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The International Sale of Goods, 4th Edition by Bridge, Michael (30th November 2017)

Part I International Sales Governed by English Law, 2 The Performance Obligations of Seller and Buyer in English Law

MG Bridge

From: The International Sale of Goods (4th Edition)

Michael Bridge

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 05 December 2019

(p. 45) The Performance Obligations of Seller and Buyer in English Law

Sale of Goods Act 1979

2.01  A number of rules of sale of goods and contract law are common to all types of export sales transactions, so they may conveniently be considered here. Taking first the rules arising under the Sale of Goods Act 1979,1 there are implied terms of the contract of sale laid down in the Act concerning the description, quality, and fitness of the goods.2 There are also rules that deal with the quantity of the goods that the seller must supply and with the consequences of supplying too many or too few goods.3 The effect of these rules is intimately tied to the field of application of the Unfair Contract Terms Act 1977.4 This Act, for example, places controls upon contractual clauses that seek to limit or exclude liability for breach of the implied terms. As will be seen below,5 the Act is disapplied in the case of contracts containing a sufficient international element. The various rules in the Sale of Goods Act concerning quantity, quality, and similar matters readily give rise to contractual termination because of their status as contractual conditions or because the Act, without explicitly according them the status of conditions, treats the seller’s non-performance of them as the equivalent of a breach of condition.6 English law is generous in the granting of termination rights. In international sales, termination commonly arises, not under the Sale of Goods Act but at common law, in instances where the seller is in breach of obligations relating to documents that have to be tendered to the buyer, and where seller and buyer alike are in breach of time obligations.7 Whether a (p. 46) right of termination is claimed at common law or under the Sale of Goods Act, it is circumscribed by statutory and common law rules dealing with the circumstances in which the right of termination is lost.8 For example, where the seller is in breach of implied terms of quality, description, and fitness for purpose, the Sale of Goods Act lays down a series of complex provisions dealing with examination of the goods and their acceptance or rejection.9 Because these rules are so closely related to the practice of FOB, CIF, and related contracts, they will not be dealt with at this stage but will be deferred to a later chapter.10

Contract law

2.02  Apart from the Sale of Goods Act, there are some matters arising out of the general law of contract that may also be usefully dealt with in this chapter. The English law of international sale is above all one of construction of the contract, an area where English courts have been very active in recent years. It is useful, therefore, to look at the approach of the English courts to the construction of contracts. In addition, the close connection of the various contracts involving the sale, carriage, transport, and financing of goods, together with the string sales background, means that some treatment of the Contracts (Rights of Third Parties) Act 1999, which effected a major reform of the common law doctrine of privity of contract, is in order.

A.  Interpretation of the Contract

A matter of law

2.03  Until recent developments,11 it could have been said with some confidence that the interpretation of a contract12 is a matter of law. Consequently, the views of experienced arbitrators as to the meaning of trade terms are accorded ‘great weight’ but are not without more adopted by the courts.13 This also means that a trial judge’s interpretation is liable to be overturned on appeal if judged incorrect; it is not like a finding on the subject of unreasonableness under the Unfair Contract Terms Act 1977, where appeal courts are loath to interfere with the ruling of a trial court on the subject.14 The treatment of construction as a matter of law is also well integrated in the entrenched understanding of English law that contracts are to be interpreted objectively,15 such (p. 47) objectivity taking the form of one party’s reasonable understanding of the other’s meaning. The treatment of interpretation as a matter of law also provides some degree of assurance to those conducting business on the basis of well-known standard forms, such as an NYPE time charter or a Gencon voyage charter, that they can conduct their business and measure their risk according to an authoritative judicial view of the meaning of standard provisions.16 Backed up by judicial interpretation, such standard form contracts become something more than mere contractual documents; they become a species of private legislation binding those in the trade who have submitted to them. Particular standard terms acquire a settled meaning.17 In this respect, English law diminishes transaction costs and enables participants in the trade to build upon their own and others’ experiences. This feature of interpretation is of particular importance in international sale and related contracts, concluded by ship’s brokers, agents, and the like without the benefit of legal advisers. In recent years, as courts have insisted that contracts are to be construed within their factual matrices, the view has gained ground that interpretation is a matter of mixed law and fact.18 This has led to an approach to interpretation that places English courts at some mid-point in the range from a literal to a purposive interpretation of the contract.19 The danger that this development poses to the reputation of English law for certainty is plainly apparent, though the modern dispensation in the interpretation of contracts is not likely to be applied with full force to standard form contracts that are routinely incorporated without discussion in rapidly executed contractual dealings.20 A factor militating against the extension of modern approaches to contractual interpretation into the field of international commodity sales is the practice of string trading, particularly in CIF contracts. This practice demands that contractual ‘paper’ included in the documentary tender have a quasi-negotiable character so as to enable it to be used as the currency of commerce without any need for an inquiry into the way a contract represented by a document, whether at the head of the string or at some intermediate point, might have taken on a meaning that deviates from the express language of the document.21 Similarly, it is for this reason that a bill of lading is described as the contract, (p. 48) rather than mere evidence of the contract, when it comes to the relationship between the carrier and a subsequent indorsee.22

Harmonious interpretation

2.04  When faced with a complex document, the court will seek to interpret it in an harmonious way so as to avoid conflicts between its various provisions, though this does not mean that individual clauses will be interpreted in an artificial way in order to avoid conflict. The contested clause is not interpreted in isolation but in its written context along with other clauses. This important rule of interpretation highlights the danger of a superficial reading of documents by focusing only on the particular contentious clause in the search for meaning. The Fina Samco23 is a particularly instructive example. The time charterers in that case argued the vessel was off-hire after repeated short interruptions to its service, even though these interruptions were not individually long enough to call into play the off-hire clause itself. The time charterers based their argument on a sub-clause that appeared to make the owners strictly liable for maintaining the vessel in a state of seaworthiness throughout the charter period,24 even though other provisions of the charter imposed a strict duty to tender a seaworthy vessel at the point of delivery and thereafter a due diligence duty to maintain the vessel in a state of seaworthiness. The meaning of the sub-clause was very difficult to discern and the court, without determining its meaning, dismissed the charterers’ argument on the ground that their proffered interpretation of the sub-clause was inconsistent with the remainder of the terms of the charter party dealing with seaworthiness and off-hire.

Eiusdem generis

2.05  Another particular rule of interpretation is the eiusdem generis rule, by which general words in some cases are to be construed in a narrower, limited way when they are added to a more limited class of specific instances.25 The basic rule, however, is that general words in a commercial document are prima facie to be given their natural meaning and are not to be cut down as a result of the company they keep with more particular words in a contractual clause.26 There are exceptions. A good example is The Laconian Confidence,27 which concerned the off-hire clause (cl 15) in an NYPE time charter. By that clause, the charterer would cease to pay hire ‘in the event of the loss of time from deficiency of and/or default men or stores, fire, breakdown or damages to hull machinery or equipment, grounding, detention by average accidents to ship, cargo, dry-docking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel …’. Because a small quantity of sweepings, consisting of loose rice (p. 49) and rubbish, remained on board the vessel after it had discharged a quantity of rice in jute bags, the Bangladesh authorities in Chittagong unreasonably detained the vessel and released it only after a protracted delay. Rix J first held that there had not occurred any accident to the cargo within the specific language of the clause and that, even if there had, this would not have caused the loss of time, which instead was caused by the Bangladesh authorities. He then held that the general language of the clause (‘any other cause’) did not sweep up the action of the authorities: the specific cases of delay in cl 15 all concerned the physical condition or efficiency of the vessel or the cargo. The general language, however, would have been apt to catch this very different type of event if the word ‘whatsoever’ had been added to the formula.

Avoiding absurd results

2.06  If contractual provisions are susceptible to more than one interpretation, the more businesslike interpretation will be preferred.28A fortiori, where one of these interpretations yields an absurd or an unreasonable result, then the other result is to be preferred.29 For example, in The Alkeos C,30 an FOB buyer had the right to call for the original shipment period to be extended. The buyer thereby incurred a duty to pay the seller’s carrying charges. The contract went on to free the buyer from that duty if the ship were delayed on its way to berth by an event for which the buyer was not responsible, but only in the event of the ship being delayed when entering the River Parana, on its way to the loading port of Rosario, by the actions of the Argentinian coastguard at Recalada. Recalada is the first port in Argentinian coastal waters. Although the Argentinian coastguard did indeed delay the ship, it was not at Recalada but at the subsequent port of Interseccion, which lies between Recalada and Rosario. Staughton J held that the clause, properly interpreted, was designed to place on the seller the risk of carrying charges in all cases where the Argentinian coastguard delayed the ship within Argentinian coastal waters. It would make little sense for the seller to assume the risk of delay at Recalada but for that risk subsequently to swing back to the buyer within coastal waters, when the buyer had borne the various risks of marine delay prior to Recalada. In Segovia Cia Naviera SA v R Pagnan & Flli,31 an issue arose under an NYPE time charter about the charterers’ contention that they had the right to order the vessel to a port anywhere in the Gulf of Mexico, when the stated range of the vessel was ‘U.S.A. East of Panama’. If interpreted literally, that phrase would have excluded Gulf of Mexico ports in the United States and indeed any port west of Charleston. (The clause would have had the same meaning as a clause confining the ship to ‘North of Cape Hatteras’ if the owners were right that it should be interpreted in a literal sense.) But the commercial purpose of the clause was to keep the vessel away from west coast ports and out of the Panama Canal and no commercial purpose was served by defining a trading range according to a meridian of longitude. The charterers’ contention was therefore upheld.

(p. 50) Upholding the validity of the contract

2.07  It is a well-known principle of contractual interpretation that, faced with two possible interpretations of the contract, one upholding and the other denying the validity of a contract or one of its clauses, the court will lean in favour of the former interpretation (magis ut res valeat quam pereat). This principle of interpretation is commonplace in European legal systems (where it is often referred to as the favor contractus principle). The principle may not generate much case law but it should always be borne in mind.32

Typed and standard clauses

2.08  In the event of inconsistency between clauses in a standard form applied to the present contractual adventure and special clauses typed in to meet the needs of the particular contract, the latter will prevail. The rule is brought into play after the inconsistency has been established, which is where the litigation battle takes place.33 In Naviera Amazonica Peruana SA v Cia Internacional de Seguros del Peru,34 a hull policy contained a clause that the City of Lima should have jurisdiction over all disputes as well as a special typed clause that, translated from Spanish, stated: ‘Arbitration under the conditions and laws of London’. The Court of Appeal held that a conflict between the two clauses could not be avoided by having a delocalized arbitration conducted in Lima following English procedure (‘conditions’) pursuant to an arbitration agreement governed by English law. This avoidance of conflict between the two clauses introduced too many ‘complexities and inconveniences’. How could the court in Lima exercise supervisory powers over the arbitration? Consequently, there was a conflict and the typed clause prevailed.35

Ambiguity and extrinsic evidence

2.09  Where a contractual document has a clear and unambiguous meaning, the court will give effect to it;36 a court should therefore not seek to impose its own standards of fairness on parties of equal bargaining power.37 The long-standing approach to interpretation was that extrinsic evidence was available to interpret a contract only if the document were ambiguous or if it contained terms that had a customary meaning or were technical expressions. According to long-established principle, the ambiguity had to be patent and not discoverable only when extrinsic evidence was called into play. Merely because a document was difficult to construe would not open the door to extrinsic evidence in the absence of a range of possible meanings.38 More recently, the law has departed from what in the United States is often referred to as the plain meaning rule. It is now established that the ambiguity need not be patent for extrinsic evidence drawn from the matrix of fact to be brought in to explain it.39 In resolving ambiguity, whether patent or latent, the first point to note is that evidence of the parties’ negotiating positions is not in principle admissible to determine the meaning of a contractual document.40 (p. 51) Negotiating positions are adopted and abandoned during the course of the pre-contractual process. Nor can one readily refer to the aim of the transaction. The process of reaching agreement is inherently adversarial;41 the parties may have entered into the contract with different aims. Evidence of one party’s aims is therefore unhelpful and potentially deceiving.42 Disregarding precontractual negotiations in interpreting the contract is also of a piece with the objective interpretation of contracts.43

Factual matrix

2.10  The refusal to look at negotiating positions does not mean that contractual documents are to be interpreted in a vacuum. To that extent, statements made during the course of negotiations do have a part to play in the interpretation of a written document. Lord Wilberforce stated in Reardon Smith Line Ltd v Hansen-Tangen: ‘In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’44 On another occasion, Lord Wilberforce stressed the need to abandon interpretation on internal linguistic considerations and to consider the contract in its factual matrix.45 In Rugby Group Ltd v ProForce Recruit Ltd,46 the Court of Appeal ordered a new trial because Field J had excluded evidence of the parties’ negotiations as throwing light on the meaning of ‘preferred supplier status’ used in the ensuing written contract. In that same case, it was argued that an entire agreement clause47 precluded a reference to the negotiating background in order to determine the meaning of that clause. The Court of Appeal held that there was a real distinction between ascertaining the meaning of terms used in a contract and ascertaining the content of a contract. The entire agreement clause applied only to the latter. Lord Justice Saville48 has warned of the dangers of resorting to the contractual matrix when words, as a matter of ordinary language, have an unambiguous and sensible meaning. For one thing, the process of discovery, interrogatories, and cross-examination would add to the costs and delays of litigation and arbitration. For another, it could prejudice third party assignees who have no awareness of the contractual matrix.49

Rectification

2.11  In Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd,50 certain investors, in return for compensation from an investors’ scheme for the misselling of financial instruments, assigned to the scheme their rights against financial institutions and firms of solicitors, with the exception of ‘[a]ny claim (whether sounding in (p. 52) rescission for undue influence or otherwise) that you have or may have’ against the party responsible. This language was plainly too wide for, literally interpreted, it would have given the scheme very little in return for compensating the investors. The provision was instead interpreted as though it had read ‘[a]ny claim sounding in rescission (for undue influence or otherwise)’, a significantly narrower expression. This interpretation, as sensible as it was, departed so far from the meaning of the words that it was tantamount to a rectification of the agreement without complying with the requirements of the doctrine of rectification. For rectification to occur, there has to be at least a continuing common intention of the parties which is falsified by the written document, which would be hard to satisfy in the case of a non-negotiated contract of this nature. Rectification was therefore not appropriate in West Bromwich. Nor is this a case where the choice was of one meaning of words in a written document over another so that having recourse to pre-contractual party behaviour in order to make that choice would be justified.51

Obvious mistakes

2.12  An exception, however, to the rigorous requirements of rectification is made in the case of obvious mistakes.52 For rectification, or more accurately the interpretation of a contract in accordance with its supposed true meaning,53 to be available in such cases, there has to be, first, a clear mistake on the face of the instrument, and secondly, a clear correction that will eliminate the mistake. But this principle does not apply where the document is not an ‘obvious nonsense’ but has to be altered in order to render it practically operable.54 It is clear that the obvious mistake doctrine is treated as a matter of interpretation, rather than rectification as such.55 The scope for an obvious mistake approach to rectification is unlikely to be great for the standard form contracts that dominate the international sale of commodities, as opposed to the non-standard clauses that are often appended to the standard forms.

