was 175.  …   29.783 lire manufacturing cost. 1229. Delchi was unable to fill orders for 2. Int’l Trade 1989). and the average commercial and financial costs associated with the sale of one Delchi brand unit was 23. 2.N.187. The 1.095  lire  in  lost  profit.D.407 royalty). This provision seeks to provide the injured party with the benefit of the bargain.783 manufacturing cost.p. 1980).  representing  421. Delchi was unable to fill orders for 100 units from White-Westinghouse. Of those orders.377. v.407 lire per unit. Delchi paid royalties on 1988 sales of White-Westinghouse brand units of 9. Chilewich Int’l Corp. 28.991 royalty). article 1(1)(a). 13 C. Although White-Westinghouse originally ordered 500 units. 6262-6280 (Mar. 74. S.7 (Ct. Thus Delchi’s average profit on a sale of one White-Westinghouse brand Ariele unit in Italy was 429. The average commission paid by Delchi on the sale of one Delchi brand unit was 93. As a result of Rotorex’s breach of contract. including both its expectation interest and its reliance expenditures. a German company unaffiliated with Carrier.493 lire (1.” although not in excess of the amount reasonably envisioned by the parties. Delchi’s average 1988 gross unit sales price to White-Westinghouse. § 1332. 866. minus 93.I. The exchange rate on April 20. United States. Delchi’s average 1988 gross unit sales price to Carrier-affiliated companies in European countries other than Italy was 654. Thus Delchi’s expected profit on a sale of one Ariele unit to WhiteWestinghouse was 313. A/Conf.395 units from Carrier-affiliated  companies  throughout  Europe.308 lire.876 sale price minus 478.310.200 lire in lost profit. Orbisphere Corp. In addition. Delchi was unable to fill orders for 1.033.260 lire.S.814 sale price minus 478. 1237 (S. The court has jurisdiction over this action pursuant to 28 U. 31.257 orders from Italian agents.27. CONCLUSIONS OF LAW 1.308 average commercial/financial cost).238 lire per one dollar.S.319.057. 30. 34. 10.800 conforming compressors. was 799. II. Delchi’s average 1988 gross unit sales price for Delchi brand Ariele units in Italy was 1.260 commercial/financial cost. Thus Delchi’s average profit on a sale of one Delchi brand Ariele unit in Italy was 440. 2. 33d Session.230 average commission.257 lost sales represent 546.039 average commission. Supp. 52 Fed.772 lire in lost profit. Rotorex was not responsible for 150 of the unfilled orders.644 lire average sale price minus 478. including loss of profit. minus 23. Appendix (West Supp.033. Under UNCCISG. Rotorex breached its contract with Delchi by failing to supply 10. Supp. 789 F. representing 266. 1992).102 lire (799. codified at 15 U. As a result of Rotorex’s breach of contract.769 lire per unit. 3. 35 (A/35/35) at 217. The governing law of the instant case is the United Nations Convention on Contracts for the International Sale of Goods (“UNCCISG”). 400 lire related to Rotorex’s first shipment. 376 (2d Cir. PLAINTIFF’S ATTEMPTS TO REMEDY NONCONFORMITY 5. The shipment of previously ordered Sanyo compressors did not constitute cover under UNCCISG article 75. 183. a party must provide the finder of fact with sufficient evidence to estimate the amount of damages with reasonable certainty. article 77 (“A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss. the court holds that Delchi is entitled to 2. 15. Thus. Sutton.030 lire for labor costs relating to replacing original. d. 1. UNCCISG requires such mitigation. Valassis Inserts. iv. L. Once Delchi’s attempts to remedy the nonconformity failed. 5 ARTHUR CORBIN.Jeffrey S.083 lire for expenses incurred for handling and storage of Rotorex’s nonconforming compressors.J. Delchi is further entitled to collect costs incurred for handling and storage of nonconforming compressors. 742-43 (1989) (analyzing intent of Convention drafters). including 11. because the Sanyo units were previously ordered. it was entitled to expedite shipment of previously ordered Sanyo compressors to mitigate its damages.845. A. Delchi’s action in expediting shipment of Sanyo compressors was both commercially reasonable and reasonably foreseeable.683 lire as a reasonable expense for that purpose. c.”). 9. but were costs that would not have been incurred without Rotorex’s breach. to recover a claim for lost profit under UNCCISG. and with the law of New York.. see Merlite Indus. at 747-48. Inc. although Delchi failed to establish the precise cost of storage of second shipment of Rotorex compressors. b. iii. HANDLING AND STORAGE OF REJECTED COMPRESSORS 7. UNCCISG. Inc.687. v.200. 1991).309. 1993). 11. Indeed. Measuring Damages Under the United Nations Convention on the International Sale of Goods. UNCCISG permits recovery of lost profit resulting from a diminished volume of sales. supra.170 lire for unreimbursed expenses relating to the shipment of connectors. Further. Nonetheless. Sutton. These were not anticipated costs of production.000 lire expected cost for ocean shipment).. LOST PROFIT 8. JOHN HONNOLD. 145 . UNIFORM LAW FOR INTERNATIONAL SALES § 415 (2d ed.305.3d 373. ii.665 lire for air shipment less 15.540.874.103. Delchi is entitled to recover 13. and therefore Delchi is entitled to recover 504. see RESTATEMENT (SECOND) OF CONTRACTS § 331.096. Delchi is entitled to recover damages incurred as a result of its attempts to remedy the nonconformity of Rotorex’s compressors. CONSEQUENTIAL DAMAGES i. Further.142 lire for extraordinary reinspection and testing of units after installation of the substitute grommets and connectors. such damages were a foreseeable result of Rotorex’s breach. 737. CORBIN ON CONTRACTS § 1020 (1951).665 lire as the net cost of early delivery of Sanyo compressors (519. problematic grommets with substitutes. 12 F. EXPEDITED SHIPMENT OF SANYO COMPRESSORS 6. In conformity with the common law. Hence Delchi is entitled to recover: a.851 lire for unreimbursed expenses relating to the shipment of substitute Rotorex grommets. and hence can not be said to have replaced the nonconforming Rotorex compressors. 50 OHIO ST. 27. D. as the court sustained Rotorex’s timely objections to the speculative nature of such testimony. The cost of shipping. the following lost profit damages: a. that Delchi’s inability to fill those orders was directly attributable to Rotorex’s breach. for a total of 546.000 lire for modification of electrical panels for use with substitute Sanyo compressors. the court in its discretion awards Delchi prejudgment interest at the United States Treasury Bill rate as set forth in 28 U. c. Delchi is not entitled to recover 2. 11. Delchi proved with sufficient certainty that it incurred.C. and incidentals relating to the second shipment of Rotorex compressors.840 from lost sales of 653 White-Westinghouse brand Arieles in Italy. is not in evidence. b. 1987).10. customs and incidentals relating to the first shipment of Rotorex compressors. 1988. can not be established with reasonable certainty. if any. c.822 lire for obsolete insulation materials and tubing purchased for use with only Rotorex compressors. Thus damages shall be converted at the rate of 1.238 lire per one dollar.877. 13. Delchi can not recover on its claim for additional lost profits in Italy because the amount of damages. Because Article 78 does not specify the rate of interest to be applied. Delchi is entitled to prejudgment interest pursuant to UNCCISG Article 78. e.395 Arieles to Carrier-affiliated companies throughout Europe.612 lire in lost profit from lost sales in Italy. 22. COST OF PRODUCTION 12.016.144.520 lire claimed for expenses incurred by Delchi in shipping.187. as a foreseeable and direct result of Rotorex’s breach. C. § 1961(a).000 lire for obsolete tooling purchased exclusively for production of units with Rotorex compressors.319. The parties do not dispute that the exchange rate in effect on April 20. 18.310. 902-03 (2d Cir.057. Those fixed costs for which Delchi may not recover include: a. CONVERSION TO DOLLARS 15. 266.129. and Angelo Calaciura. 421.095 lire from lost sales of 2. Doc. customs.S. Delchi did not prove with sufficient certainty any lost sales from “indicated orders” in Italy.200 lire from lost sales of 100 Arieles to White-Westinghouse Company. State Street Bank Int’l. Delchi is not entitled to recover expenses related to the anticipated cost of production of Ariele units with Rotorex compressors. This is in conformity with the New York “breach-day rule. Delchi failed to prove that this cost was directly attributable to Rotorex’s breach. Georgia Viale. and no evidence that if any such lost sales did exist. Middle East Banking v. 39. Plaintiff’s 146 . who averred that they would have ordered more Arieles had they been available.322 lire for production line employees’ down time from May 16-19. Delchi provides no documentation of additional lost sales in Italy.772 from lost sales of 604 Delchi Brand Arieles in Italy.” under which damages sustained in foreign currencies are converted as the rate of exchange prevailing on the date of breach. 31. and that the cost was not part of the regular cost of production of units with Sanyo compressors. at 26-29. d. b. Delchi’s claim of 4. because those costs are accounted for in Delchi’s recovery on its lost profits claim.000.000 additional lost sales in Italy is supported only by the speculative testimony of Italian sales agents Renato Comolla. Luigi DiBlase. 821 F. 1988 is appropriate for converting damages from lire to dollars. The number of additional units they might have ordered.2d 897. B. although specified in Delchi’s Post-Trial Brief. PRE-JUDGMENT INTEREST 14.377. 74. and 280. the court will direct that judgment be entered. From that decision the appellant has appealed on a variety of grounds.C. there was no reference either to the Sale of Goods Act 1896 (“the Act”) or the Convention. 