Rectification and evidence

2.13  A claim for rectification lets in evidence that, because of its supposed unhelpful nature, ought not to be considered when interpreting a contract. In principle, when rectification is combined in the alternative with a claim based on the interpretation of the contract, it should be possible to separate sworn statements containing material on interpretation from sworn statements on rectification. The former material can then be dealt with without cross-examination and without reference to the sworn statements,56 with the latter material being taken only if the interpretation claim fails. Nevertheless, this division tends to break down in complex litigation.57 In any case, the (p. 53) factual matrix approach lets in ‘a flood of evidence’, as Lightman J observed in Wire TV Ltd v Cabletel (UK) Ltd 58 and thus prolongs trials in a way that internal linguistic analysis does not. A similar observation was made by Staughton LJ in Scottish Power plc v Britoil (Exploration) Ltd,59 when he referred to the difficulty faced by a judge in restraining enthusiastic counsel from bringing in as part of the matrix a mass of unhelpful evidence.

The meaning of documents

2.14  The next major development in contractual interpretation after Prenn v Simmonds60 was Investors Compensation Scheme v West Bromwich Building Society,61 where Lord Hoffmann expounded at some length a philosophy of interpretation that has caused some concern amongst those engaged in the drafting of commercial documents.62 English contract law does not espouse a doctrine of good faith and fair dealing imposed on contracting parties;63 commercial parties are not above bargaining for the right to be unreasonable. Lord Hoffmann in this case introduces the reasonable observer, with all the necessary background knowledge concerning the contract, into the process of interpretation. Through the eyes of that observer, Lord Hoffmann then goes on to say that the meaning of a document is not the same thing as the meaning of particular words in the document.64 Parties may ‘have used the wrong words or syntax’. The danger of this approach to interpretation is that, despite the invocation of the reasonable observer, it introduces a measure of subjective impressionism into the process of contractual interpretation. It is also unduly forgiving of lax draftsmanship. In the words of Lord Hoffmann again: ‘Many people, including politicians, celebrities and Mrs. Malaprop, mangle meanings and syntax but nevertheless communicate tolerably clearly …’.65 Lord Hoffmann’s approach has more to commend it for contracts between parties who are not regular participants in the same trade, but poses a risk to commercial certainty in those trades, like the shipping and commodities trades, where the participants do not need the assistance of the outside reasonable observer to instruct them in what they are doing.

(p. 54) Criticism of modern developments

2.15  The West Bromwich case66 has been applied on many occasions in decisions on contractual interpretation, mostly in a routine way, but often in a way that, in seeking to clarify and justify its meaning, has compounded the uncertainty that it generated. It has not gone uncriticized in the case law. Staughton LJ in Scottish Power plc v Britoil (Exploration) Ltd 67 has urged a need to restrict the factual matrix to what the parties had in mind and what was going on around them at the time of the contract. Dissenting in the Court of Appeal in Charter Reinsurance Co Ltd v Fagan, Staughton LJ said that ‘[t]here must come a time when efforts to bend meaning … have to stop’.68 A criticism of the West Bromwich dispensation in the interpretation of contracts is that, if the courts wish to impose a general contractual duty to act reasonably, then it is time they did so in so many words instead of arriving at the same result, in some cases at least, under cover of a purposive interpretation.

Interpretation and implied terms

2.16  The West Bromwich approach to interpretation, as it introduces the reasonable observer, also blurs the line between interpretation and implied terms. This is demonstrated by Itoh (C) & Co Ltd v Cia de Navegacao Lloyd Brasileiro69 where Clarke J introduced the officious bystander to assist in determining whether a P & I Club’s undertaking, given to effect the release of arrested ships, to pay cargo owners the amount of any judgment entered against the carrier, Lloyd Brasileiro, extended to judgments entered against the State of Brazil, which was the successor of Lloyd Brasileiro. The P & I Club was held bound to honour judgments entered against the State as successor to Lloyd Brasileiro. In reaching this conclusion, Clarke J rejected the Club’s contention that, if it were meant to be bound in these circumstances, the letter of undertaking could clearly have said so. He also rejected the Club’s contention that membership of the Club could not be assigned and that only a member of the Club could make a claim against it (apart obviously from the letter of undertaking itself). He was prepared, in the alternative, to find an implied term of the contract that the undertaking enured for the benefit of Lloyd Brasileiro’s successor in title. There had plainly been an oversight in this case. A critic of the decision would say that it encourages, or fails to discourage, carelessness. It was nevertheless affirmed by the Court of Appeal.70 Some cautionary words ought to be expressed on the danger of slipping into implied terms by using an excessively flexible approach to interpretation. This is what Bingham MR had to say in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd:

The courts’ usual rule in contractual interpretation is, by resolving ambiguities and reconciling inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no express provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power.71

(p. 55) Modern case law on contractual interpretation may therefore be criticized as sanctioning the implication of contractual terms by another name,72 in such a way that the difference between those implied terms that mutely express the will of the parties and those that arise by implication of law is elided. The obvious danger is that the business efficacy test of an implied term, as laid down in The Moorcock,73 as a bulwark against excessive judicial intervention in contracts, is compromised by an interpretative approach that does not benefit from the same degree of judicial restraint.74

Reasonable interpretation and implied terms

2.17  Modern approaches to interpretation of contracts give rise to the danger of excessive judicial interventionism. In interpreting contracts in their factual matrices, the courts favour an interpretation that is commercially sensible,75 but the danger is that commercial common sense may be a Trojan horse that imposes a reasonable or fair result on the contracting parties when that is not their shared intention.76 Similarly, English law has long resisted the incorporation of implied terms in contracts on the ground that they are reasonable.77 Yet, in Attorney General Belize v Belize Telecommunication Ltd,78 Lord Hoffmann treated the implication of contractual terms as interpretation by another name: ‘[I]n every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.’79 This was true, not only for those terms whose inclusion went without saying under the officious bystander test, but also for those terms implied as a matter of business efficacy under the Moorcock test.80 Recent case law shows a return to commercial values with a judicial reluctance to follow the course thus charted to widespread contractual intervention by interventionist techniques of interpretation and implication of terms. In Arnold v Britton,81 the Supreme Court was at pains to say that the interpretation of contracts was about what the parties meant and not what they should have meant. In addition, the wholesale assimilation of implied terms and interpretation was rejected by the same court in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd.82 In the words of Lord Neuberger:83 ‘Lord Hoffmann’s analysis in the (p. 56) Belize Telecom case could obscure the fact that construing the words used and implying additional words are different processes governed by different rules.’84 In most cases, the process of implication would follow after the contract had been interpreted.85 He also said: ‘[A] term can only be implied if, without the term, the contract would lack commercial or practical coherence.’ Reasonableness on its own was not a sufficient basis for implying a term.86 Again in Lord Neuberger’s words: ‘a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term.’87 As matters now stand, the restraint exercised in the past when it comes to the implication of implied terms in the contract, especially on the ground of business necessity, has either been reaffirmed or reinstated. The balance between the meaning of a text and its context has also come in for further scrutiny, with the form being accorded a prominent role in the case of contracts that are sophisticated and complex, prepared by skilled professionals.88

Time of interpretation

2.18  Just as evidence of negotiations does not bear directly on contractual interpretation, so a contract is to be construed at the moment of its formation. Subsequent behaviour is inadmissible as a guide to interpretation,89 for otherwise the meaning of a contract might change from day to day. In this respect, English law is probably in a minority amongst developed legal systems. Yet it is common for contracts to be varied and for rights to be waived. So long as waiver and promissory estoppel exist, and with a requirement of consideration to effect a binding variation, it is plainly dangerous or imprecise to draw contractual meaning from subsequent behaviour. In Schuler (LG) AG v Wickman Machine Tool Sales Ltd,90 Lord Denning in the Court of Appeal stated that subsequent behaviour could be looked at to evince contractual meaning because the parties themselves are the best guide to the way language was used. He distinguished the contrary view, expressed in the House of Lords in Whitworth Street Estates (Manchester) Ltd v James Miller and Partners Ltd,91 as applying only to the case where a contract was capable of having just one proper meaning. Lord Denning’s views were rejected by the House of Lords in that same Wickman case.

Estoppel by convention

2.19  The insistence of the House of Lords that a contract cannot be interpreted in the light of the subsequent conduct of the parties is undermined by the extent to which a court is prepared to apply the doctrine of estoppel by convention (or active acquiescence), which is invoked many more times than it is applied. In Amalgamated (p. 57) Investment & Property Co Ltd v Texas Commerce International Bank Ltd,92 the plaintiff property company had a Bahaman subsidiary (ANPP). The defendant bank undertook to lend an agreed sum to ANPP but, for exchange control reasons, the advance was channelled through the bank’s Portsoken subsidiary, to which ANPP owed the money. The plaintiff executed a guarantee in favour of the defendant bank in respect of moneys owed to the defendant bank by ANPP. A court imbued with the present approach to interpretation taken after the West Bromwich case93 might have construed the guarantee as extending to moneys owed to the bank’s Portsoken subsidiary. But in this case, the outcome was determined by the way the parties (plaintiff and defendant) acted, after the guarantee was given and the advance made, in treating the moneys as being owed to the defendant bank and not to its Portsoken subsidiary. A stream of negotiations and communications between them was to this effect. Further, the defendant bank could have had the loan called in on a number of occasions over a two-year period, but refrained from doing so in reliance upon its perceived rights under the guarantee. The Court of Appeal held that the plaintiff was estopped from denying that the guarantee covered the loan advanced by the defendant bank’s Portsoken subsidiary. As Lord Denning put it in Amalgamated Investment, the parties’ common mistake as to the scope of the guarantee, buttressed by their acting upon this mistake, created a conventional basis on which they conducted their affairs that replaced the original contract.94 The other members of the court approached the matter in similar terms.

B.  Implied Terms of Quality, Fitness, and Description in International Commodity Sales

Description

General

2.20  Besides the various documentary obligations owed by a seller in CIF and, to a lesser extent, FOB transactions, there are also implied terms concerning the fitness, quality, and description of the goods. Where the applicable law of the contract is English law, these terms are to be found in ss 13–14 of the Sale of Goods Act 197995 (as amended by (p. 58) the Sale and Supply of Goods Act 1994).96 They are contractual conditions, which means that in the event of breach, as a matter of law and regardless of the factual consequences of breach, the injured party may terminate the contract.97 Sub-section 14(1), a remnant of the old caveat emptor rule, states that there is no other quality or fitness term to be implied in a contract of sale.98

Sale by description

2.21  Where goods are sold by description, there is an implied condition in s 13 that the goods supplied must correspond with their contractual description.99 It is hard to conceive of a contract of sale that does not take place by description. The Act provides a small measure of assistance in stating that the exposure of goods for the buyer to select does not prevent the contract from being a contract of sale by description.100 By implication, the case thus dealt with is one where the goods are exposed to the buyer prior to the conclusion of the contract. Apart from this case, no assistance is provided by the Act. If the contract is one for unascertained goods, even unascertained goods in an identified bulk, it can confidently be asserted that the contract of sale takes place by description. For specific goods, although it is technically possible for an article to be ‘identified merely by its presence and sold tale quale’, as though it might be ‘a diamond or a piece of glass’ according to the judgment of the buyer, in practice, whether by words or demonstration, the sale will ‘generally’ take place by description.101 One might go so far as to say ‘invariably’. Certainly, commodity sales, which constitute the overwhelming majority of contracts dealt with in this work, will necessarily take place by description since they will involve contracts for goods such as ‘No 2 red winter wheat’ or ‘light crude oil’ and so on.