1994. III.248. Arguably the material facts pleaded by the respondent could have supported a claim either under the Act or the Convention. defendant Rotorex Corporation is liable to plaintiff Delchi Carrier SpA in the amount of $ 1. had been completed under the Rules of the Supreme Court. CONCLUSION In consideration of the testimony and exhibits presented in this case on May 23 through May 27. should be assessed pursuant to that provision of the Act. In accordance with Order 22 rr 1 and 14. There is ample authority in cases decided on those rules or their equivalent that a party could at trial rely on any legal consequences which properly flowed from the material facts pleaded. One of the changes brought about by the Uniform Civil Procedure Rules. the pleadings as they stood at the commencement of the trial alleged only matters of fact. if any. As is evident from the appellant’s outline and counsel’s oral argument this issue incorporates grounds 1-9 inclusive in the notice of appeal. [4] The proceedings were commenced in 1996 and the trial commenced on 29 May 2000. applied to the transaction. thus the appellant was contending that damages.87 in principal.347.434. including the pleadings. [2] WILLIAMS JA: This is an appeal from Ambrose J who concluded that the respondent was entitled to recover from the appellant a total of US $1. as set forth in 28 U. That contention was “not admitted” by the respondent in its reply: para 7. Upon receipt of that documentation. The learned trial judge held on the evidence that the appellant had fundamentally breached the contract and assessed damages pursuant to Articles 74 and 75 of the Convention. plus interest. made relevant by the Sale of Goods (Vienna Convention) Act 1986. In addition. § 1961(a). 147 .total compensable damages equal 1.280.87 dollars in principal. [5] In the respondent’s pleadings.848 lire.331. [3] The first matter that must be considered is the appellant’s contention that “in fairness” the respondent was not entitled to a judgment based on the Convention.S. Virtually all of the interlocutory steps. in satisfaction of Rotorex’s breach of contract. was that a party was obliged “if a claim or defence under an Act is relied on” to identify the specific provisions under the Act: r 149(e). In para 32 of the defence it was alleged that s 51(3) of the Act was the “prevailing law”. The claim arose out of a contract between the parties in terms of which the respondent agreed to sell scrap metal to the appellant. and in consideration of plaintiff’s and Rotorex’s post-trial memoranda. or 1.331. DOWNS INVESTMENTS V PERWAJA STEEL [2001] QCA 433 [1] DAVIES JA: I agree with the reasons for judgment of Williams JA and with the orders he proposes. As the respondent was in Australia and the appellant in Malaysia it was held that the United Nations Convention on Contracts for the International Sale of Goods. which commenced on 1 July 1999. as they stood at the first day of trial.248. The parties are directed to submit to the court within fifteen days of their receipt of this Memorandum-Decision and Order documentation setting forth the proper calculation of prejudgment interest. defendant Rotorex Corporation must pay plaintiff prejudgment interest at the United States Treasury Bill rate.80 for damages including interest.545. and a new para 19AA was inserted. under which the nett return to the Plaintiff was equivalent to that provided by a price of USD 143.50 per tonne (for delivery in Kemaman CNF FO). Indeed the submission went so far as to contend that the respondent was precluded (the term estopped was even used) from relying at all on the Convention. Part B nos. the claim is framed that way and we’ve kept it that way partly because the defence asserts that the correct measure of loss is as set out in s 51 of the Sale of Goods Act which provides for that assessment of loss. We have done all the figures in costs which include. exhibit 15.100 tonnes were sold and. (b) As to the balance of about 5. 17) at a price of AUD 156. and now. Another view of it would be that in fact the correct value of loss is the actual difference between the contract price and the resale prices. By reason of the Defendant’s repudiation. (ii) the Plaintiff’s CNF FO costs were the same (so far as an estimate allows) as the estimated CNF FO costs per tonne which it would have incurred for the sale and delivery of 25. falling to USD 143. 16.50 at all material times thereafter. So we’re seeking always [to] compare the price under the Perwaja contract which was on that basis with the price under the Pernas contract which was on a 148 . In relation to para [19AA] this is where the cost exercise particularly arises. CNF FO for delivery into an Asian port. September and October 1996 (exhibit 1. after the amendment those paragraphs were in these terms: “19. That application was not opposed by counsel for the appellant. before the respondent had closed its case.75 per tonne.” [8] At the time of seeking leave to make those amendments counsel for the respondent said (record 195): “One of the issues in the case. Particulars of the market values are shown on exhibits “RKJG 3” and “RKJG 6” to Mr Gulliver’s statement. 19AA. we are trying to cover all the possible legal bases.000 metric tonnes of scrap metal which had a market value of about USD 148. the differences aren’t terribly significant so we’ve left it on the simple base that the defence pleaded was appropriate”. The plaintiff resold the (approx) 30. The difference between the contract price and the resale price was essentially the formula provided in Article 75 of the Convention. or repudiation. One of the arguments addressed to this Court by counsel for the appellant was that because that statement was made the respondent was precluded at trial. Your Honour.50 (for delivery CNF FO into Asian ports) at that date. 14) at the price of USD 143.000 tonnes. [7] At the start of day 3 of the trial.. But as it turns out. counsel for the respondent (record 37) said: “We’ve prepared a document which summarises the claim. one of the legal issues will be whether damages are to be assessed as at the date of termination.[6] In the course of his opening. its counsel asked for and was granted leave to amend the statement of claim. That would be another view of the loss.000 tonnes of scrap by (a) a contract in early October 1996 with Pernas Trading Sdn Bhd (exhibit 1.000 tonnes to be delivered under the Perwaja contract.100 of the (about) 30. 15. under one or more of the three contracts with BHP in late August. There’s some figures put in brackets which are negatives but the first item is the difference between the contract price and the market value at the date of termination. the freight costs. Part B no. or whether they’re to be assessed as at the date of expected delivery or whether they are to be assessed with reference to the contracts in para [19AA] . the Plaintiff was left with the said 30. from contending that the assessment of damages should be made on any basis other than that set out in s 51 of the Act..50 by about late September 1996 and being no more than USD 143. Some amendment was made to para 19. The statement of claim as so amended became that which appears in the record book as the Fourth Amended Statement of Claim. to put it broadly.50 per tonne (for delivery into Penang CNF FO) under which (i) 25. much the same as what they would have been under the Perwaja contract”. as far as one can tell. Within the applicable law the respondent would have been entitled to submit. of course. In the course of the address by counsel for the respondent reference was made to the Convention and in particular to Articles 74 and 75 thereof relating to the calculation of damages. However supplementary written submissions dealing with the Convention were given to the trial judge. [10] Some 44 days later the learned trial judge had the matter re-listed and indicated that the applicability of the Convention had emerged as an important consideration. but it was made at a time when the UCPR applied. [9] Counsels’ addresses began on day 6 of the trial. [11] It is in those circumstances that the issue as to the fairness of the trial was raised as a ground of appeal. that the Convention applied to the facts as pleaded and proved. that the estimated costs on CNF FO basis on the Pernas contract were. That case was in no way affected by the issue 149 . a plaintiff would not ordinarily be prevented from recovery where all essential facts were established merely because there was an omission to refer to a statutory provision or some error was made in referring to a statutory provision. Counsel for the appellant conceded that the Convention had been considered some two years prior to the hearing and been put “back on the shelf because it wasn’t relevant to the case”. it must have been obvious that the respondent’s case included a contention that damages should be assessed on some basis other than that set out in s 51(3) of the Act. [14] The basis of liability pleaded by the respondent was that it had elected to terminate the contract because of fundamental breach by the appellant. It is clearly arguable that Rule 149(e) required the respondent to include some reference to the Convention if it was relying on a claim thereunder. I do not find it necessary to recount in any greater detail what was said on that occasion by those present.. [12] As at the first day of trial the pleadings of the respondent could not be criticised. and that any assessment of damages should be made in accordance with the provisions thereof The appellant could not have complained of that. The learned trial judge reserved his decision. There was at that stage no need for the respondent to formally amend its statement of claim. in the overall context. relatively minor. at the end of the trial. They were in accord with the Rules which applied at the time they were drawn. as was the position under the Rules of Court. It is sufficient to record that the appellant stated it might reopen its case if the respondent amended its pleading but ultimately decided that no additional evidence would be called. That should have put the appellant on notice that the respondent’s case was based. at least in the alternative. to prove . Given the statements quoted above made by counsel for the respondent in the course of opening and at the time of seeking leave to make the amendments. [13] The amendment made on the third day of trial was. But even if that was so. Counsel for the appellant still maintains that there should have been a ruling that the respondent was precluded from relying on the Convention given the pleadings and the course the trial took. The learned trial judge on that occasion invited counsel for the appellant to call any additional evidence that would overcome any prejudice that might otherwise be occasioned to the appellant because it arguably only became obvious at a late stage in the trial that the Convention was an important consideration..similar basis and that requires. It is not as if the appellant and its legal advisers were not aware of the Convention. In submissions in reply counsel for the appellant contended that the respondent was estopped by its conduct of the trial from relying on the Convention. on propositions not included in s 51(3). Paragraph 19AA is directly relevant to a claim based on Article 75. whether the Convention applied or not. The contract provided that 150 . That offer was not taken up. Articles 74 and 75 provide for a basis of assessment which is different from that specified in s 51(3) of the Act. Essentially a breach will be fundamental if it deprives a party of what he is entitled to expect under the contract. because of a failure to appreciate the significance of those matters. that expression is defined in Article 25. Teo that company’s agent in Malaysia. [16] In all the circumstances I am not satisfied that the appellant has made out a case that the decision should be set aside on the ground of unfairness. and Yunus a member of the new management team of the appellant after about July 1996. Ultimately the learned trial judge held on the evidence that there was a substitute transaction entered into in a reasonable manner and within a reasonable time after avoidance and it is difficult to see how those findings could be upset by the calling of further evidence. or its counsel. Malaysia. [19] The relevant contract was made on 7 May 1996. Much of the appellant’s case in this regard depended on whether or not time remained of the essence. In broad terms it provided for the sale by the respondent to the appellant of approximately 30.00 per tonne to be delivered at Kemaman. The appellant did not suffer any irremediable prejudice.000 tonnes of shredded scrap could be included in the goods supplied. Article 64(1) relevantly provides that the seller may declare the contract avoided if the failure by the buyer to perform any of its obligations under the contract or the Convention amounts to a “fundamental breach of contract”.000 tonnes (plus/minus 10% at seller’s option) of heavy melting scrap at a price of USD 164. [15] The trial was vigorously contested on a number of issues and a lot of documentary evidence was placed before the court. Anderson was manager of the respondent. Any difference between Article 25 and the common law was not material given the facts of this case. Also at the seller’s option 5. It was with those provisions in mind that the amendments to the statement of claim were made after the trial began. If counsel for the appellant failed to cross-examine broadly enough on such issues. Further. Pursuant to the latter Article there has to be a “substitute transaction” which results in the resale of the goods “in a reasonable manner and within a reasonable time after avoidance”. in the course of the trial which would preclude it from relying on the Convention. The only possible difference between the Act and Convention for present purposes is with respect to the calculation of damages. He went on to say: “I prefer the evidence of Anderson and Teo to that of Datuk Abu and Yunus”. or if the appellant failed to lead relevant evidence. There was evidence relevant to such matters led by the respondent at trial. [18] At the outset it should be recorded that the learned trial judge “found no reason to question the reliability of either Mr Anderson or Mr Teo whose evidence was either supported by or consistent with contemporaneous notes and correspondence”. The duly executed contract is to be found at record 503. the purchasing officer of the appellant at the material time. Datuk Abu the person who replaced Wan Ghani as the managing director of the appellant. It was negotiated between Anderson and Rohani Basir. I cannot see that anything was said or done by the respondent. the evidence and findings would have been precisely the same. I cannot see that there was anything unfair about the trial because of the alleged belated concentration on the Convention. that could have been the subject of further evidence consequent upon the learned trial judge giving the appellant the opportunity of reopening its case. [17] Grounds 3 to 9 inclusive in the notice of appeal raise in various ways the issue whether the respondent proved the appellant’s liability pursuant to the Convention. Before the issue so raised can be determined it is necessary to set out the terms of the contract and record certain events which occurred that are relevant to the question whether or not the appellant was in fundamental breach. Shipment was to be from “any Australian ports” during July 1996. Any disputes were to “be settled by the laws prevailing in Brisbane”. Then by letter of 2 July 1996 the respondent requested a further delay in the timing of the shipment from July to August 1996. That allegation was admitted in para 1 of the defence of the appellant. 151 . with an estimated time of arrival in Kemaman of 10 September. The other terms of the agreement need not be quoted. [24] I now turn to how those matters were dealt with in the pleadings. In para 7 of the Statement of Claim the respondent alleged the variation of the original terms of the contract by postponing the last date for the issue of the letter of credit from 1 July to 1 August 1996 and agreeing that the appellant would establish the Letter of Credit when the respondent confirmed the vessel to ship the scrap metal. There was also a general allegation in para 3(b)(ii) of the defence that time was of the essence with respect to the obligations of each party to the contract. The defence admitted receipt of that detail. On 18 July the respondent sent a fax to the appellant setting out a proposed loading schedule from 19 August to 10 September and requesting that the Letter of Credit issue on 1 August expiring on 30 September. However. As they had done business on a number of occasions previously. The appellant replied by letter of 22 July stating that it would “establish L/C as per your request once you have confirmed the vessel of the contract”. concluding 29 August. the learned trial judge accepted evidence that it was agreed between the parties that the respondent need not formally comply with that requirement. [20] The contract provided that vessel details and descriptions were to be submitted by the respondent to the appellant for its approval prior to charter party acceptance. That appears to have been in July 1996. The learned trial judge found that those variations were agreed to by Wan Ghani on behalf of the appellant during a visit to Australia. [22] The copy of the agreement executed by Wan Ghani and bearing Anderson’s signature was returned by fax under the hand of Basir on 21 May 1996. The learned trial judge found that on the same day the appellant stated in a letter to the respondent that it was prepared to agree to the respondent’s request that the Letter of Credit be valid for two months provided that the respondent bore the charges for the additional month. Those allegations were dealt with in para 7 of the defence which included in subpara (c) an allegation that time was of the essence of the contract as relevantly varied. [25] In July the respondent entered into a charter agreement with respect to the vessel “Dooyang Winner”. It was then alleged in para 8 that time remained of the essence of the appellant’s obligation to establish the Letter of Credit.the buyer had the right to inspect material at any time prior to loading and during loading. [23] At the request of the respondent the establishment of the Letter of Credit was delayed until July or upon nomination of the vessel to carry the goods. After setting out the terms of the agreement the respondent alleged in para 5 of its Statement of Claim that there was implied from the express terms of the contract a provision that time was of the essence of the appellant’s obligation to issue the Letter of Credit. On that basis the letter said that the Letter of Credit would be established from 8 June 1996 and be valid for two months. it was agreed that the respondent knew the appellant’s requirements with respect to the standard of ship which was to be used to carry the scrap metal to Kemaman. [21] The contract expressly provided that payment was to be by “Irrevocable Letter of Credit” to be established by 1 July. On 31 July 1996 the respondent advised the appellant of all relevant details with respect to the vessel and giving a loading program commencing 8 August. Against that background it is necessary to consider the findings as to the change in management personnel of the appellant and the new management’s attitude to the contract. There was no reply to that letter until the fax of 15 August. In view of the foregoing kindly revert by 12 noon of Friday the 9th of August 1996 as to whether your clients are prepared to honour the contract in question”. We understand that the board is meeting some time later this month”.920. and was in these terms: “Unfortunately. our clients will deem it that you do not wish to honour your obligations under the Agreement and have repudiated the Agreement and in such an event they will take action to dispose of the said steel scrap. that is. 1996 as the vessel will commence loading on 8th August. The new management team is still studying this matter. In the meantime our client makes no admission of liability”. however. cancel the charter of the vessel. refused and/or otherwise neglected to establish the requisite Irrevocable Letter of Credit in respect of the above contract in question between our respective clients and are therefore in breach of the same. The solicitors for the respondent replied as follows: “As you may know.[26] The sending of those details on 31 July 1996 meant that the respondent had complied with all preliminary matters and in accordance with the appellant’s letter of 22 July the Letter of Credit was to be established immediately. materially in these terms: “2. our clients cannot wait indefinitely for the shipment of the cargo as that would attract substantial expense. That was not done and on 5 August the solicitor for the respondent wrote to the appellant setting out those matters and then stating: “We are now instructed to request you to establish the Letter of Credit for the full price of US $4. It has been unfortunate that the shipment of scrap metal in question has been delayed. was materially in these terms: “As your client is probably aware our client is now under different (interim) management and transactions are still under review. by 1 August. which repudiation our clients hereby accept”. 152 . our clients do not admit any liability. The reply from the appellant’s solicitors to that was dated 9 August 1996. The reply from the appellant’s solicitors. 3. Our clients are unable to wait indefinitely for your clients to establish the said Letter of Credit as our clients will incur substantial loss and damage and will be put to enormous expense if they were to do so. By reason of the foregoing. your clients have still not indicated in any way whatsoever that your clients intend to honour their obligations under the said contract. Should you fail to establish the Letter of Credit by then. It merely said: “Though our clients note. the contents of your letter. 