Content of description

2.22  As for the content of the description itself, the Act gives no guidance but, as interpreted in the case law, s 13 has come to mean in modern times, for specific and unascertained goods alike, that the goods supplied must conform to the contract in terms of identity, which is narrower than the sum of every descriptive attribute, broadly understood, of the goods as stipulated in the contract.102 This development tracks the modern tendency in contract law to restrict rights of termination to instances of severe harm where the term in question is not designated in the contract or by statute as a condition.103 It also serves to exclude from the description condition words that go to the quality of the goods,104 although it is important to understand that words of quality may also be (p. 59) words of identity.105 Furthermore, the presence of contaminants in the goods called for by the contract is unlikely to involve a breach of s 13.106 There will therefore remain words in the contract that in a broad sense describe the goods yet fall outside their core identity. These words will be treated as express terms of the contract, with termination being available if the consequences of breach are sufficiently serious.107 Words that go to identity, moreover, are not the same as words that merely identify the goods the seller should use in fulfilment of the contract.108 Previous cases had applied the description term in the case of unascertained goods109 to the dimensions and measurements of the goods,110 though a margin could be provided by a clause in the contract111 or by an applicable trade custom.112 Although earlier strict decisions stand in need of reappraisal in modern times,113 the identity of goods has a broader meaning in the field of international commodity sales than it would have in a conventional domestic sale.114 In a contract for the sale of No 2 amber durum wheat shipment from a Gulf of Mexico port of the seller’s choice, each element in this description would, it is submitted, constitute part of the identity of the goods for the purpose of s 13. The seller would have to tender No 2 and only No 2;115 it would have to be amber durum wheat;116 and it would have to be shipped from the Gulf of Mexico and not from a Great Lakes port such as Duluth. Allowing for this greater laxity in commodity sales, however, nothing in the modern law suggests that a common expression such as ‘fair average quality of the season’s shipments’ is a matter of description under s 13. Apart from the modern scope of s 13, the notion of description has inspired the treatment of many express terms as conditions in commodity sales cases, without s 13 being applied as such, for example, decisions on the time117 and place118 of shipment, on (p. 60) the whereabouts119 and expected arrival date of a ship,120 on the readiness of the goods for loading by a certain date,121 and on the location on board ship of the contract goods.122 These decisions are unlikely to be affected by the modern tendency to restrain the application of s 13 in some contract cases.

Reliance and opinion

2.23  There has emerged in the modern law a restriction on s 13 to the effect that it is not breached in those cases where the buyer does not rely on the seller’s expertise as reflected in the descriptive words,123 but this is unlikely to affect international sales of the type dealt with in this work. This development may be seen as part of the process of aligning the law of sale with modern developments in contract law. A similar development, again unlikely to have an impact on the types of contracts dealt with in this work, concerns statements of opinion where it has been held that these might constitute part of the description only in those cases where the parties intend the statement to be incorporated in the contract.124

Fitness for purpose

Introduction

2.24  The fitness term in sub-section 14(3) of the Sale of Goods Act 1979125 renders strictly liable a seller selling goods in the course of a business for not providing goods reasonably fit for the buyer’s particular purpose in those cases where the buyer reasonably relies upon the seller’s skill and judgment.126 The term embraces two different types of case. First, the seller must supply goods that are fit for any special purpose communicated by seller to buyer. A buyer who orders fabric needed for its dressmaking business, and who informs the seller of that need, is entitled to receive fabric fine enough for making dresses and not so inferior that it can be used only for making industrial working clothes.127 Secondly, fitness has also been extended to commonplace purposes that cannot really be described as ‘particular’.128 Here, the buyer need not explicitly state its purpose to the seller since it is obvious. To take well-known cases, the seller of a hot water bottle129 need not be told that the buyer proposes to warm his bed, or the seller of long woollen undergarments130 that the (p. 61) buyer intends to wear them. If the hot water bottle explodes, or the undergarments cause dermatitis, the buyer has a claim under sub-section 14(3) against the seller. The extension of this second term to commonplace purposes was due to certain difficulties experienced in the past in the application of the merchantable (now satisfactory) quality implied term. It does give rise to a number of difficulties. Returning to our example above, a buyer purchasing cloth for the generally stated (or implied) purpose of making clothes, who fails to state its purpose of making dresses, should be unsuccessful if the goods were suitable for working clothes: the seller’s duty is one of reasonable fitness so that, the more broadly stated (or implied) the purpose, the more likely that the goods would find an acceptable place somewhere in the range of that broad purpose.131

Disclosure and undertaking

2.25  It is noticeable that express warranty plays a relatively minor part in the law of sale of goods in modern times. This is due in no small measure to the existence of liability under s 14. First of all, implied fitness and quality terms diminish a buyer’s need to seek express warranties from the seller of goods. Secondly, a detailed disclosure of the buyer’s particular purpose under sub-section 14(3), if it is an esoteric one, allows the buyer in a real sense to upgrade the strength of the implied undertaking of the seller in sub-section 14(3). In the dress example again, the buyer stating its need for dress fabric obtains a higher standard of commitment from the seller than one who merely asks for clothing fabric. A seller quoting a price for its cloth will be driven, if it is unsuitable for making dresses, to respond to the buyer’s purpose by informing the buyer that the cloth is not suitable for that purpose. The seller who remains silent in the face of the buyer’s stated purpose is therefore to be understood as giving an undertaking that the goods are fit for the buyer’s purpose that is as effective as a seller who expressly warrants the same.132 The buyer’s statement of purpose, provided there is also reliance on the seller’s skill and judgment, makes the stated purpose the basis of the bargain. As stated by Lord Wright in Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd: ‘[T]he buyer must bring home to the mind of the seller that he is relying on him in such a way that the seller can be said to have contracted on that footing. The reliance is to be the basis of a contractual obligation.’133 There are cases, however, where the buyer may not reasonably rely upon the seller’s skill or judgment; sub-section 14(3) precludes liability in such a case. An extravagantly stated purpose, for example, should not impose an unreasonable liability on the seller.134 This limit on the seller’s liability might also be apt to deal with the case of a buyer who is negligent in using the goods.135 Finally, although a pre-contractual examination of the goods does not as such rule out a (p. 62) seller’s liability under sub-section 14(3), the circumstances might give rise to an inference that it is unreasonable for the buyer in such a case to rely on the seller’s skill or judgment.

Reliance

2.26  In order to engage the seller’s liability, the buyer must rely upon the seller’s skill or judgment. Reliance is a question of fact ‘to be answered by examining all that was said and done with regard to the proposed transaction on either side from its first inception to the conclusion of the agreement’.136 Under the Sale of Goods Act 1893, the burden of proof of reliance was on the buyer but was often established as a matter of inference.137 The wording of the present sub-section 14(3) appears to create a presumption of reliance since liability is negatived ‘where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller’.138 Lord Reid has observed that it will be rare for a buyer not to rely at least in part on a manufacturing seller.139 Nevertheless, the extension of sub-section 14(3) to commonplace or general purposes has highlighted the fact that the buyer’s reliance can at times be something of a fiction.140 The overriding policy of the law to shunt liability in the case of defective goods141 back up the sale chain to the source of a defect in the goods142 trumps any judicial desire to abide by the logic of the fitness term. Although sub-section 14(3) speaks of reasonable fitness for purpose, it should firmly be understood that the seller’s liability is strict and that the case law embraces instances of goods that are defective and dangerous, and goods that are in a different way unfit, with the law imposing a heavier burden on the seller in the former instance. In Henry Kendall & Sons v William Lillico & Sons Ltd,143 where goods containing a toxic element were supplied by one trader to another,144 in circumstances tending to rebut any true reliance by one trader on the other’s skill and judgment, the court nevertheless found reliance stemming from the seller’s exercise of skill and judgment in introducing new goods to the market. Had the goods been an established market item, the result should have been the same. In both instances, an intermediate seller would have been in no position to determine whether the goods contained a hidden defect. Similarly, an intermediate seller of goods suffering from a latent defect not shared by otherwise identical goods produced by the same manufacturing process ought not to escape liability. In this regard, a difficult (p. 63) case is M/S Aswan Engineering Establishment Co v Lupdine Ltd,145 where the buyers sought pails strong enough to be used for waterproofing compound sent overseas. They selected a certain type of pail from a catalogue and obtained a sample from the manufacturing sellers before putting in an order. Although Lloyd LJ146 concluded147 on the facts that reliance by the buyer was absent, the following distinction should nevertheless be drawn. The buyers’ behaviour may have shown an absence of reliance on the sellers in respect of the type of pail they needed, but, supposing a particular batch of pails to be defective, they should be taken to have relied upon the sellers not to select defective pails from stock.148

Partial reliance

2.27  The buyer need not rely exclusively on the seller in order for the seller to be liable. A buyer might, for example, rely to some extent on his own skill or judgment or upon the reputation of the manufacturer.149 Similarly to the issue of partial inducement in actionable misrepresentation,150 partial reliance by the buyer will be sufficient to engage the seller’s responsibility under sub-section 14(3).151 Lord Sumner has stated that reliance amounting to a ‘substantial and effective inducement’ to the buyer’s entry into the contract will suffice.152 Partial reliance arises in cases where the buyer takes responsibility for the design of a propeller, or for an animal feed recipe, to take well-known examples,153 leaving the seller with responsibility for the materials or ingredients.

Purpose and case illustration

2.28  The range of a seller’s liability is defined by the type and extent of the buyer’s purpose. Purpose is a word of elastic character, responsive to changes in the market place. This emerges from a treatment of Henry Kendall & Sons v William Lillico & Sons Ltd,154 where Brazilian groundnut extract had been sold by one dealer in animal feedstuffs (Kendall) to another (Grimsdale); at the next stage in the distribution chain, the extract was compounded by Grimsdale’s buyer into poultry feed and it was then sold to a game farm. When fed to the game farm’s breeding pheasants, the feed killed a large number of them because the groundnut extract was contaminated by aflatoxin, the poisonous product of a fungoid presence on the groundnuts. At the contract date, Kendall knew that the extract that it was selling to Grimsdale would be resold to compounders of animal feed; it did not know whether the extract would ultimately be compounded into cattle feed or poultry feed. In a general sense, the groundnut extract was unfit because it was toxic in varying degrees to cattle and poultry. Furthermore, Kendall, ignorant of the toxicity of (p. 64) the goods and the varying vulnerability of cattle and poultry, would have sold the goods to Grimsdale in any event. Kendall was therefore not deprived of any opportunity to exercise its skill or judgment by the absence of information from Grimsdale and so was held liable in damages under sub-section 14(3). The House of Lords was at pains, nevertheless, to show that its decision was confined to market conditions prevailing at the date of the contract.155 It later became known that even toxic groundnut extract could be fed to cattle, though in modest proportions. At that later time, there remained no market at all for the goods in the compounding of poultry feed, but a market existed for cattle feed. In order for a future seller to be liable for harm done to poultry, a basic question was whether the seller might merely be informed that the extract was needed for animal feed or whether the buyer would have to make it known that it was destined for poultry. Lord Reid correctly doubted that liability should exist in the former case.156 The resale of the goods for compounding into animal feed would no longer be sufficient to engage a seller’s responsibility for feeding all types of animal. The buyer would have to be more explicit because market conditions had changed; ‘particular purpose’ is not a static idea but is to be understood by reference to informed market activity.

Further illustration

2.29  The next case is Ashington Piggeries Ltd v Christopher Hill Ltd,157 where Norwegian producers sold a quantity of herring meal to English compounders of animal feed and were not informed of the ultimate destination of the goods. In fact, the meal was used in compounding mink feed according to an original recipe supplied by the sub-buyers, English mink breeders. The herring meal was contaminated by the presence of dimethylnitrosamine (DMNA), a by-product of the preserving process adopted by the Norwegian producers, and a large number of the sub-buyers’ mink died. A successful fitness for purpose claim was brought by the sub-buyers against the buyer, who now claimed over against the sellers, the Norwegian producers. It was not known at any relevant time that the method of preservation used could bring about DMNA poisoning. Mink were especially vulnerable to this toxic additive, which attacked the liver, but it was never shown how, if at all, the contaminated herring meal might be fed to other animals. When the herring meal was supplied by the Norwegian producers, they knew that herring meal had been fed in the past to Norwegian mink, a practice that at that date had not emerged in England; they also knew of the mysterious deaths in recent years of Norwegian mink but not of any connection between this and herring meal. The Norwegian producers were held liable in damages under sub-section 14(3), although they did not know that the herring meal would eventually be fed to mink. It was enough for the buyers to establish that herring meal was generally unfit for compounding into animal feed158 and that, in accordance with the contractual remoteness of damage rule, had the Norwegian producers contemplated the matter at the contract date, they would have realized it was not unlikely that the herring meal would be fed to mink. This amounts to a generous application of the remoteness rule in favour of the buyers.159Ashington Piggeries involves an expansion of sub-section 14(3) (p. 65) liability, as expounded in Henry Kendall & Sons, in that it boosts the evidentiary position of the buyer. To establish general unsuitability, a buyer need not show that goods of the same type have actually injured animals other than mink in the range covered by animal feed in general, nor even that, if fed to any of those animals, the herring meal would cause injury. Rather, the presence of toxicity would raise an evidentiary inference of unfitness across the range.160 The burden would then fall on the seller to show that the contaminated meal could be fed to other animals in the range,161 so that the special vulnerability of mink might then be seen as an idiosyncrasy peculiar to them and falling within the buyer’s area of responsibility.162 Obviously, it would be at least as hard for the seller to prove this as for the buyer to prove the opposite.