5.000 by the close of business on Wednesday 7th August. 4. if possible. dated 7 August 1996. our clients have enjoyed a good business relationship with your clients for over a period of several years. 1996. Nor do they agree with your views and conclusions”. Our clients regret that as at the date hereof your clients have failed. despite our client’s repeated requests. we are unable to obtain any positive instructions from Perwaja Steel Sdn Bhd within this short time. your clients have demonstrated an intention no longer to be bound by their obligations under the said contract and have thereby repudiated the same. and revert to you for any damages which they may sustain herein”. Furthermore. That then resulted in the respondent’s letter of 9 August 1996. On 29 or 30 July Anderson and Teo together visited Datuk Abu and Yunus. [28] There was a further meeting between Anderson and Teo on behalf of the respondent and Yunus and Datuk Abu on behalf of the appellant on 31 July. In my view the refusal by Perwaja to establish the Letter of Credit at a time when the ‘Dooyang Winner’ was standing by at Bells Bay in Tasmania to commence loading the scrap steel so that it might complete its loading program either as advised on 18 July 1996 or as subsequently advised on 31 July 1996 was a clear breach by Perwaja of an essential term of the contract as varied.. He also said he would have to ask the “executive committee” that was running the company for permission to issue the Letter of Credit. Datuk Abu suggested Anderson and Teo come back later because the decision was not his to make.. The latter said that he had not been able to get the committee to approve the Letter of Credit but he might still be able to help and suggested he be telephoned on 2 August. Again Yunus affected surprise at that information. When Teo next spoke to Yunus on 26 July he handed him copies of the contract. purchase order and other correspondence but Yunus kept reiterating that he had no knowledge of the particular contract. the decision had to be made by the committee. . [30] Based on those findings of fact the learned trial judge reached the following conclusions in the course of his judgment: “The refusal to establish a timely Letter of Credit was clearly a fundamental breach within the meaning of Article 25 and Article 64(1)(a) of the Convention. Those Minutes record in relation to the transaction in question that the “Management is authorised to re-negotiate and recommend appropriate action in relation to the supply of scrap initiated on 22 July 1996”. [29] There was a meeting of the executive committee on 2 August 1996 and the Minutes form part of the evidence. Anderson informed Datuk Abu that the respondent had already arranged for a ship and that it was not possible to cancel that charter.. Yunus replied that he had no idea of the existence of such a contract and was surprised to hear of one. Significantly at no stage up to 15 August did the appellant allege that the respondent was in any way in breach of its obligations under the contract.. 153 . The learned trial judge found that Datuk Abu responded by saying: “Since you have already committed to a vessel perhaps you could ship the cargo first and we will pay you later or alternatively sell the shipment to another company. Datuk Abu said he was very sorry that this was not part of the hand-over notes between the previous management and that which he headed and said that had he known that there was this outstanding contract he would have asked the officials from the Ministry of Finance to issue the Letter of Credit. On or about 24 July Teo called on Yunus to congratulate him on his appointment to the new management and mentioned the contract in question in the course of discussion. Datuk Abu informed Teo that he would “try again” on 22 August when the board next met. The learned trial judge found that on the evening of 2 August Teo had a conversation with Datuk Abu in the course of which the latter said that he had brought the matter to the attention of the executive committee and one of the committee members objected that the committee could not proceed with the issuing of a Letter of Credit because the contract had not been made during the tenure of office of the present management. . mentioning the drop in prices since the contract was made. He stated that if the Letter of Credit did not issue the respondent would suffer significant loss. Anderson and Teo again pointed out that the vessel had been chartered and that the respondent stood to suffer significant losses if the Letter of Credit did not issue.[27] The learned trial judge found that prior to 10 July 1996 the respondent had become aware through newspaper articles that the management structure of the appellant was to be changed. Anderson said he could not accede to that request. There was discussion of the signed contract. if you do it this way in future Perwaja will buy scrap metal from you under the new management”. purchase order and other relevant correspondence. and entitled the respondent to rescind the contract. On 26 July 1996 Mr Teo handed to Mr Yunus copies of all documents. [31] Much of the attack mounted by counsel for the appellant on those findings is dependent upon the proposition that as at 1 August 1996 time had ceased to be of the essence of the contract. In my view Perwaja by the officers who succeeded Rohani Basir and Wan Ghani in its management clearly evinced an intention not to meet Perwaja’s contractual obligation. Indeed. . v Danubian Trading Company Ltd [1952] 2 QB 297 at 301-302 and 305-306 and Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130 at 139-144). He was then also advised that the shipment of the scrap steel the subject of the contract ‘was so to speak actually on the way’. [32] The next attack on the reasoning in the judgment was based on Article 63 of the Convention. The establishment of a Letter of Credit prior to shipment was essential from the respondent’s perspective. it was submitted that the time-frame fixed by the letters of 5 August and 8 August was too short..presumably in the light of the fall in the current market value of scrap steel. Thereafter in my view the evidence indicates a simple procrastination on the part of Perwaja to meet its contractual obligation.. On the findings the appellant had no intention of meeting its obligations under the contract. In any event commercial commonsense would require the Letter of Credit to be established before shipment commenced and at least to that limited extent (disregarding the admissions in the pleadings) there would be imputed to the parties an intention that time was of the essence. Whatever may be the explanation for the avowal of Mr Yunus that he had no knowledge of the contract between Perwaja and Wanless there is no doubt that on 24 July 1996 Mr Teo advised him of its existence. In my judgment Wanless was entitled to avoid the contract and to recover the loss it suffered as a consequence of Perwaja’s repudiation and/or non-compliance with an essential term of its contract with Wanless. That to my mind is at odds with the assertion in the defence that with respect to the obligations of each party time was of the essence. There is nothing in the evidence to suggest that the appropriate arrangements for the issue of the letter of credit could not have been made within a day or so. (cf. Failure to meet that obligation deprived the respondent of what it was entitled to expect under the contract. Article 64(1)(b) then provides that if the 154 . Trans Trust S.R.L. Rohani Basir had undertaken to do that ‘once you have confirmed the vessel of this contract’. It is equally clear from the resolution of the committee meeting of 2 August 1996 that Perwaja proposed instead of meeting its contractual obligations with Wanless to embark upon a ‘renegotiation’ of that contract .. It is clear when one reads the ‘Payment’ clause and the letter from Wanless to Perwaja of 18 July 1996 that the provision of the letter of credit prior to the commencement of loading of the shipment to Perwaja of scrap metal was an essential term of the contract. But the findings went even further.. purchase orders. .. Paragraph (1) of that Article provides: “The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations”. and the further admission that time remained of the essence after the initial time-frame was varied. that also entitled the respondent to rescind the contract. relating to that contract.” In my view all of those conclusions were clearly open on the findings of basic fact made by the learned trial judge. It is clear in my view that Perwaja indicated that it did not intend to comply with that requirement..P. etc.. the term used in the Convention. [39] I am not satisfied that the appellant has made out a case for setting aside the finding by the learned trial judge that the respondent had the ability to complete this contract. That is also supported by the fact that the respondent entered into substitute transactions involving the sale of 30. at least to some extent. In so finding the learned trial judge said he had “no hesitation in accepting the evidence of Mr Anderson” to that effect. per Deane and Dawson JJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658. But in any event the appellant had been under notice throughout July. If that were so.000 tonnes of scrap of a description which would have satisfied its obligations under this contract.buyer does not.that is. [36] Clearly in the passages quoted above the learned trial judge concluded that the failure to establish the Letter of Credit amounted to a fundamental breach of contract and the respondent in consequence declared the contract avoided by its letter of 9 August. [33] It is difficult to see the relevance of Article 63 if time was of the essence. [38] Counsel for the respondent relies on (and inferentially so did the learned trial judge) the fact that the chartered vessel was en route to commence loading at the first port on 8 August 1996. it had on hand sufficient scrap of required quality to meet its contractual obligations. when the letters of 5 and 8 August were written the appellant was already in fundamental breach of its obligations by not establishing the Letter of Credit. that it would have to establish the Letter of Credit on 1 August provided that by then details of the ship had been given by the respondent. within the additional period of time so fixed. 155 . That strongly supports the oral evidence of Anderson that sufficient scrap was readily available to satisfy the respondent’s contractual obligations. [37] Ground 13 in the notice of appeal challenges the finding of fact made by the learned trial judge that at all material times the respondent had the capacity to meet its contractual obligations .) When one has regard to Article 64(1) and Article 72 it is clear that the Convention adopts. perform its obligation the seller may declare the contract avoided. In my view it is clear from reading his reasons as a whole that he was equating repudiation with fundamental breach of contract. In consequence the appellant faces significant hurdles in seeking to establish this ground of appeal. the common law concept of repudiation. In those circumstances the times set by the letters of 5 and 8 August for extended compliance with the obligation were not unreasonable. Anderson had been cross-examined at some length on the issue and the finding was dependent to a not insignificant degree upon the acceptance of him as a credible witness. and in particular from and after 27 July. [34] There is also nothing in the argument that the respondent could not terminate the contract because it had not afforded the appellant the opportunity of examining the goods before payment: Article 58(3). A number of submissions were made in that regard. but there was other documentary material tending to confirm the existence of stock in question. [35] Counsel for the appellant also endeavoured to make something out of the use by the learned trial judge of the term “repudiation” in his reasons for judgment. That matter is sufficiently addressed in the reasons for judgment of the learned trial judge. (cf. Apparently some of the respondent’s records relating to available stock had been destroyed in a flash flood at its premises. [40] That leaves for consideration the grounds relating to the calculation of the quantum of damages. 156 .75 per ton. in a reasonable manner and within a reasonable time after avoidance.. suffered by the other party as a consequence of the breach. .e.. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract.. In any event I accept that the subcharter of the ‘Dooyang Winner’ as soon as possible was a reasonable step to minimise the damage incurred by Wanless in having such a large vessel standing by at the expense of Wanless and not being used for the purpose of shipping its scrap steel to Perwaja. including loss of profit. The difference in freight costs on the evidence was minimal. September and October 1996 at a price of AU $156.000 tonnes to BHP by contracts made in August. the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under Article 74”. of course. 75. In my view it is clear on the whole of the evidence that the substitute sale to Pernas on 8 October 1996 was effected within a reasonable time of the termination by Wanless of its contract with Perwaja. Damages for breach of contract by one party consist of a sum equal to the loss. In my view the sale to Pernas was effected within a reasonable time being within two months of Wanless’ acceptance of Perwaja’s repudiation of its contract.750.100 tonnes of the metal it was holding to fulfil its contract with Perwaja to Pernas at the then market rate of US $143. .. The unchallenged evidence of Mr Anderson is that BHP purchased the steel at a price which on its estimates would give Wanless the same nett return as if it had sold the scrap steel in Asia . It was necessary for Wanless to charter another vessel called ‘M V Handy Light’ at approximately the same cost per tonne to ship that material as the cost of chartering the ‘Dooyang Winner’ which was unsuitable for that port. [42] It is necessary to quote findings made by the learned trial judge with respect to the calculation of damages: “It is clear on the evidence that Wanless sold 25.. The ‘M V Handy Light’ called at the same ports to load scrap metal as was the intention for ‘Dooyang Winner’ except that it avoided calling at Bell Bay in Tasmania because the sale to Pernas was 5. i. the buyer has bought goods in replacement or the seller has resold the goods. mirrors s 53(1) of the Act. If the contract is avoided and if.000 tonnes less than that under the contract with Perwaja. It is clear from the material that Wanless acted as quickly as possible in seeking a market for the scrap metal it had held for Perwaja ... they are in the following terms: “74.. It should also be noted that Article 76 provides that if the contract has been avoided and there is no resale pursuant to a substitute transaction the seller “may .[41] As already noted the learned trial judge assessed damages pursuant to Articles 74 and 75 of the Convention.. as a possible consequence of the breach of contract. AU $783. recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under Article 74”.50 per ton for delivery at Penang in Malaysia. The sale to Pernas was at the then market value on approximately the same freight terms as had been negotiated with the owners of ‘Dooyang Winner’ and involved a shipment to Penang also in Malaysia. That. Wanless sold a further 5. In my view the resale of the scrap to Pernas clearly satisfies the requirement of Article 75.. in the light of the facts and matters of which he then knew or ought to have known. as it had to be if there was substance in the submission. [45] The goods in question were not sold as “specific goods”. fungibles. para 117).g. This argument was relevant on the facts of this case because in performing the Pernas contract the respondent utilised some scrap that had been processed after 23 September 1996. The scrap metal here was clearly of that kind. e. That term is used to “define goods of which every particle or unit is indistinguishable from. was that if the transaction did not involve precisely the same lumps of coal it was not a “substitute transaction” for purposes of the Convention. flour or oil” (Benjamin’s Sale of Goods 2nd ed. grain. with the market price falling. Counsel for the respondent referred in argument to two United States Court of Appeal decisions. The evidence established that negotiations between the respondent and that company commenced on or about 12 August 1996 but the contract was not entered into until 8 October 1996. The appellant challenges the finding that the Pernas contract was effected within a reasonable time. but one can readily understand. every other particle or unit. The obligation to supply scrap pursuant to the contract entered into in May with the appellant could have been satisfied by collecting scrap from anywhere for delivery to the appellant provided it met the general description of the scrap referred to in the contract. 157 . to the effect that where fungibles are involved a seller is able to use substitute goods for the purposes of the resale so long as the sale is commercially reasonable (the decision of the Sixth Circuit of United States Court of Appeal in Firwood Manufacturing Company Inc v General Tire Inc. [43] The evidence of Anderson was that the respondent was very keen to offload the scrap once the contract was avoided in order to resolve that company’s cash flow problems. [44] Counsel for the appellant also submitted that in order to constitute a “substitute transaction” for the purposes of Article 75 the goods the subject of each contract had to be precisely the same.. as submitted by counsel for the respondent.163. but rather by weight or measure. In my view once Wanless accepted Perwaja’s repudiation of its obligations under the contract and terminated that contract it promptly took all steps reasonably necessary to mitigate the damages it suffered as a consequence of Perwaja’s repudiation”. It is not disputed by Perwaja that Wanless suffered a nett loss of US $343. The evidence establishes that the price for scrap was dropping during that period. or at least commercially equivalent to.47 as a result of chartering and re-chartering the ‘Dooyang Winner’. The incurring of a loss of this kind was clearly foreseeable and Perwaja must have known that its failure to establish a letter of credit as promised would result in Wanless being left with a chartered vessel at hand which could not be used for the purpose for which it had been chartered. they were keen to convert the scrap on hand into cash.. In other words the goods the subject of this contract were. Counsel was asked from the bench during argument whether that meant that if the contract was for the supply of coal the “substitute transaction” had to involve the same precisely identified lumps of coal. The respondent is criticised for not entering into a binding contract at an earlier point of time given the falling market. The difficulty testified to by Anderson was that buyers were reluctant to commit themselves on a falling market. This loss was clearly incurred as a consequence of Perwaja’s breach of its obligation to establish the appropriate letter of credit. the response.. that Pernas would not have been overly eager to enter into a contract such as suggested by the appellant. on a comparable statutory provision to Article 75. As already noted the scrap sold to Pernas did not involve any from Tasmania which would have been involved in the supply to the appellant. [Seller’s] legal predecessors (in the following uniformly referred to as: [Seller]) delivered ground clay (kaolinite) named “Aardappelbescheidingsklei A 01” (Potato Separation Clay A 01) for the grading of potatoes to [Buyer].unreported. The Article does not require the substitute transaction to be on exactly the same terms. There was an important distinction between the sale to the appellant and the sale to BHP. [50] Again. where potatoes of lower starch content. VIII ZR 100/11. The loss in question would not have been sustained except for the fundamental breach by the appellant. having its place of business in Germany. [46] There is no justification for limiting the operation of Article 75 to contracts involving the sale of specific goods. As a basic proposition a party is entitled to recover no more than the nett benefit that it would have received had the contract been performed. 156 ER 145. Such a loss may be recovered under Article 74. 