Satisfactory quality

Introduction

2.30  The seller’s quality obligation in s 14 of the Sale of Goods Act 1979163 is to supply goods that are of satisfactory quality,164 which is a flexible standard that takes account of the price paid, the way in which the goods are described in general terms in the contract and the use to which the buyer intends to put the goods. Formerly, the implied term was known as the merchantable quality term, the focus of the law, at least in the early days of its development, being on the propriety of the seller’s conduct in supplying (p. 66) the buyer with goods in the light of the way that those goods were described in the market and priced. The term was never intended to act as a guarantor of high or even average quality. Instead, it operated as a safety net. A buyer seeking more than basic protection had to bargain for an express warranty instead or take shelter in the fitness for purpose term. Based on a developing economy of agricultural materials and unsophisticated, often hand-made, goods, the merchantable quality term over time changed its focus and character.165 It increasingly came to deal with complex manufactured goods, in the process of making which high levels of quality attainment became possible. By the time merchantable quality became satisfactory quality,166 the emphasis in commercial contracts was firmly based on the buyer and upon whether a reasonable buyer should be content to accept or retain the goods supplied in the light of variable criteria, such as the fitness of the goods, their description, durability, absence from defect, appearance and finish, and the price charged.167 The statutory formula of satisfactory quality is one that suggests no small degree of difficulty in its application to a given case, but the increasing lack of tolerance of defects in manufactured goods, putting aside the case of goods sold as second hand or as ‘seconds’, demonstrates that any difficulty with satisfactory quality is more conceptual than actual in such cases. As for commodities, the application of sub-section 14(2) probably comes close to the standard used commonly in express terms, namely, fair average quality of the season’s shipments. Furthermore, the presence in commodities contracts, whether of a wet or dry kind, of express terms dealing with specifications, ingredients and permissible additives largely dispenses with any need for a buyer to rely upon sub-section 14(2), which is anyway not uncommonly excluded in such cases. Finally, there is a large area of overlap between this and the fitness term in sub-section 14(3).

Dual purpose goods

2.31  One particular aspect of the modern statement of satisfactory quality calls for particular notice. It was established in clear terms by the House of Lords in the 1960s that, where goods were capable of serving more than one ordinary purpose, goods were of satisfactory quality if they complied with at least one of those ordinary purposes.168 A buyer seeking greater protection would therefore have to inform the seller of the purpose for which the goods were being bought so as to come within the fitness term. A subsequent change in the wording of the statute, requiring the goods to be ‘fit for the purpose or purposes’ for which they were commonly bought,169 was later held not to change the law.170 The current position is that the goods must now be fit for all purposes for which they are commonly supplied ‘in appropriate cases’.171 This no doubt well-meaning change172 is not (p. 67) a beneficial one. First, the notion of an appropriate case is inherently uncertain. Secondly, the change takes away from the buyer any incentive to provide helpful information to the seller so as to enable the seller to exercise skill and judgment. Thirdly, the change presents the dubious prospect of an Aristotelian discussion about the difference between commonplace and special purposes, and between purpose and sub-purpose.

Contractual terms and termination

Classification of terms

2.32  All of these implied terms of description, fitness for purpose and satisfactory quality are classified in English law as conditions of the contract,173 which means that any breach by the seller permits the buyer to reject the goods, terminate the contract, and sue the seller for damages.174 This is so even if the goods fall short of the contract standard by only a small margin.175 Since 1994, however, a new provision176 provides that the buyer in certain cases is not permitted to exercise rights of rejection and termination where the breach is so ‘slight’ that it would be ‘unreasonable’ to reject the goods.177 The burden is on the seller to show that the buyer may not reject the goods178 and it will not be an easy burden to discharge, especially since the Law Commission said that the buyer’s motive for terminating the contract should not be open to review.179 Section 15A applies only to the statutory implied terms in ss 13–15 of the Sale of Goods Act; it does not apply to express terms of the contract or (supposedly) to terms in commodities contracts dealing, for example, with the date of shipment or the choice of port, or to the seller’s duty to tender conforming documents. Those introducing the reform were evidently wary of introducing uncertainty into the commodities trading world. Nevertheless, there is the distinct risk that decisions on the classification of express terms as conditions, inspired by the notion of description,180 will be challenged under s 15A as instances of the application of the s 13 implied term itself. Such a challenge ought to be unsuccessful, since the buyer would not be relying upon s 13 as such to justify termination of the contract but rather upon the common law of contract.181 Apart from s 15A, the buyer’s right of rejection is lost once the (p. 68) buyer accepts the goods,182 whereupon any claim of the buyer sounds only in damages or in an action to recover the price. Where there is an express term concerning quality, such as the terms in GAFTA contracts that the goods be shipped in ‘good condition’,183 or describing the goods, but falling outside the identity core of description, the consequences of breach are likely to be very different from those arising where a breach of condition occurs. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha,184 the Court of Appeal held that not all contractual terms could be fitted into a binary straitjacket of conditions or warranties in the way directed by the Sale of Goods Act,185 that is, as conditions whose every breach gave rise to a right to terminate the contract,186 or warranties, which could only give rise to a right to damages187 and not to a right to terminate the contract. Diplock LJ was of the view that there existed a third category of terms, which have come to be known as innominate terms (or intermediate stipulations),188 where the right to terminate would arise only if the injured party were deprived of substantially the whole benefit for which he bargained, that is, if the breach went to the root of the contract, a test that is very hard to satisfy in practice.189 In the same case, Upjohn LJ, displaying a surer sense of the way the law had developed, saw a binary system of terms,190 some of which were conditions and some of which were the remaining terms, where the right to terminate would depend upon the severity of the breach.191 This development in Hongkong Fir was carried over into the law of sale in Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord),192 where the term in question, that the goods should be shipped in ‘good condition’, was held to be an innominate term.193 The Hongkong Fir development, which could not alter the classification of the statutory implied terms in ss 12–15 of the Sale of Goods Act as conditions and warranties, was held applicable to express terms of the contract. The court, drawing upon the state of the common law as it existed on the eve of the first Sale of Goods Act in 1893, dismissed the view that the binary language of conditions and warranties in the Act might have been interpreted as affecting all terms of a sale of goods contract,194 The potentially disruptive effect of the innominate terms development, so far as it might reduce certainty in determining the existence of termination (p. 69) rights if applied to time and documentary obligations in international sales, has with a few exceptions195 been resisted. The Hongkong Fir development, despite its effect on express terms relating to quality, has therefore had less of an impact on the law of international sales than at one time might have been imagined.

International sales and the seller’s duties

2.33  In practice, the seller’s statutory obligations concerning the description, fitness, and quality of goods are commonly supplemented or even limited or excluded by the terms of the standard form contracts used in the commodities trade. A wide variety of approaches are used in dry and wet commodities contracts. The forms will sometimes require the goods to be of ‘good merchantable quality’,196 or to be of ‘fair average quality of the season’s shipments’.197 Or, instead, they may be silent about the general quality of the goods but require them to be shipped in good condition.198 Commodities contracts may also contain broad exclusions of the implied terms in the Sale of Goods Act,199 or, like some FOSFA contracts, in double negative fashion, state that the goods ‘are not warranted free from defect rendering them unmerchantable which would not be apparent on reasonable inspection’. Although this does not exclude liability as such, it does seem to go further than the Sale of Goods Act200 in limiting the seller’s responsibility for merchantable quality, not just when the buyer does inspect the goods but also where the buyer might have done so. For the most part, however, the standard forms spell out in greater detail the contents of a seller’s quality obligations by prescribing the chemical analysis of the goods supplied, such as a stated minimum of oil and protein combined, as well as the degree of permitted adulteration by extrinsic matter (such as sand, silica, and castor seed husks). To the extent that the standard forms exclude or limit liability, they are subject to the usual common law contract rules concerning the incorporation and interpretation of exclusion clauses.201

(p. 70) Inspection

Inspection agencies

2.34  Going beyond the prescribed quality itself, the central feature of the contractual scheme in the standard forms used for international sales is that matters of quality and chemical composition of the goods are to be decided in a way that binds both seller and buyer by a disinterested inspection agency202 which looks at samples drawn,203 usually on shipment.204 On the subject of taking samples and dealing with them, the standard forms go into considerable detail.205 The agency inspects the sample to see if the goods conform to the statement of quality, and analyses it to see that it complies with any prescribed chemical analysis.

Merits of independent binding inspection

2.35  The virtue of an inspection agreed by the parties to be binding206 carried out by an independent inspectorate is that it tends to minimize disagreement between the parties in respect of the quality and make-up of the goods supplied.207 Buyers receive an independent survey report and avoid costly disputes, getting the benefit of the same term in their sub-contracts; sellers avoid complaints that have to be resolved by evidence taken in a foreign country long after the goods have been delivered, and they have the chance to replace goods that do not pass muster with the surveyor at the port of shipment. The trading form will usually identify in precise terms the inspection agency or list of approved agencies.208 Trust and reputation are important virtues in this area of practice. The effect of such a clause is that the task of inspection cannot be delegated. Where goods on out-turn prove to be damaged, the seller may not escape liability by means of a clean certificate issued by a delegate of the nominated agency.209

Controlling opportunism

2.36  Furthermore, the buyer’s right of rejection of the goods for quality and related defects is severely curtailed by the standard trading forms, which reduces the risk of opportunistic behaviour by the buyer and recognizes that a price allowance will (p. 71) usually be the appropriate remedy in case of goods falling short of the agreed standard.210 The provision for a price allowance instead of contractual termination demotes the conditions of fitness for purpose and satisfactory quality, so far as they apply to the contract, to the status of ex post facto warranties as defined in the Sale of Goods Act.211 Scrutton LJ once said: ‘The business man does not like the idea of rejection; he appears to think that any case can be satisfactorily dealt with by the buyer having to take the goods and get consolation in damages if the goods are not what he wanted to buy.’212

A code of the seller’s duties

2.37  The binding character of inspection clauses has been challenged on two principal grounds. First, the conduct and judgment of the inspector have been challenged. It is nevertheless recognized as important that the provision in the contract for a binding certificate should not be avoided in the absence of fraud or fundamental mistake on the part of the certifier,213 or a material breach of the inspector’s instructions.214 The contract itself may provide for the inspection not to be binding when there is ‘fraud or manifest error’.215 Secondly, clauses have been challenged as inapplicable, as a matter of construction, to the case at hand. Although the cases recognize that the buyer’s statutory rights under the Sale of Goods Act may be modified by an inspection clause, it is a matter (p. 72) of construction216 how far the form goes in doing this. In ‘Agroexport’ v NV Goorden Import Cie SA,217 the judge recognized in the standard form ‘a comprehensive code for rejection or acceptance or allowance based on the evidence derived from the certificate of control and the certificate of the analysts’. In Cefetra BV v Alfred C Toepfer International GmbH,218 the judge was satisfied with the defendant’s concession that clauses in the GAFTA 100 form dealing with quality and sampling and analysis amounted to a comprehensive code in respect of the seller’s quality obligations. Nevertheless, a more cautious note is struck in Lindsay (WN) & Co Ltd v European Grain and Shipping Agency Ltd,219 which emphasizes that the matter is one of construction of the individual trading form: it cannot simply be assumed that this is the case without looking at the form. In Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA,220 the court concluded on the construction as a whole that a first inspection certificate in that case, even though expressed as ‘final’, did not take away from the buyer its right to reject the goods for defective quality. Again, an inspection may be final and binding in respect of certain features of the goods or contaminants therein, but not for others.221 A third challenge, less direct but unsuccessful, to the binding character of an inspection arose where the buyer sought to have implied in the contract a continuing warranty of compliance with the contractual specification, so that a cargo that passed inspection would be judged non-conforming if it fell below the contractual specification at the port of discharge. The buyer’s claim was dismissed because it would render ‘pointless’ the binding inspection at the loading port.222

Exclusion clauses and description

2.38  Clauses defining rights are capable of operating as exclusion or limitation clauses and to that extent are subject to canons of contra proferentem interpretation. They will therefore be strictly construed like any other exclusion clause.223 This approach is particularly marked when the seller’s breach concerns description. For example, Lindsay (WN) & Co Ltd v European Grain and Shipping Agency Ltd 224 affirms that the seller’s description obligation in s 13 survived the scheme concerning quality contained in the form in that case. Quality and description are not the same thing. The same view was taken in NV Bunge v Cie Noga d’Importation et d’Exportation (The Bow Cedar),225 where the analysis was confined to the chemical composition of oil and did not deal with its type. It therefore failed to state that the contract goods, Brazilian groundnut oil, had been (p. 73) improperly mixed with soya bean oil. The type of oil went to the description of the contract goods and therefore fell outside the quality clause.226 The clause in White Sea Timber Trust Ltd v North (WW) Ltd 227 stated that the buyer had no right to reject the goods ‘specified’ in the contract. In breach of contract, the seller shipped some of the goods on deck. This breach of description meant that the goods in question were not ‘specified’ for the purpose of the rejection clause, which therefore did not apply. A final example is Vigers Bros v Sanderson Bros,228 where the contract required the goods to be ‘about’ the stated specifications and went on to provide that the buyer had no right to reject if a dispute arose about the ‘stipulations of the contract’. This rejection clause was held not to apply to the seller’s breach of its description obligation.

Exclusion, description, and quality

2.39  On the other hand, in Toepfer v Continental Grain Co,229 a quantity of wheat was inaccurately certified as No 3 hard amber durum. Since the hardness of the wheat was a matter of both quality and description, the certificate of quality was binding as to the hardness of the wheat.230 Again, the form may well define the seller’s description obligation to the extent that it lays down in detail the required analysis (fat, protein, and so on) of the goods.231 Nevertheless, it may be appropriate to draw a hard line between description and quality. In drawing such a line, the location in the document of the words in dispute, together with the fact that they are special words not found in the ordinary run of contract, may be relevant.232 Even assuming the clause goes on to bar rejection of the goods in matters of ‘grade, type, and description’, such a clause will not apply if the buyer’s complaint is that the goods were shipped out of time.233

Construction

2.40  A similar restrictive approach to the interpretation of clauses may be taken in the case of other breaches. A clause excluding liability in respect of fitness for purpose and merchantable quality will not extend to express warranties of quality.234 As for quantity, in Beck (Ernest) and Co v Szymanowski (K) and Co,235 there was a clause deeming the goods ‘delivered’ to comply with the contract unless the buyer gave notice of non-conformity within fourteen days. The goods were reels of cotton and their shortness could only be discovered when the end of the reels was reached. Although applicable to matters of quality, the clause did not extend to quantity. Furthermore, the contra proferentem rule explains why a court will not readily extend sampling and analysis procedures by implication from certain stated faults in the goods to other faults going to the issue of satisfactory quality.236 (p. 74) In Kollerich & Cie SA v State Trading Corp of India,237 the contract dealt with packing requirements but, in doing so, made no mention of the certification procedure elsewhere dealing with quality of the goods. Parker J declined to apply the certification clause to the packing of the goods.

Quality and condition

2.41  A court may also draw a distinction between matters of quality and of condition. In Cremer v General Carriers SA,238 where a form differentiated quality and condition (on shipment) and went on to say that inspection certificates were final in matters of quality, the court held that the finality of the certificate did not apply in cases of condition. A contract form may however make it clear that quality includes natural weight, that is, the weight of the goods expressed in volumetric terms.239

Quality certificates and sub-sales

2.42  In Apioil Ltd v Kuwait Petroleum Italia SpA,240 a difficult issue arose concerning sub-sales and certificates of quality and their finality. The head sale stated that the supplier’s certificate was to be final and binding on the parties, while the sub-sale stated in an incorporation clause that quality was to be ‘As per certificate issued at loadport by shippers to be final and binding on both parties’. The difficulty was that, under the sub-sale, there were other contractual clauses showing that quality was to be determined by means other than those used in the head sale contract. There was no shipper’s certificate of quality. The question was whether the incorporation clause nevertheless succeeded in transferring the finality of the certificate in the head sale contract to the different procedure used to test quality in the sub-sale contract. Colman J expressed his disapproval of taking ‘a document giving rise to certain express rights and obligations in the [head sale] and then to identify in the [sub-sale] a quite different document giving rise to some, but not all, of those rights and obligations and then [arguing] that because the functions in the two documents are to some extent expressed to be similar, it must follow that in all other respects their contractual functions must be identical …’ (emphasis in original). He therefore refused to treat the quality procedure in the sub-sale contract as final by virtue of the incorporation clause. Nevertheless, he went on to hold, as a matter of implication, that the quality procedure in the sub-sale was binding, not only for the purpose of the buyer’s right of rejection but also for the purpose of calculating any price allowance.

Status of express quality terms

2.43  So well established has become the view that the proper remedy for physical defects in the goods in international sales is a price allowance that courts have reached similar conclusions when dealing with express quality terms failing to state the consequences of a breach. Terms considered to be intermediate stipulations, so that a breach not going to the root of the contract would give the buyer no more than a price allowance, include the shipment of citrus pellets ‘in good condition’241 and the requirements that white Syrian barley not contain in excess of 4 per cent impurities242 and that crude oil be of the ‘usual Dakar refinery quality’.243 The conclusion that express quality (p. 75) terms are not conditions has avoided the difficulties that arise where a contracting party has more than one route in the contract to termination, such as words and conduct that might amount to waiver of one right to terminate but not to another.244

Letter of credit

2.44  A price allowance clause in the contract may be undermined by a subsequent contractual variation, evidenced by a bank letter of credit and subsequent conduct of the seller, imposing strict documentary standards. This occurred in Ficom SA v Sociedad Cadex Lda,245 where the parties contracted on the terms of the European Coffee Contract which, in Article 7, stipulated: ‘Unless there be gross negligence or fraud on the part of the shippers … a difference of quality shall never authorize the buyers to ask for cancellation of the contract, but shall only entitle buyers to an allowance …’. The letter of credit, however, demanded a clean quality certificate. Consequently, physical defects calling for a price allowance only under the original contract would, if mentioned in the quality certificate, both prevent the seller from claiming payment from the bank under the letter of credit and justify the FOB buyer in terminating the contract of sale as thus varied.

Exclusion clauses in international sales

Unfair Contract Terms Act 1977

2.45  The Unfair Contract Terms Act controls in varying degrees attempts to alter the balance of contractual risk by means of various exclusion and indemnity clauses.246 For example, in s 6 the Act prevents the exclusion or restriction of implied terms relating to description, fitness, and quality where it is unreasonable to do so. Again, where the parties are contracting on the basis of the standard terms of one of them, sub-section 3(1) demands that an exclusion or restriction of the liability of the proferens must satisfy the standard of reasonableness and sub-section 3(2) requires the same of a proferens if the term permits the proferens ‘to render a contractual performance substantially different from that which was reasonably expected of him, or … in respect of the whole or any part of his contractual obligation, to render no performance at all’. There is a clear recognition in the Act, however, that its proper concern about unreasonable terms in domestic transactions should not be extended to international sales247 where it might impede the free flow (p. 76) of commerce and diminish the attractions of English law for foreign contracting parties.248 The Act contains in sub-section 26(1) a disapplication of the limits imposed elsewhere in the Act249 upon parties excluding or restricting liability in the case of an ‘international supply contract’.250 Furthermore, sub-section 26(2) provides that international supply contracts are not subjected to the standard of reasonableness laid down in s 3 of the Act.251 Sub-section (2) therefore goes further than sub-section (1) because it extends to clauses that do not exclude or restrict liability as such but, instead, claim an entitlement to render a performance substantially different from that which was reasonably expected or to render no performance at all.

International supply

2.46  A supply contract is ‘international’ where two requirements are met. First, the parties must have their places of business in the territories of different States. If the contracting parties are both foreign and English law is the applicable law, it therefore follows that the contract is not an international supply contract under s 26, no matter how international are the elements concerning the formation and performance of the contract. This is surely an odd conclusion but it is one mandated by the legislation. The second requirement is that one of the three following paragraphs in s 26(4) applies:252 at the time of the conclusion253 of the contract, the goods are being or will be carried from one State to another;254 or the acts constituting offer and acceptance are (p. 77) ‘done’ in different States;255 or the goods are to be ‘delivered to’256 a State other than the one where ‘those acts’257 are done. It is not easy at first to see what this third paragraph adds to the first. It goes beyond the second paragraph, since it is capable of applying where offer and acceptance take place in the same State, but if goods are delivered to a State then they will usually have come from another State, a case covered by the first paragraph.258 Nevertheless, putting aside the remote possibility of carriage originating in terra nullius, the third paragraph alone would catch carriage originating from the high seas, which might happen with certain oil contracts.259 It would also catch cases where the seller took personal responsibility for delivering the goods to the overseas buyer, instead of using the services of an independent contractor. It is possible that this would not be a case of carriage under the first paragraph, though that provision could quite easily have been framed to catch delivery of this type as well as carriage in the narrower sense.

Delivery to a state and in a state

2.47  This third paragraph was dealt with at length by the Court of Appeal in Amiri Flight Authority v BAE Systems plc,260 where the court observed that the relationship between the first and third paragraphs ‘may well not … have been worked out completely’.261 It noted too the oddity of the third paragraph requiring the state of destination not to be one in which acts of offer and acceptance have been effected, when no similar restriction is placed on the application of the first paragraph.262 The most difficult point in the case, however, related to the departure of the territorial test in the third paragraph from a test employed in the Uniform Law on International Sales (ULIS) for the purpose of defining ULIS’s territorial scope. Briefly, one of the bases upon which a contract of sale could be international for the purpose of ULIS was if it called for goods to be delivered in a state other than the one in whose territory the acts of offer and acceptance were effected. This is consistent with the normal understanding of delivery in sales and personal property law. Given the extensive consideration that had been given to this third paragraph in the course of its development and drafting, the court was not persuaded that ‘delivered to’ was a mistake for ‘delivered in’.263 The consequence of this interpretation (p. 78) of the third paragraph was that a ‘highly international’ contract concluded in Abu Dhabi was rendered subject to the controls on exclusion clauses in the Unfair Contract Terms Act instead of being exempted from them. The contract goods were manufactured in England and delivered to the UAE buyer in England, but they had not been delivered to England. Had this been a case of interpreting words in a commercial contract rather than in a statute, it is unlikely that a court would have been so insistent on applying the exact wording, as opposed to following its intended purpose guided by commercial common sense. The refusal to consider the wording of the third paragraph to be a mistake is arguably not sufficiently recognizant of human failings in the drafting process.

English law connection

2.48  There is a further provision in the Unfair Contract Terms Act 1977 to consider. It is s 27 which, in sub-section (1),264 disapplies ss 2–7 where the contract is governed by English law265 ‘only by choice of the parties’ and would be subject to some other system outside the United Kingdom but for such choice.266 Taking account of Article 4(1)(a) of the Rome I Regulation, s 27 would apply to those sale contracts where the place of business or of central administration of the seller267 lies outside the United Kingdom.268 For international sales, there is a very large overlap of ss 26 and 27 of the 1977 Act, but it is not complete. For example, the latter section alone would apply to the sale inter praesentes by a French seller to a French buyer of goods already landed, whether in England or in France. Sub-section 27(2) deals with a different case, where a foreign law is chosen ‘wholly or mainly’ in order to ‘evade’ the operation of the Unfair Contract Terms Act.269 In such a case, the Unfair Contract Terms Act continues to apply.

C.  Quantity: Entire and Severable Contracts

Introduction

Entire and severable obligations

2.49  The particular shipping term employed in the contract does not as such alter the principles applicable to entire and severable contracts, though it (p. 79) will alter the context in which the principles are to be applied. It is convenient, therefore, to deal with these principles in this chapter. Despite the long-standing usage of distinguishing entire and severable contracts, it would be more accurate to distinguish entire and severable obligations. If, for example, a seller’s duty to deliver the goods is entire, it means for example that the seller is not entitled to make partial delivery and either announce that the remainder of the goods will be delivered later or demand part payment for the part delivery rendered.270 Similarly, the buyer, correspondingly bound to accept the goods, would not be able to insist on part delivery coupled with a demand for later delivery of the rest or on the seller accepting part payment for part delivery. These points are economically expressed in sales law by a combination of general contractual principles and s 30 and sub-section 31(1) of the Sale of Goods Act. According to s 30, a seller may not deliver less (or more) than the agreed contractual quantity.271 In addition, sub-section 31(1) provides that the buyer cannot be made to accept delivery in instalments. There is therefore a presumptive rule that the seller’s delivery obligation is an entire one.

Strict obligation

2.50  It is well established that these obligations of the seller are strict and that the buyer is entitled to terminate the contract if the seller does not deliver according to the contract and in consequence commits a discharging breach.272 This rule is overridden in those cases where the departure from the contract amount is trivial, as expressed in the maxim de minimis non curat lex,273 though the consequences of this latitude afforded to the seller in terms of the price payable by the buyer have not been fully worked out. The rule in s 30, more probably a common law equivalent, applies also to instalment contracts so that a seller, charged with delivering a stated quantity for each instalment, is bound to tender and deliver the exact quantity of that instalment.274 The buyer, if able to reject an individual instalment, will not for that reason alone be entitled to terminate the contract. The right to terminate the contract would depend upon whether the seller’s breach went to the root of the contract.275 These rules concerning the delivery of the exact contract quantity are tempered by reforms brought in by the Sale (p. 80) and Supply of Goods Act 1994, whereby the buyer may not reject a delivery for a slight quantitative nonconformity where it would be unreasonable to do so.276 This restriction on the buyer’s rights matches the restriction expressed in s 15A that applies to matters of description, fitness, and quality.277

Partial rejection

2.51  The principle of entire obligations meant that a buyer to whom a nonconforming delivery was made had, before the Sale and Supply of Goods Act 1994, to accept all the goods or reject them all. The buyer was not allowed to reject some and retain others,278 apart from the special case in the now repealed sub-section 30(4) of the Sale of Goods Act.279 This is strict law which was modified by a new s 35A, introduced by the 1994 Act to give the buyer the option (not the duty) to keep all the conforming goods and reject the non-conforming goods. It is also softened in commodity sales by clauses that give the seller a measure of latitude in the quantity to be delivered280 and by clauses that give the buyer the right of partial rejection when defective goods are delivered.281 This contractual approach departs from s 35A in requiring the buyer to keep those of the goods that are conforming goods.

Distinguishing entire and severable contracts

Construction

2.52  Where performance of an obligation is severable, it means that nonconforming performance of a severable part can be isolated from the rest of the contract. It is common for commodity sales expressly to permit instalment delivery, for example, ‘15,000 tonnes in approximately equal instalments delivery May–July’. Sometimes, however, the contract is less explicit. Some cases turn upon whether the contract permits severance of the delivery obligation. As a matter of construction, this question can depend upon quite minor variations in different contracts.282 It is not usually a rewarding experience to seek to show that one or the other case was decided incorrectly on a point of construction. That said, the contract was held to be severable in Pagnan & Fratelli v Tradax Overseas SA,283 which concerned a contract for the sale of 9,600 tonnes (+/− 10 per cent seller’s option) of soya bean meal and called for shipment 15 July/August CIF Barcelona/Valencia/Tarragona, or Ancona/Venice, one port at buyer’s option. The contract provided for a premium on the whole cargo if a second port were used. The seller appropriated 9,121 tonnes per Breeze (above the minimum figure) but then sought to appropriate a further 1,439 tonnes per Sirio (which would keep the combined figure just below the maximum). The buyer rejected the Sirio documents, arguing that the seller had to ship all the goods in one vessel. The court held that various clauses in the contract pointed to its being severable, viz. cl 2 (‘day of arrival of the last steamer’) and cl 8 (‘by first class steamer(s)’). The (p. 81) large quantity of goods also pointed in the same direction. This construction of a contract with a wide quantitative margin gives the seller great tactical freedom in falling market conditions.