2d 997 at 1005). the other was purely a domestic transaction. and had to charter a different vessel in order to deliver the scrap pursuant to the Pernas contract. but rather a claim for loss suffered as a consequence of the fundamental breach of contract by the appellant. Article 74 reflects the common law derived from Robinson v Harman [1848] 1 Ex 850. I can see no error in the calculation of damages made by the learned trial judge. On the basis of a longstanding business relationship. But it is clear that the BHP contract price was fixed so as to return to the respondent the same nett amount as if it had sold the scrap metal to a company in Malaysia. one was for delivery in a foreign country. I accept the argument for the respondent that the loss on the charter party is not a claim for “reliance loss”. who has its place of business in the Netherlands. GERMANY. The fact that some of the scrap sold to Pernas would not have been included in the scrap sold to the appellant if that contract had been completed does not mean that the sale to Pernas was not a “substitute transaction” for purposes of Article 75. The appellant sought to categorise the loss in question as a “reliance loss” covered by the decision of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. 154 ER 363 and Hadley v Baxendale [1854] 9 Ex 341. [52] BYRNE J: I agree with Williams JA. [51] It follows that the appeal should be dismissed with costs. As already noted the respondent sub-chartered that vessel in order to mitigate its loss. What is important is that the damages recovered may not exceed the loss which the party in breach ought to have foreseen. [Seller]. [48] The remaining contentious issue revolved around what were described as the consequential losses. because of their lower 158 . BUNDESGERICHTSHOF. 16 September 1996. is engaged in the extraction and distribution of mineral raw materials. [47] Counsel for the appellant also contended that the sale to BHP was not a “substitute transaction” because it was on different terms. [49] The quantum in issue is the loss suffered by the respondent on the charter party with respect to the “Dooyang Winner”. and Apex Oil Co v Belcher Co of New York Inc (1988) 855F. 26 SEPTEMBER 2012 (CLAY CASE) Facts of the case: 1. During the grading process the potatoes transit through a clay-water bath. if authority be needed (Delchi v Rotorex (1995) 71 F3d 1024). counsel for the respondent relied on American authority. That was accommodated in this particular case. specific weight, are separated from potatoes with higher starch content needed for food processing. [Buyer] then sells all potatoes with lower starch content together with the waste peel of the potatoes with higher starch content to feed producers for use as animal feed. 2. In 1999 it was discovered that clay extracted from clay pits in Westerwald contained high levels of natural dioxin, including the clay extracted from [Seller’s} clay pit R. Following this, [Seller] was prohibited by administrative order to market its ground clay “for the purpose of using it as an additive in the production of feed”. Between July and October 2004 [Seller] delivered “Aardappelbescheidingsklei A 01” extracted from the clay pit R to [Buyer]. [Buyer] used this clay as described to separate potatoes and delivered the sorted potatoes together with the waste peel to animal feed producers. In Autumn 2004 elevated dioxin levels were detected in milk and milk products of Dutch production and an examination conducted in the beginning of November 2004 of the clay on [Buyer’s] premises delivered by [Seller] showed dioxin levels far above the limit admissible in kaolinite clay and in other additives accepted in animal feed as binders, anti-caking agents and coagulants. [Buyer], in whose potato products elevated dioxin levels were not measured, notified [Seller] and complained about the high dioxin levels in the clay on 4 November 2004. 3. The district court has dismissed the action for declaration that [Seller] has to compensate [Buyer] and its insurance company for any current and future damage resulting from the delivery of clay containing dioxin to [Buyer] in the year 2004. Upon [Buyer’s] appeal on questions of fact, the appellate court granted the claim with the restriction that [Seller’s] duty to compensate cannot exceed the financial loss that [Buyer] would have suffered if [Buyer] had taken appropriate measures to keep the dioxin from getting into the animal feed in excessive amounts from the clay. With their appeals on questions of law admitted by the appellate court [Buyer] further pursues its claim for declaratory relief and [Seller] continues to pursue its motion to dismiss the claim. Reasons of the decision: 4. The appeal on questions of law by [Buyer] is partially successful; [Seller’s] appeal on questions of law is unsuccessful. I. 5. The appellate court (Appellate Court of Koblenz, CISG-online Nr. 2301) essentially stated the following reasons for its decision: 6. In accordance with the United Nations Convention on Contracts for the International Sale of Goods (CISG) applicable to the contractual relationship, [Seller] was, in principle, liable for damage caused to [Buyer] by delivering clay containing dioxin. However, it could be left open, if the delivered clay – as it was undisputed between the parties before the court of first instance – might have been easily washed off the separated potatoes or if this was not the case pursuant to the new factual allegations of [Seller] in the appellate proceedings. Neither the question whether the delivered clay was an admissible additive for the purpose of grading the potatoes and therefore a conforming delivery under Art. 35 CISG, nor the question, important for the examination pursuant to Art. 38 CISG, if the lack of conformity relates to facts of which [Buyer] knew or could not have been unaware in the meaning of Art. 40 CISG were considered decisive. In any case [Seller] was liable under Art. 45 CISG for a breach of the obligation to warn [Buyer] about the dioxin content in the delivered clay, which follows from the principle of good faith under Art. 7(1) CISG. 7. The appellate court further held that [Seller] had breached this warning obligation, which is an obligation that exists besides the obligation to deliver conforming goods, if the seller realizes based 159 on his own expertise that the goods are not fit for the envisaged purpose. Based on the official examination conducted in 1999 [Seller] had known that the clay extracted from the pit R and delivered to [Buyer], which according to the contractual nomination of the goods was to be used for food production, contained critical levels of dioxin. [Buyer], as [Seller] had known, had been unaware of this fact. Although [Buyer] should have known that clay from Germany could contain dioxin, it could not have been aware that the particular clay delivered to it from this specific clay pit was seriously contaminated with dioxin. In light of the generally known health risks associated with dioxin and the fact that the clay containing dioxin was supposed to come in contact with potatoes, [Seller] should have disclosed their superior knowledge to [Buyer] 8. In its further reasoning the appellate court found that [Seller] could not rely on [Buyer] discovering the high dioxin level without indication by [Seller]. While in its own interest [Buyer] should have examined the clay with regards to a possible dioxin contamination, [Seller] nevertheless had to envisage that such examination may not take place or may not be conducted with sufficient care. This is especially so, because [Buyer] could only have discovered the dioxin content of the delivered clay by conducting relatively complex laboratory tests while [Seller] already had had secure knowledge which it could have communicated by simple notice without. [Seller] could also not rely on the potatoes being thoroughly washed after grading by [Buyer] to free them from dioxin residues. [Seller] rather had to consider that [Buyer], in ignorance of the dioxin contamination would not pursue the cleaning with sufficient care. 9. According to the appellate court, [Seller] was also not excused by the fact that the danger emanating from the delivered clay only actualized in the waste for animal feed and not in the potatoes for human consumption in [Buyer’s] production. In this respect, it did not matter whether the dioxin contamination later discovered in milk products was caused by the clay residues on the potato peels or, as alleged by [Seller], by [Buyer’s] giving the additional clay-water bath to the animal feed production because [Seller] had known that the delivered clay was to be used for the grading of potatoes in the context of food production. [Seller] further could have realized that the waste was not destroyed but used to make a profit, with use as animal feed having been one of the most probable, which did not allow for inadmissible dioxin levels. 10. The appellate court further reasoned that the damages payable according to Art. 45(1)(b) CISG were neither excluded under Art. 79 CISG nor was [Buyer] barred from invoking [Seller’s] breach of their obligation to warn pursuant to Art. 80 CISG. [Buyer] had not contributed to this breach of obligation, since it was neither obliged to ask [Seller] whether the goods possibly contained dioxin nor to inform [Seller] that the production waste would be resold without prior cleaning. In its own interest, it would have been sufficient for [Buyer] to examine the clay after delivery with regards to dioxin without prior notice to [Seller]. In any event, Art. 80 CISG would not come into play because [Seller] was found responsible for the main reason for breach of contract. 11. However, the appellate court found that the compensatory damages under Art. 74 CISG and foreseeable by [Seller] was to be reduced pursuant to Art. 77 CISG to the extent that [Buyer] had failed to take measures appropriate in light of the circumstances to mitigate the damage. It had to be taken into account that [Buyer], before using the clay, had not verified if any danger would result from use for the food to be processed and the animal feed to be produced. If [Buyer] knew about the discovery of high levels of dioxin in clay from German production in 1999 with the consequence of lack of fitness for animal feed production, [Buyer] would have been responsible to take protective measures against the contamination of not only the food produced but also of the waste destined to be used as animal feed. If [Buyer] did not know of this possibility, it was nevertheless to blame for not having been informed about the potential danger related to the use of the potato separation clay with help of the generally available sources of information. Especially as a food producer [Buyer’s] 160 product responsibility entailed the obligation to be and remain informed about questions of food safety and disposal and reuse of waste. 