Contrasting example

2.53  The opposite conclusion was reached in Cobec Brazilian Trading & Warehousing Corpn v Toepfer.284 It was a FOSFA 22 contract for the sale of 25,000 tonnes (+/− 5 per cent) Brazilian soya beans C&F Seville (about 6,000 tonnes) and Santander (about 19,000 tonnes). Congestion in the loading port meant that the seller was unable to ship all the goods within the shipment period (25 June/10 July); there was no extension clause in the contract.285 Although there were bills of lading correctly dated for three-quarters of the agreed quantity, corresponding to the quantity destined for Santander, they failed to add up to 25,000 tonnes (+/− 5 per cent). Could the buyer be compelled to accept those bills on the ground that the seller’s delivery obligation was severed into two instalments for Santander and Seville? The Court of Appeal held that the contract was not severable: the bills of lading had to be tendered in respect of one vessel and had to cover the stated amounts for both ports. The language of the court was more assertive than reasoned: a C&F contract required a single tender of documents. In the court below, Parker J conducted a fuller examination of the contract. The buyer pointed to features of the contract favouring severability—namely, clause 1 (each shipment to be regarded as a separate contract if more than one shipment was made) and the issue of several bills of lading. But, according to the court, a clause dealing with the effects of more than one shipment did not in itself confer a right to make more than one shipment. Furthermore, the issue of several bills of lading could be done for the convenience of the buyer and not to indicate any right to make separate shipments. The storage plan of the vessel, which involved the Seville quantity overstowed by the quantity destined for Santander (the nearer discharge port), and the loading schedule, designed to maintain the vessel’s trim, inclined towards entire analysis. A further point emphasized is that not too much reliance can be placed on the standard terms of FOSFA 22: the form is designed to fit a wide range of contractual adventures and so its terms should be seen as neutral on the question whether the contract was entire or severable.

Option to sever

2.54  In other cases, the courts have concluded that the seller has an option to sever but the focus of the inquiry has been on whether this option has been exercised. In Reuter Hufeland & Co v Sala & Co,286 a contract for the sale of twenty-five tons of Penang pepper called for ‘October and/or November shipment … per sailing vessel or vessels’—on its face, a clear expression of severability. The sellers tendered bills of lading for three separate shipments amounting in sum to twenty-five tons. The shipments were on board the same ship but one of the bills was out of time because it evidenced a December shipment. Could the buyers reject all three bills, including the two of timely date, or only the December bill? The court held that the sellers had an option to tender severable instead of entire performance but that, by shipping all the pepper on board the same ship, they had failed to exercise that option. It followed that the delivery obligation remained entire so that the buyers were justified in rejecting all three bills.

(p. 82) Option not exercised

2.55  A similar approach is displayed in Rosenthal & Sons Ltd v Esmail,287 where a contract for the sale of 140 bales of cotton poplin called for ‘Shipments: February 1961’. The sellers in fact shipped all of the cotton on the same vessel, under two bills of lading for seventy bales each, separately invoiced. Stressing ‘the unity of the loading operation’,288 Lord Pearson (for the majority) concluded that there had only been one shipment. The sellers had not exercised their option to sever and the buyers therefore did not have the right to take up one set of shipping documents and reject the other for breach of the seller’s description obligation. Lord Pearson might, however, have been prepared to conclude that the sellers had elected to sever the delivery obligation by tendering separate sets of shipping documents if the buyers had been intermediate traders selling on to sub-buyers. But the long course of dealing between the parties showed that the buyers intended to convert the poplin themselves and the presumption of entirety arising from shipment of the whole quantity on the same vessel had not been rebutted.289

Severable breach

2.56  If the seller’s delivery obligation has been severed, so that more than one instalment may be delivered, the next question concerns the proper rules to apply to breaches of contract. The Sale of Goods Act, in sub-section 31(2), lays down the approach for dealing with breaches in the case of instalment contracts as therein defined. This approach has to be supplemented by common law principles to deal with all cases of severable delivery by the seller. Briefly, these rules allow partial rejection, as well as the termination of the whole contract (undelivered instalments included) where a breach in relation to one or more instalments is sufficiently serious to go to the root of the whole contract. A breach in respect of one instalment will not necessarily permit the injured party to bring the whole contract to an end. In Warinco AG v Samor SpA,290 the buyer of crude rapeseed oil FOB Genoa and bound for Algiers unlawfully rejected the first of two instalments, claiming wrongly that the oil was unmerchantable. It was not as such refusing to accept the second tender when it fell due later. The arbitrators’ decision, that the seller was justified in refusing to ship the second instalment, was reversed by the court on the ground that it presupposed that the seller necessarily had this right.

Separate deliveries and separate contracts

2.57  Commodities contracts commonly contain a provision that, where separate deliveries are allowed, each delivery is to be construed as a separate contract.291 The meaning of this clause is not altogether clear, but it puts it beyond any doubt that the buyer has severable rejection rights. In Rosenthal & Sons Ltd v Esmail,292 Lord Pearson stated that such a clause was designed primarily to enable a seller to make instalment delivery by means of shipments on more than one ship. The clause, however, may go further than that. It may also be that a breach in respect of one or more deliveries has to be disregarded altogether when it comes to performance of the balance (p. 83) of the contract by the seller.293 In Lusograin Comercio Internacional de Cereas Lda v Bunge AG,294 Staughton J said: ‘It is, I think, accepted doctrine that in this and perhaps other commodity trades a contract can be severed and treated as at an end for one part of the total quantity but maintained in existence for another part.’ The contracts may stipulate the size of each delivery or, as in the FOB contract in the Lusograin case, leave the matter to the discretion of one of the parties.

Conditional contracts and quantity

2.58  Performance of a contract is sometimes made dependent upon the quantity of goods that have been shipped. This may be because the difficulties of shipment are so severe that the seller cannot fairly guarantee that the contract goods will be shipped. In Hollis Bros & Co Ltd v White Sea Timber Trust Ltd,295 the seller was unable to ship the whole of the contract quantity of fifty standards of parquet blocks from the northern Russian port of Igarka, which was open for only about three weeks of the year. A typewritten clause stated that the goods were ‘sold subject to shipment: any goods not shipped to be cancelled’. This clause was held to override the inconsistent printed clause giving the buyer ‘the right to claim compensation for … short shipment’. Although the court did not need to decide this issue, since the question was whether the seller had a defence to the buyer’s action, the buyer should in principle have had to take a short delivery on delivery terms like these. No court, however, will permit a subject to shipment clause to depend upon the arbitrary choice of the seller whether to ship or not for this would reduce the contract to a declaration of intent.296 In particular, a seller who has shipped a sufficient number of December cloves to fulfil the contract may not successfully plead that his other commitments require the cloves to be allocated to other contracts.297 A clause that makes the seller’s liability turn upon whether a third party shipper has shipped the goods is not open to criticism on this count and should protect the seller if the shipment referred to does not take place.298

D.  Privity of Contract

Introduction

2.59  Commercial practice in international sale of goods bears the imprint of the doctrine of privity of contract, one of whose features is that third parties may not directly enforce contracts that confer benefits on them. Enforcement is left to the contracting parties themselves and may give rise to difficulties in the calculation of damages where the claimant has not suffered substantial loss but the third party has. The development of CIF contracts required statutory intervention to check the privity doctrine,299 (p. 84) so that, by a process akin to contractual novation, a buyer succeeded to the rights and duties of the seller under the contract of carriage.300 In a similar way, the CIF buyer succeeded to the seller’s rights under the insurance policy by a statutory assignment of the policy as provided by the Marine Insurance Act 1906.301 Commercial parties could work around the privity doctrine in various ways, for example, by entering into multipartite contracts. There are elements of this approach in the standard commodities contracts, for example, where parties in a contractual string are required to co-operate with each other so as to identify a circle.302 Apart from such exceptional cases, the various contracts in the string are separate, as are the closely connected contracts relating to sale, finance, and carriage in the world of international trading. The enactment of the Contracts (Rights of Third Parties) Act 1999 has the potential to alter this environment of separated contracts and, in the process, to upset the risk calculations of traders who for many decades have worked with an edifice of contracts posited on the existence of a privity doctrine. The Act is clearly excluded from certain parts of international trading, notably from the relations of carrier and holders of bills of lading and ship’s delivery orders, as well as those to whom delivery is to be made under a sea waybill.303 These relationships are governed by a separate statute, the Carriage of Goods by Sea Act 1992. But because the Contracts (Rights of Third Parties) Act 1999 may have unexpected repercussions throughout international trade, its existence should always be recalled when issues arise in respect of contracts that might provide opportunities or benefits to third parties. The Law Commission Report on Privity of Contract: Contracts for the Benefit of Third Parties304 may not have set its sights on international trading activity when it proposed the reform that led to the 1999 Act, but the Act is capable of having a substantial effect on international trade. The innate caution of traders conducting business in commodities may account for a tendency for the standard forms explicitly to exclude the Act305 as they are entitled to do under its terms.306

Third party beneficiaries under the 1999 Act

2.60  Section 1 creates contractual enforcement rights for third parties, a third party being defined as someone who is ‘not a party to the contract’, an expression that itself is not defined. Third parties need not be named in the contract in order to acquire enforcement rights but they must be identified by name or as a member of a class or as answering to a particular description. (They need not be in existence at the contract date.)307 The Act gives rights to unnamed third parties but does not protect implied third parties. For example, if an exclusion clause in a contract for the carriage of goods by sea extended protection to the servants and agents of the carrier, (p. 85) employees of the stevedoring company would not be protected by the Act. The stevedoring company effecting discharge would be protected under s 1 as the expressly identified agent of the carrier, but not its employees, who are agents or servants of the stevedoring company and not of the carrier.308

Terms of the contract

2.61  The Act permits third parties in defined circumstances to enforce terms of the contract, which include exception and similar clauses, which are thus treated as though they were promises to confer an immunity on the person protected by the clause.309 At a late stage in the passing of the bill through Parliament, the third party’s right to enforcement of the contract became a right to the enforcement of a term in the contract. This modification is especially significant in the case of complex contracts because the third party may be named in one part of the contract and impliedly derive a benefit from quite a different part of the contract. The Act therefore has the potentiality of surprising the principal contracting parties, particularly in the case of lengthy and complex contracts. This issue gives rise to a particular need to be alert to third party issues when interpreting any contract. Third parties may enforce contractual terms when the contract expressly provides that they may enforce a term in their own right.310 Where the contract makes no express provision for enforcement, third parties have rights of direct enforcement in their own name if two conditions are fulfilled: first, the contract term (not the contract as a whole) ‘purports’ to confer a benefit on a third party,311 and secondly, nothing in the contract rebuts the statutory presumption that, as a beneficiary under the contract, the third party may enforce the term.312

‘Purports’

2.62  The 1999 Act does not define the meaning of ‘purports’ but it is clear from the Law Commission Report that the word signifies the intention of the contracting parties that the third party shall obtain a benefit.313 The use of such a word as ‘purports’ gives rise to some difficulty. It is not clear how strong the intention to benefit the third party as present in the term must be along a line spanning the distance between drift and conviction, or whether it can be said to exist at all if there is another and more dominant intention. The contracting parties may also have different states of mind, one positively wishing to confer a benefit, the other merely wishing to do something compliant with the other’s wishes. The most likely way of purporting to confer a benefit under sub-section 1(1)(b) is for the contractual term to state expressly that a benefit is being conferred on the third party. But a contractual term may also purport to confer a benefit by implication. An example is the contract of sale that calls for delivery directly by the seller to a third party sub-buyer or donee. A contract term by which a bank undertakes to the applicant to issue a letter of credit would also impliedly benefit the beneficiary of the letter of credit. So far as that contract between applicant and issuing bank incorporates UCP 600 (the UCP Customs and Practice for Documentary Credits), however, it is subject to UCP 600, which states that (p. 86) the beneficiary may not enforce the contract.314 This would seem to exclude the possibility of enforcement under the 1999 Act, although little is said in UCP 600 about the relations between issuing bank and applicant and there may well have been no agreement with the applicant at the time the issuing bank undertook to provide the credit that their relations would be subject to UCP 600. UCP 600 is a document drafted by bankers; it should not be supposed that bankers are always alert to the nuances of contract law.

Statutory implied terms

2.63  It is not easy to see how a contract term can impliedly benefit a third party for the purposes of the 1999 Act if that term is one of the statutory implied terms, such as the seller’s duty to supply goods that are of satisfactory quality and reasonably fit for the buyer’s purpose. When the Sale of Goods Act was passed, Parliament did not impliedly intend to benefit third parties, nor can any implied intention be found in the circumstances of the incorporation of these terms in a contract, for that takes place regardless of the intention of the parties. For these statutory provisions to be enforceable by the third party, it would seem a practical necessity for the contract to say so explicitly.

Presumption of enforceability

2.64  Once the third party has established that the contract term purports to confer a benefit on him, the burden now shifts to the promisor to show that the parties did not intend the term to be enforceable by the third party.315 This burden can be discharged if the contract states that the third party has no direct right of enforcement, as in the letter of credit example, but is likely to be a difficult task if the promisor’s argument is that enforcement is impliedly excluded by the contract. The 1999 Act does not identify which of the original contracting parties may rebut the presumption. Although the obvious person to make the rebuttal might be the promisor, the promisee might wish to obtain a declaration that the third party does not have direct enforcement rights in order to preserve the right to renegotiate the contract with the promisor. Nothing in the Act denies the standing of the promisee to seek such relief.

Locked-in rights

2.65  The original contracting parties are prevented from varying or rescinding the contract to the disadvantage of the third party and without the latter’s consent in the following cases: the third party has relied316 upon the term and the promisor knows this; the third party has foreseeably relied upon the term, regardless of whether the promisor is aware of this; and the third party by words or actions has communicated his acceptance of the term to the promisor.317 Note that it is the promisor, not the promisee, who is referred to in these provisions. It is nevertheless difficult to see why a third party should acquire in this way irrevocable rights of enforcement where, had the benefit been found in a free-standing promise by one party, that promise could not have been enforced at all owing to the doctrine of consideration. The method chosen by the 1999 Act of enforcing promises that benefit third parties is radically different from alternative approaches that would have accomplished either of two things. The first of these approaches is permitting the promisee to enforce the promise on behalf of the third party, recovering damages measured by the third party’s loss of benefit and then having to account for those damages to (p. 87) the third party. The second is allowing the third party to sue in the name of the promisee, with the consent of the promisee, in the event of non-performance by the promisor. As it stands, the legislation protects the third party as though a trust of the promise had been declared in his favour, which of course is not what has happened. Nor has there occurred a separate contractual undertaking by either or both contracting parties to the third party that the contractual term in the third party’s favour will not be amended or struck out by the parties. The contracting parties may nevertheless retain their freedom to renegotiate the contract if they so provide in the contract.318 If such is their wish, however, they are more likely to exclude the 1999 Act altogether.

Derivative rights and enforcement

2.66  The third party’s contractual rights are derivative: he obtains the same remedies as would have been available ‘if he had been a party to the contract’.319 It is not clear how this rule sits with the locked-in character of the third party’s rights when the promisor’s remedies might be affected by the promisee’s post-contractual conduct taking the form, for example, of waiver or conduct relevant to the clean hands doctrine when discretionary equitable remedies are in play. The derivative character of the third party’s position is shown too in the way that a promisor may raise against the third party defences and set-off entitlements that might have been raised against the promisee in proceedings brought by the latter.320 (Would for example legal set-off rights continue to accrue after the third party’s right of direct enforcement becomes irrevocable?) The provisions of the Act are complex and of unforeseeable impact over time. A further complication concerning enforcement is that the Act lays down no protocol for enforcement by either or both of the promisee and the third party. The promisor continues to be able to enforce contractual terms for the third party’s benefit,321 even as the third party is also able to do so. Dual enforcement can be dealt with by joinder of actions and similar means under rules of civil procedure.

Conclusion

2.67  Commercial contracting parties have had many decades of experience in working around the privity rule so that the problems posed by that rule have tended to manifest themselves in non-commercial circumstances or in particular cases involving, for example, insurance. Nearly two decades after the 1999 Act, its full implications are still not known. A general exclusion of the Act in commercial contracts, in the absence of compelling reasons why it should be allowed to apply, is therefore sound policy.(p. 88)

Footnotes:

1  This work is confined to commercial sales, so the amendments to the 1979 Act, which extracted material on consumer sales for incorporation into the Consumer Rights Act 2015, will not be considered here.

2  Sections 12–15.

3  Section 30.

4  As amended by the Consumer Rights Act 2015.

7  Numerous examples of this will appear in chs 3–4.

8  Sub-sections 11(2) and s 35. See also ch 10.

9  Sections 34–35.

10  See ch 9.

11  For a useful recent survey of case law developments, see Europa Plus SCA SIF Anthracite Balanced Co (R-26) Ltd v Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm) at [26]–[34].

12  Among a voluminous literature, see K Lewison, The Interpretation of Contracts (6th edn, Sweet & Maxwell 2015); G McMeel, The Construction of Contracts (3rd edn, OUP 2017); Y Goh, ‘Lost But Found Again: the Traditional Tests for Implied Terms in Fact’ [2016] JBL 231; D McLauchlan, ‘Construction and Implication’ [2014] LMCLQ 3; J Carter and W Courtney, ‘Belize Telecom: a Reply to Professor McLauchlan’ [2015] LMCLQ 245; R Hooley, ‘Implied Terms after Belize Telecom’ [2014] CLJ 215; T Bingham, ‘A New Thing under the Sun? The Interpretation of Contracts and the ICS Decision’ (2008) 12 Edinburgh LR 374; C Staughton, ‘How Do Courts Interpret Commercial Contracts?’ [1999] CLJ 303; D McLauchlan, ‘The New Law of Contractual Interpretation’ (2011) 31 Sydney LR 5; G McMeel, ‘Prior Negotiations and Subsequent Conduct—The Next Step Forward for Contractual Interpretation’ (2003) 119 LQR 272; A Kramer, ‘Common Sense Principles of Contract Interpretation’ (2003) 23 OJLS 173.

13  Bunge Corp v Tradax Export SA [1981] 2 All ER 513, 532, CA (the notice of readiness to load in a GAFTA 119 form).

14  Mitchell (George) (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, HL.

15  Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334 at [17], [2010] 2 All ER (Comm) 788. See also Pacific Carriers Ltd v BNP Paribas (2004) 65 CLR 451, Aust HC, at [22] (the present case, involving a letter of indemnity addressed to a carrier, ‘a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to [the carrier]’).

16  But an entrenched mistaken interpretation of a standard clause does not render it immune from subsequent judicial revision: Shell International Petroleum Ltd v Gibbs [1983] 2 AC 375, HL; Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 887 at [102].

17  See eg Cie Commerciale Sucres et Denrées v Czarnikow Ltd (The Naxos) [1990] 1 WLR 1337, HL (‘ready to be delivered’).

18  See Sea Success Maritime Inc v African Maritime Carriers Ltd [2005] 2 Lloyd’s Rep 692 at [16]: ‘[T]he construction of a commercial document is partly a question of fact and partly one of law. Commercial documents must not be construed in a vacuum. They must be construed in the context in which they are intended to be used.’ cf Cottonex Anstalt v Patriot Spinning Mills Ltd [2014] EWHC 236 (Comm) at [43] et seq, [2016] 1 CLC 28.

19  Arbuthnott v Fagan [1995] CLC 1396, 1400, CA (Lord Bingham MR: ‘To my mind construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis’).

20  See Ledcor Construction Ltd v Northbridge Indemnity Insurance Co 2016 SCC 37, Can.

21  cf Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [40], [2009] 1 AC 1101, where Lord Hoffmann plays down this consideration in the case of assignment. It is remarkable how much case law has been generated by Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, Hl, and in particular Lord Hoffmann’s speech in that case. Ernest Bevin once remarked that the danger in opening Pandora’s box lay in the number of Trojan horses that might escape from it.

22  Leduc & Co v Ward (1888) 2 QBD 475, CA. See para 8-073.

23  International Fina Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2 Lloyd’s Rep 344, CA.

24  Clause 3(ii): ‘If at any time whilst the vessel is on hire under this charter the vessel fails to comply with the requirements of Clauses 1, 2(a) or 10 then hire shall be reduced to the extent necessary to indemnify Charterers for such failure. If and to the extent that such failure affects the time taken by the vessel to perform any services under this charter, hire shall be reduced by an amount equal to the value, calculated at the rate of hire, of the time so lost (emphasis added).’ Clauses 1–2 referred to the seaworthy condition of the vessel and the crew on delivery, and cl 10 to the space made available to the charterer.

25  ‘There are well known limitations on the utility of the ejusdem generis principle, not least in commercial contracts’: Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [56], citing Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240, 244–47.

26  Tandro Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm) at [46], [2010] 2 Lloyd’s Rep 668; Dunavant Enterprises Inc v Olympia Spinning & Weaving Mills Ltd [2011] EWHC 2028 (Comm) at [31].

27  Andre et Cie SA v Orient Shipping (Rotterdam) BV (The Laconian Confidence) [1997] 1 Lloyd’s Rep 139.

28  HHY Luxembourg SARL v Barclays Bank plc [2010] EWCA Civ 1248 at [25], [2011] 1 BCLC 336; Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900.

29  eg LG Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, HL; Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1984] AC 191, 201, HL (Lord Diplock); Niobe Maritime Corp v Tradax Ocean Transportation SA (The Niobe) [1995] 1 Lloyd’s Rep 579, HL; Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, HL; Charter Reinsurance Co v Fagan [1997] AC 331, HL; cf Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep 136; Pandora Investments SA v Momentum Films Pty Ltd (CA, Unreported, 17 December 1999).

30  Bunge AG v Sesostrad (The Alkeos C) [1984] 1 Lloyd’s Rep 687.

31  [1977] 1 Lloyd’s Rep 343, CA.

32  NV Handel Maatschappij J Smits Import-Export v English Exporters (London) Ltd [1957] 1 Lloyd’s Rep 517; Re Missouri Steamship Co (1889) 42 Ch D 321, CA. Both cases involved an implied choice of law.

33  eg Gesellschaft Burgerlichen Rechts v Stockholms Rederi AB Svea (The Brabant) [1967] 1 QB 588.

34  [1987] 1 Lloyd’s Rep 116.

35  cf Pagnan SpA v Tradax Ocean Transport SA [1987] 2 Lloyd’s Rep 342 (no true inconsistency between the typed and the standard clauses).

36  Rainy Sky SA v Kookmin Bank [2011] UKSC 50 at [23], [2011] 1 WLR 2900.

37  Gesner Advertisements Ltd v Bombardier Inc [2011] EWCA Civ 1118 at [28].

38  See Colman J in Zeus Tradition Marine Ltd v Bell (The Zeus V) [1999] 1 Lloyd’s Rep 703 (revd in the result) [2000] 2 Lloyd’s Rep 587, CA.

39  Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [37], [2009] 1 AC 1101, where Lord Hoffmann explains the effect of Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, HL.

40  Prenn v Simmonds [1971] 1 WLR 1381, HL. For exceptions, see para 2.10.

41  Walford v Miles [1992] 2 AC 128, 138, HL (Lord Ackner).

42  See Prenn v Simmonds [1971] 1 WLR 1381, HL; Burrington v Fielding (Unreported, 11 December 1998).

43  Rainy Sky SA v Kookmin Bank [2011] UKSC 50 at [19], [2011] 1 WLR 2900; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [20], [2009] 1 AC 1101 (Lord Hoffmann); Prenn v Simmonds [1971 1 WLR 1381, 1384–85, HL.

44  [1976] 1 WLR 989, HL. For a willingness to look at negotiations where one party’s submissions are improbable from a commercial point of view, see Group Lotus Plc v 1Malaysia Racing Team Sdn Bhd [2011] EWHC 1366 (Ch) at [75].

45  See Prenn v Simmonds [1971] 1 WLR 1381, HL.

46  [2006] EWCA Civ 69.

47  ‘This Agreement together with any other document expressed to being operated herein constitutes the entire contract between the parties and supersedes all prior representations, agreements, negotiations or understandings whether oral or in writing.’

48  In National Bank of Sharjah v Dellborg (Unreported, 9 July 1997).

49  cf Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [40], [2009] 1 AC 1101 (Lord Hoffmann).

50  [1998] 1 WLR 896, HL.

51  See The Karen Oltmann [1976] 2 Lloyd’s Rep 708, 712 (Kerr J); Rugby Group Ltd v ProForce Recruit Ltd [2006] EWCA Civ 69.

52  See Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101; PEC Ltd v Thai Maparn Trading Co Ltd [2011] EWHC 3306 (Comm); KPMG LLP v Network Rail Infrastructure Ltd [2007] EWCA Civ 363, [2007] Bus LR 1336; Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s Rep 599; East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111, CA (Brightman LJ); Holding & Barnes plc v Hill House Hammond Ltd (No2) [2001] EWCA Civ 1334, [2002] L & TR 7, 103 (Clarke LJ); PEC Ltd v Thai Maparn Trading Co Ltd [2011] EWHC 3306 (Comm) at [27] et seq.

53  Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [22]–[25], [2009] 1 AC 1101; KPMG LLP v Network Rail Infrastructure Ltd [2007] EWCA Civ 363 at [50], [2007] Bus LR 1336.

54  JIS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721.

55  ‘The task of interpretation does not allow the court to rewrite the contract’: JIS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721 (Carnwath LJ).

56  See LDC Trustees Ltd v Barings plc (22 November 1995).

57  ibid.

58  [1998] CLC 244.

59  The Times, 2 December 1997.

60  [1971] 1 WLR 1381, HL.

61  [1998] 1 WLR 896, HL.