12. The appellate court found that, in order to comply with this obligation to be and remain informed, [Buyer] should have verified that the clay delivered by [Seller] was not dangerous. To this effect [Buyer] should have asked [Seller] for additional information on the innocuousness of the clay since the information received did not concern the dioxin content of the clay and further that [Buyer], on its own accountability, should have undertaken sample tests to control the clay with regards to a potential disrespect of the admissible maximum dioxin level which would have been possible without much effort according to the expert evidence heard. The appellate court rejected [Buyer’s] argument that this would have been unusual in its branch of trade as being an insufficient excuse. 13. According to this reasoning, [Buyer] could not successfully request compensation for the damage that occurred because of the unexamined use of the clay containing dioxin and the contamination of animal feed caused thereby. These damages would only have been granted if [Buyer] had met its obligation to mitigate the damage for example by disposal of the potato separation clay. 14. The appellate court further rejected any claims based on culpa in contrahendo or tort besides the claim based on Art. 45 CISG. The CISG was considered to be exhaustive in this regard and to supersede national law. II. 15. These findings do not withstand the test of legal review in all points. 16. According to the applicable United Nations Convention on Contracts for the International Sale of Goods (Art. 1(1)(a) CISG, Art. 3(2) sentence 1 EGBGB) [Seller] has to pay damages to [Buyer] under Arts. 45(1)(b), 74 CISG. It breached the obligation to deliver goods in conformity with the contract because the separation clay delivered did not meet the requirements of the contract in the meaning of Art. 35(1) and (2)(a) CISG. However, [Buyer] is not entitled to the full amount of damages claimed, because [Buyer] itself seriously dishonoured its responsibility with regards to the trading of (pre)products for animal feed production and thereby contributed itself to the occurrence of the damage. 17. 1. On the basis of its finding, the appellate court wrongly left the question of the conformity of the delivered separation clay unanswered. 18. a) However, the appellate court correctly found that the ground clay (kaolinite) ordered by [Buyer], a food producer according to its denomination “Aardappelbescheidingsklei A 01”, without any further concretisation or conditions with regards to the quality, had to be fit for the technical use as separator for potatoes, and because of its foreseen use as additive in food processing the clay had to comply with food legislation and regulations pursuant to Art. 35(1) and (2)(b) CISG. Given that, according to the appellate court’s unchallenged findings, it is common that potatoes sorted out as unfit for food processing are used as animal feed together with the waste peel, the concurrent use of the separation clay for the treatment of (pre-)products for animal feed production is a purpose which also is an ordinary purpose under Art. 35(2)(a) CISG, next to the purpose stated in the name of the product. Therefore the clay also had to comply with animal feed legislation and regulations. 19. b) The appellate court wrongly assumed that this was [not] [1] the case because the clay could have easily been fully and completely washed off after the potato grading process as submitted by 161 . op. This reasoning restricts the requirements for the fitness for the ordinary purpose under Art. 18 with further references).. Nevertheless. 35 para. then the goods are not fit for the ordinary purpose under Art. 39 CISG because they did not give notice to [Seller] specifying the nature of the lack of conformity within a reasonable time after they discovered it or ought to have discovered it. 2000. This question may be left open because. A user of potato separation clay of the kind delivered may. 2011. 39 para. as confirmed by the listing under number E 559 of the Annex to the Commission Regulation (EC) No 2439/1999 of 17 November 1999 on the conditions for the authorisation of additives belonging to the group “binders. 23. 35 para. Art. in order to fulfil these user expectations. the appellate court found that [Buyer] should have verified that the clay was not dangerous and to that effect could have examined the clay with regards to its potential to exceed the acceptable dioxin limits. If. revised edition 2005. this additional cleaning requirement is not already mandatory under food or animal feed law and thus not characteristic for the intended use. 69. except where the parties have agreed otherwise.. 21. as a rule. para. Rather. anti-caking agents and coagulants” in feedingstuffs (OJ L 297. [Buyer] did not lose the right to rely on a lack of conformity of the goods under Art. Art. Internationales Kaufrecht.[Seller].. unless the seller revealed such limited usability (Achilles. 4. 5-45. 22. bb) This applies to the present dispute. generally expect the clay to contain neither impurities nor additives which are undesirable under food or animal feed law and for safe use would require additional measures like a final washing process of the separated potatoes. which limits the fitness for the ordinary purpose of the potato separation clay under Art. the goods only conform with the contract if they are fit for the purposes for which goods of the same description would ordinarily be used. Schwenzer in Schlechtriem/Schwenzer. 35 para. 38 et seq. Staudinger/Magnus. 35 CISG para. Art. as long as the stipulated limits for dioxin are not exceeded in the individual case. 2nd ed. Gruber in Münchener Kommentar zum BGB. Art. 16. [Seller]. the goods only meet the requirements of the ordinary purpose under this provision if they generally fulfil the expectations which an average user would have. further Staudinger/Magnus. Kröll in Kröll/Mistelis/Viscasillas. Contrary to the view of the appellate court the delivered clay failed to meet the market expectation already because of the extra effort related to its use due to the necessity for final cleaning of the separated potatoes. 40 CISG. Therefore. but only for such uses. The goods. 2. however. even according to [Seller]. which. 162 . Kommentar zum UN Kaufrechtsübereinkommen. in any case. was indispensable due to the dioxin contamination. 35 CISG para. 38 para. which only exists in the interest of the parties to clarify the non-conformity of the goods as soon as possible and the claims derived (cf. all with further references). do not have to be fit for all theoretically perceivable forms and possibilities of use. pursuant to Art. 20.. Art. it may be left undecided whether [Buyer] disrespected an obligation under Art. that suggest themselves in light of the material and technical specificities of the goods and reasonable market expectation based thereon. Piltz. Art. 20. CISG to examine the goods and to give notice of the non-conformity. such a selfsuggesting possibility of use is not covered by the uses and purposes for which the goods are suitable. 6th ed. kaolinite clay is an additive generally admissive in animal feed. 3. cit. cit. 5th ed. Art. are facts of which [Seller] could not have been unaware and which it did not disclose to [Buyer]. a) In a different context. 11). op. 4). 32(2)(a) CISG. In particular and contrary to [Seller]’s appeal. Kommentar zum Einheitlichen UN-Kaufrecht. UN convention on Contracts for the International Sale of Goods. 35(2)(a) CISG too much in light of the limited usability connected to the dioxin contamination. based on an objective standard and common circumstances of use (Staudinger/Magnus. 35(2)(a) CISG. 35(2)(a) CISG. BGB. is not entitled to rely thereon because the dioxin contamination of the delivered clay and the consequential additional necessity to clean the separated potatoes. aa) According to Art. pursuant to Arts. this missing knowledge in particular with regards to [Buyer’s] safe use of the delivered separation clay should have caused [Seller] to employ caution.J.. recitals 5 and Art. c) This finding is not undermined by the fact that [Seller]. had been aware of the considerable dioxin contamination of the clay extracted from the pit R and also had known of [Buyer’s] unawareness of said dioxin contamination. COM [2001] 493 final [O. according to the appellate court. recitals 1 and 8 of Commission Regulation (EC) No 2439/1999 as referred to above).J. because [Buyer] itself seriously dishonoured its product responsibility with regards to the trading of pre-products for animal feed production and thereby contributed itself to the damage due to the recourse claims caused by the delivery of the non-conforming goods. op. because of the tests conducted in 1999. an appropriate safety warning would have been warranted to prevent the realization of any danger by the dioxin contaminated separation clay in the subsequent animal feed processing. 28. 79 et seq. because the potential dioxin contamination of the clay delivered by [Seller] could not have remained concealed. 69]. [Seller] should not have kept quiet about this dioxin contamination.. Consequently. 17 to Directive 178/2002/EG. LFGB-BasisVO.g. To the contrary. However. cit. 26. 27. furans and PCBs in feeding-stuffs and foodstuffs [O. to a multitude of legislative projects. Wehlau. Not only did the media report about this. [Buyer] is to be compensated for any existing and future damage caused by [Seller].J.242]. Introduction to § 58 paras. also EUregulation in the field relevant to [Buyer]’s business took up the issue of dioxin contamination of kaolinite clay extracted in Germany (cf. 38]). as [Seller] also mentions in its appeal. 18). measures and recommendation (e. Commission Recommendation of 4 March 2002 on the reduction of the presence of dioxins. giving [Buyer]. LFGB. 35(2)(a) CISG to deliver potato separation clay that meets the contractual requirements set out above under II 1 b bb and thereby caused an unusual danger related to the use of the clay given the dioxin content that ought not to have been anticipated by the common user (cf. Proposal for a Council Directive amending Council Directive 1999/29/EC on the undesirable substances and products in animal nutrition of 28 August 2011. marketed the separated potatoes and waste peels for use as animal feed without first ensuring the irreproachability of the clay as an additive under the relevant animal feed regulations which the case required pursuant to food and animal feed legislation and regulations (cf. L 151. 35 CISG para. was not expressly aware of the process followed by [Buyer] with regards to grading the potatoes in the clay-water bath and the subsequent use of the potatoes and peels treated this way without washing. that [Seller]. b) The appellate court found. Art. 72. 3. paras. the possibility to take appropriate safety measures like washing of the separated potatoes after passing through the clay-water bath to avoid a contamination of the derivative products by the dioxin. 45(1)(b). a) As rightly held by the appellate court.24. [Seller] should have disclosed this circumstance to [Buyer]. had [Buyer] taken sufficient care. As rightly held by the appellate court.). Rather. to this extent unchallenged by the appeal. 2007. [Buyer] did not fulfill this duty. C 332 E. Staudinger/Magnus. 74(1) CISG. the damages payable are to be reduced. 21 et seq. who breached its obligation under Art. as rightly concluded by the appellate court. L 67. 25. Meyer in Meyer/Streinz. 163 . 1 in conjunction with the Annex to Commission Directive 2003/57/EC of 17 June 2003 amending Directive 2002/ 32/EC of the European Parliament and of the Council on undesirable substances in animal feed [O. Art. [Buyer] would have had reason for such prior assurance. if it had nevertheless accepted the clay. 2010. which led. aa) [Buyer]. For this reason. [Buyer] was responsible to ensure by appropriate means that the animal feed or the pre-products traded by it did not create any danger for the health of humans or animals in the food chain. a measure sufficient according to [Seller’s] submissions. according to the appellate court’s findings. Piltz. However. published in Weinmann/Thomas/Klein. that the clay ordered for the purpose described was not allowed to contain dioxin and therefore did not warrant any mentioning. op. I p. cit.5). 2090]. 77 164 . 4(1) of the Technical Rules on Dangerous Substances [TRGS] 220. The safety data sheet contained information on dangerous substances to be provided pursuant to section 14 of the Regulation on Dangerous Substances (GefStoffV) in the version of Art. The law on dangerous substances is different from the food and animal feed law and not targeted at the safety of the food and food chain in view of the consumption of the ingredients (cf. status 2003. BGHZ141. op. I p. 5-555). 7(2) CISG. 2(2) GefStoffV). 33. in light of its purpose. the provision only applies to cases where the party entitled to damages failed to take appropriate measures in order to mitigate the damage caused by the other party’s breach or to avoid causing the damage after learning of the potential for damage (cf. Art. Neither did the appellate court assert such knowledge of the potential for damage.. the safety data sheet served only the purpose of providing professional users with the data and recommendations of use necessary for the handling and preparation of the substances. this question has to be answered in light of the general principles underlying Arts. did not allow the drawing of any proper conclusions on the content of ingredients or impurities relevant under food and animal feed law. 2514). which already. 30. because [Seller] provided a safety data sheet with the toxilogical information “non toxic”. 2. cit. 80 CISG. 1). in order to enable them to take appropriate measures for work place security and environment protection (Nr. 135 et seq. described above under section II 3(a)(aa) of this decision. para. according to which a party may not rely on a failure of the other party to perform. Under this provision.. the party in breach may claim a reduction in the damages by the amount that the loss should have been mitigated in cases where a party fails to take such reasonable measures to mitigate the loss resulting from the breach of contract. As rightly assumed by the appellate court. [Buyer] did not further specify the requirements for the clay to be delivered and did not expressly refer to the necessity of an absence of dioxin is not a contribution to be taken into account.cit. that it had not had any reason to undertake such examination of the delivered clay. which is why the claim for damages is to be reduced accordingly. Weinmann/Thomas/Klein. 31. 77 paras. 129. which is to be seen in the delivery of non-conforming clay.. Judgment of this Chamber of 24 March 1999 – VIII ZR 121/98. 8 of the Regulation of 4 July 2002 (BGBl. 77 CISG. 2 No. since it was just as obvious to [Seller]. bb) Without success [Buyer] argues in its appeal. b) To the extent of the influence of its own breach of a duty of care [Buyer] is not entitled to rely of [Seller’s] breach of duty by delivering non-conforming clay. part 2. contrary to the appellate court’s reasoning. Pursuant to Art. The safety data sheet does not contain such declaration. § 14 para. to the extent that such failure was caused by the first party’s act or omission. 11. which would have required [Buyer] to intervene in the process by employing mitigating measures. bb) It is not expressly settled in the CISG how to treat cases in which both parties to the contract contributed to the damage by committing independent breaches of contract. op. cannot be based directly on Art.2 to No. Staudinger/Magnus. cit.29. Weinmann/Thomas/Klein. section 19 of the Law on Chemicals [ChemG] in the new version of 20 June 2002 [BGBl. 8. volume 2/1. However. op. GefStoffV. such reduction of the damages payable to [Buyer] because of its contribution to the causing of the damage by the breach of a duty of care. Consequently. sections 1. section 2 comment 3. a reduction of the damages can also not be based on Art. nor is there any other indication of it. which [Buyer] considered to be a declaration that the clay was free of dioxin and therefore harmless. It rather aims at avoiding dangers in the handling of such substances in the production or utilization or other activities in their danger zone (cf. 5.2. 32. [Buyer] did not contribute to [Seller]’s breach of contract. When weighing and balancing the respective contributions as required. 5 para. 6. op. Thereby Art. both parties committed similarly serious breaches of duty.. the respective party’s contribution to the damage has to be reasonably taken into account. cit. op. op. 80 para. op. cit. as it was considered to apply directly. Art. Moreover. cit. op. 37. which is a question to be decided at this liability phase of the proceedings (cf. Piltz. Art. Huber in Münchener Kommentar zum BGB. like damages. 561.. while Art.. cit. Art. (2) In accordance with these general principles [Buyer]’s damage here is to be allocated in the way that [Buyer] has to bear half of the damage alone. 1. 77 CISG.). Art. Rathjen. Ferrari in Schlechtriem/Schwenzer. paras. when granting [Buyer] compensation limited to such damage that would also have occurred if [Buyer] had taken the necessary steps to mitigate the damage. Art. 77 para. 1. 77 CISG is based on the general underlying principle. On the other hand.. UN-Kaufrecht. 77 para. cit. Huber in Münchener Kommentar zum BGB. cit. 77 CISG para. 80 para. 34. op. 12.. that an obligee shall not benefit from its own damage causing behavior (Staudinger/Magnus.. 80 CISG para.. 1. Art.. Art. Atamer in Kröll/Mistelis/Viscasillas. does not have to be decided.. op. cit. In case of dividable remedies. (1) It is the general opinion that both provisions are an expression of the duty under Art. because any 165 . 17. cit). Staudinger/Magnus. 77 CISG para. 36.. Schwenzer. op. 11 et seq. 80 CISG para. it has to be considered that [Buyer] itself failed to take any care with regards to the handling of the clay which was made use of in animal feed although the danger of a dioxin contamination and the risks involved could not have remained unknown to [Buyer]. 2. since the appellate court already made the required findings regarding the parties’ individual contributions to the damage and their respective weight and only mistakenly felt bound by the legal consequence of Art. Art. 1.. op. 80 para. 14. 80 CISG para. cit. op. 80 CISG para. this normative relationship does not need any analysis. Rathjen. op. op. 2.and 80 CISG. 2004. Art. 2-139 et seq. whether and to what extent national tort law applies with regards to the damages claimed in addition to the remedies provided for the breach of contractual duties in the CISG (controversy portrayed in Staudinger/Magnus. Art. independently contributing to the damage. 1). 5 CISG paras. 80 CISG: “to the extent that such failure was caused by the first party’s act or omission. weighing and balancing of interests (Schwenzer. cit. Hence. 80 CISG is an expression of the bar on contradictory behavior. Art. Brunner. 35. Art. Art. op. 565). cit. cit. Brunner. both provisions show (Art. 77 CISG para 2. 80 CISG para. Huber in Münchener Kommentar zum BGB. op. Brunner. Art. but that in case of mutual causing of the damage and dividable remedies like damages the respective contributions to the damage have to be reasonably taken into account in the assessment. Judgement of this Chamber of 24 March 1999 – VIII ZR 121/98. that a damage. which could have reasonably been avoided.. Art.. Art. Art. 2. 7. 77 CISG para. Art. which justifies an equal split of damages. 77 para. In the case at hand. cit. op. Art. Art.. Huber in Münchener Kommentar zum BGB. 1. all with further references). Rathjen.. formulating the general thought. 2. cit. enabling this Chamber to decide on the allocation itself. op. Staudinger/Magnus. all with further references). 7(1) CISG to safeguard good faith in international trade (Staudinger/Magnus. op.”) that the consequence of the contribution to the damage by the obligee should not be the loss of the claim. 4. 1. This does not necessitate further factual findings of the trial judge. cit. op. 77 CISG: “a reduction in the damages in the amount by which the loss should have been mitigated”. 80 para. cit. cit.. cit. op. RIW 1999. The further question referred to the Chamber’s review by [Buyer]’s appeal.. 1. 80 CISG para. op. is not to be compensated (Schwenzer. cit. cit. it is to be taken into account to the disadvantage of [Seller] that the clay delivered by it not only was non-conforming as described but also that [Seller] left [Buyer] in ignorance of the dioxin content known to [Seller] with the serious consequence of increasing the risk of misuse by [Buyer].. Consequently. the Chamber has to make a decision on the merits (section 563(1) sentence 1 ZPO). 38. 166 . III. to the allocation of the damage as declared.potential damages claim of [Buyer] based on tort would require the same allocation of damage as described above based on section 254 BGB. in revision of the judgment of the court of first instance. The dispute being ready for final decision with regards to the factual findings as shown. This leads. the appealed judgment cannot be upheld and is to be annulled (section 562(1) ZPO).