62  See the dangers that this approach gives rise to: Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251.

63  Signs of a burgeoning doctrine of good faith are evident (Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep 526), although the meaning of good faith is far from clear, but clear signs of a retrenchment in favour of the traditional approach are now evident (Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200, [2013] Bus LR 265; Monde Petroleum SA v Westernzagros Ltd [2016] EWHC 1472 (Comm) at [249]–[250]; MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789 at [45]; Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 at [68]; Ilkerrier Otomotiv Sanayi v Perkins Engines Ltd [2017] EWCA Civ 183). There are numerous cases that apply standards of control similar to good faith and fair dealing where a person has a discretion to exercise (Sucden Financial Ltd v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm) at [48]–[50], [2010] 2 CLC 216; Socimer International Bank Ltd v Standard Bank Ltd London (No 2) [2008] EWCA Civ 116 at [66], [2008] Bus LR 1304; Paragon Finance plc v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685; Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd’s Rep IR 221; British Telecommunication plc v Telefónica O2 UK Ltd [2014] UKSC 42 at [37], [2014] 2 All ER (Comm) 877), but these standards have no part to play if absolute rights are being exercised (Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd; Lomas v JB Firth Rixon Inc [2012] EWCA 419 at [46], [2012] 1 CLC 713; Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Ch) at [144]–[154], [2014] 1 CLC 562; Monde Petroleum SA v Westernzagros Ltd at [242] et seq).

64  See also Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, HL.

65  [1998] 1 WLR 896, 913, HL.

66  Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, HL.

67  The Times (2 December 1997).

68  [1996] 1 All ER 406, 424.

69  17 July 1998.

70  [1999] 1 Lloyd’s Rep 115, CA.

71  [1995] ELMR 472, 481–82, CA.

72  See eg Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (sub nom South Australia Asset Management Corpn v York Montague Ltd) [1997] AC 191, 212, HL; Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas), [2008] UKHL 48 at [26], [2009] 1 AC 61; Attorney General Belize v Belize Telecommunication Ltd [2009] UKPC 10, [2009] 1 WLR 1988; Crema v Cenkos Securities Plc [2011] EWCA Civ 10 at [38]–[39], [2011] 1 WLR 2066; Procter and Gamble Co v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 498 (Ch) at [80] et seq.

73  (1889) 14 PD 64, CA.

74  Note, however, the cautionary language in McKillen v Misland (Cyprus) Investments Ltd [2012] EWCA Civ 179 at [54].

75  Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 WLR 1095.

76  As may have happened in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900.

77  The leading case is Liverpool City Council v Irwin [1977] AC 239.

78  [2009] UKPC 10, [2009] 1 WLR 1988.

79  ibid at [21].

80  ibid.

81  [2015] UKSC 36, [2015] AC 1619.

82  [2015] UKSC 72, [2016] AC 742. See also Irish Bank Resolution Corp v Camden Market Holdings Corp [2017] EWCA Civ 7.

83  With whom Lords Sumption and Hodge agreed. Lord Carnwath was against a ‘watering down’ of traditional tests of implied terms and was of the view that the Belize case had not done so. Lord Clarke treated interpretation and implied terms as part of the overall process of construction ‘in a broad sense’ and, like Lord Carnwath, was of the view that the strict test of necessity had not been watered down in Belize.

84  [2015] UKSC 72 at [25].

85  ibid at [27]–[28]. Lord Neuberger at [29] then reverted to the words of Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] ELMR 472, 481–82, CA, quoted above in the text.

86  [2015] UKSC 72 at [23].

87  ibid at [21].

88  Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 WLR 1095.

89  A fortiori, behaviour in a subsequent contract: see Hyundai Merchant Marine Ltd v Trafigura Beheer BV [2011] EWHC 3108 (Comm) at [13].

90  [1974] AC 235, HL, affg [1972] 1 WLR 840, CA.

91  [1970] AC 583, HL.

92  [1982] QB 84, CA. This case has been cited on very many occasions, often though not always (see eg Re Lehman Bros International (Europe) [2010] EWHC 2914 (Ch) at [342] et seq, affd [2011] EWCA Civ 1544 at [105] et seq, [2012] BCLC 151) as the badge of a losing cause. Further reference may be made to the standard contract law texts.

93  Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, HL.

94  [1982] QB 84, 121, CA.

95  In PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034, the Supreme Court held that a contract for the supply of goods on reservation of title terms, with liberty to consume or dispose of the goods before payment and therefore before the passing of property, was not a sale of goods contract. Instead, it was a sui generis bailment contract. In the Court of Appeal, Moore-Bick LJ saw ‘no reason why the incidents of a sale of goods contract for which the Act provides should not apply equally to such a contract at common law’: [2015] EWCA Civ 1058 at [33], [2016] 2 WLR 1072. This understates the difficulty of the exercise. A number of modern changes to the implied terms of the Sale of Goods Act 1979 went beyond clarifications of the existing law and were reforming measures based upon the recommendations of the English and Scottish Law Commissions (eg, s 15A and the loss of the right to reject goods in certain cases where the breach is ‘slight’ and rejection would be ‘unreasonable’). If legislation was needed to amend the law of sale, it should also be needed to amend whatever common law might exist to deal with sui generis supply contracts. It seems reasonable to predict, however, that courts will strive so far as possible to apply the Sale of Goods Act by analogy to these sui generis contracts and it will be assumed in the discussion that follows, unless otherwise stated, that they will do so,

96  Sales by sample, dealt with in s 15, are rare in international dealings and are not considered in this work. See MG Bridge, The Sale of Goods (3rd edn, OUP 2014), paras 7.136 et seq.

97  See para 2.32.

98  This should be a complete defence to any argument that at common law a sale contract contains an implied term akin to but distinct from the term or terms s 14, though the court in KG Bominflot Bunkergesellschaft fur Mineraloele mbh & Co v Petroplus Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145, [2010] 2 CLC 637, prior to making this same point (at [45]), which had not been addressed in the hearing, at length concluded that such a parallel warranty should not in any case be implied in the present case.

99  For detailed treatment, see MG Bridge, The Sale of Goods (3rd edn, OUP 2014), ch 7.

100  Sub-section 13(3).

101  Taylor v Combined Buyers Ltd [1924] NZLR 627, 633–34. See also Grant v Australian Knitting Mills [1936] AC 85, 100, PC.

102  Reardon Smith Line Ltd v Hansen Tangen (The Diana Prosperity) [1976] 1 WLR 989, HL.

103  Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 QB 26, CA; Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44, CA.

104  See eg Ashington Piggeries Ltd v Hill (Christopher) Ltd [1972] AC 441, HL. See also Total International Ltd v Addax BV [1996] 2 Lloyd’s Rep 333.

105  See eg Alfred C Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11, 13, CA (‘new-laid eggs’ as ‘both quality and description all in one’).

106  There was no breach of s 13 in Ashington Piggeries Ltd v Hill (Christopher) Ltd [1972] AC 441, HL (herring meal with a toxic additive). cf older cases such as Josling v Kingsford (1863) 13 CB (NS) 447, 143 ER 177 (Epsom salts present in oxalic acid) and Pinnock Bros v Lewis and Peat Ltd [1923] 1 KB 690 (castor seed present in copra cake).

107  See para 2.32. It is not clear from a reading of Reardon Smith Line Ltd v Hansen Tangen [1976] 1 WLR 989, HL, whether the court concluded, in the case of the disputed words of description, whether there had been a breach of contract, but the consequences were not serious enough to justify termination, or instead the words were broadly accurate, so that there was no breach of contract at all. See M Bridge, ‘Description and the Sale of Goods: The Diana Prosperity’, in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Contract (2008), pp 321–49.

108  Reardon Smith Line Ltd v Hansen Tangen (The Diana Prosperity) [1976] 1 WLR 989, 999, HL.

109  A similar approach was used for unseen specific goods: Varley v Whipp [1900] 1 QB 513, Div Ct.

110  Arcos Ltd v Ronaasen (EA) & Son [1933] AC 470, HL; Re Moore & Co and Landauer & Co [1921] 2 KB 519, CA.

111  Arcos Ltd v Ronaasen (EA) & Son [1933] AC 470, HL; Vigers Bros v Sanderson Bros [1901] 1 QB 608 (‘about’ the stated specifications).

112  Meyer (Montagu L) Ltd v Vigers Bros Ltd (1939) 63 Ll LR 10.

113  Reardon Smith Line Ltd v Hansen Tangen (The Diana Prosperity) [1976] 1 WLR 989, 998, HL. An alternative possibility in s 13 cases, for correcting any excessively strict application of the law, is to invoke s 15A to prevent rejection of the goods and contractual termination in the case of ‘slight’ breaches: see para 2.32.

114  Ashington Piggeries Ltd v Hill (Christopher) Ltd [1972] AC 441, 489, HL (Lord Wilberforce). See also the result in Tradax Export SA v European Grain & Shipping Ltd [1983] 2 Lloyd’s Rep 100 (‘maximum 7.5% fibre’); Marimpex Mineralöl Handelsgesellschaft mbH v Louis Dreyfus et Cie Mineralöl GmbH [1995] 1 Lloyd’s Rep 167 (‘normal’ part of description of gasoil ‘at least to some extent’).

115  The number refers to the protein content of the wheat.

116  A hard type suitable for making pasta.

117  Bowes v Shand (1877) 2 App Cas 455, HL. See also Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (The Marine Star)(No 2) [1994] CLC 1019, 1023, revd on other grounds [1996] CLC 1510, CA.

118  Petrotrade Inc v Stinnes Handels GmbH [1995] 1 Lloyd’s Rep 142.

119  Benabu and Co v Produce Brokers Ltd (1921) 37 TLR 609 (‘afloat’); Aron (J) and Co (Inc) v Comptoir Wegimont [1921] 3 KB 435, CA (‘afloat’ a condition precedent).

120  MacPherson Train & Co Ltd v Ross (Howard) & Co Ltd [1955] 1 WLR 640 (‘due London approximately 8th June’—an FOB contract where the seller selected the ship). See also in the same case p 642 (‘expected ready to load’ equally a descriptive condition).

121  Meyer (Montagu L) Ltd v Osakeyhtio Carelia Timber Co Ltd (1930) 36 Com Cas 17, CA.

122  Messers Ltd v Morrison’s Export Co Ltd [1939] 1 All ER 92; White Sea Timber Trust Ltd v North (WW) Ltd (1932) 49 TLR 142 (‘under deck’); Meyer (Montagu L) Ltd v Travaru A/B H Cornelius of Gambleby (1930) 46 TLR 553 (‘under deck’).

123  Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [[1991] 1 QB 564, CA.

124  Drake v Thos Agnew & Sons Ltd [2002] EWHC 294 (QB). See also Brewer v Mann [2012] EWCA Civ 246, [2012] RTR 28.

125  ‘Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known … to the seller … any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller …’

126  A very similar provision is found in Art 35 of the CISG, where the word ‘reasonably’ is omitted: ch 12.

127  See Brown (BS) & Son Ltd v Craiks Ltd [1970] 1 WLR 752, HL, where however the buyer failed to state its special purpose so that it had to frame its case (unsuccessfully) as one of merchantable quality.

128  But the common place purpose must be one that fits any technical specifications referred to in the contract: Neon Shipping Inc v Foreign Economic Technical Corp Co of China [2016] EWHC 399 (Comm) at [37].

129  Priest v Last [1903] 2 KB 148, CA.

130  Grant v Australian Knitting Mills Ltd [1936] AC 85, PC.

131  Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 115, HL. But see Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, discussed at para 2.29.

132  More effective, in that the seller’s fitness obligation is a condition, whereas a seller’s express undertaking is likely to be regarded as an innominate term that may well not give rise to rejection and termination rights in the event of a breach (para 2.32).

133  [1934] AC 402, 423, HL. See also James Drummond and Sons v EH Van Ingen & Co Ltd (1887) 12 App Cas 284, 299; Manchester Liners Ltd v Rea [1922] 2 AC 74, 79, HL. These decisions were based on the wording of sub-section 14(1) of the Sale of Goods Act 1893, which required the disclosure to be such that the seller ‘realised or ought to have realised that the buyer was relying on his skill or judgment’. The change of wording in the current provision should not affect the relevance of these decisions to the matter in hand. Similarly, the current text of sub-section 14(3) might be said to replicate the common law as that might be applied to a sui generis supply contract of the type considered in PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034.

134  On its facts, Manchester Liners Ltd v Rea [1922] 2 AC 74, HL, comes close to the line.

135  cf Lambert v Lewis [1982] AC 225, HL, where the buyer’s claim was disposed of on other grounds.

136  Medway Oil & Storage Co Ltd v Silica Gel Corp (1928) 33 Com Cas 195, 196, HL.

137  See Grant v Australian Knitting Mills Ltd [1936] AC 85, 99, PC; Manchester Liners Ltd v Rea [1922] 2 AC 74, 81, HL; Ashford Shire Council v Dependable Motors Pty Ltd [1961] AC 336, 351, PC.

138  UCB Invoice Discounting Ltd v Creative Services Inc [1998] EWCA Civ 1724 at [16]; Slater v Finning Ltd [1997] AC 473, 486, HL; BSS Group Plc v Makers (UK) Ltd [2011] EWCA Civ 809 at [41].

139  Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 82–83, HL.

140  See M/S Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1, 17, CA (Lloyd LJ), where a conclusion that pre-contractual discussions failed to show reliance on the seller for the buyer’s special purpose, would not have been apt if the goods had been generally defective so as to be unfit for a commonplace purpose. See further MG Bridge, The Sale of Goods (3rd edn, Oxford University Press 2014), para 7.123.

141  One of the difficulties involved in dealing with sub-section 14(3) is that liability may arise even if the goods are in no way defective. They may be perfectly good for a range of purposes, yet have been supplied by the seller for a purpose for which they are inapt.

142  See Ashington Piggeries Ltd v Hill (Christopher) Ltd [1972] AC 441, HL; Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 84, HL (Lord Reid). This policy also helps to explain how the law, by case law and statutory means alike, has been modified so as to apply the implied terms in s 14 to all sellers acting in the course of a business, whether they deal specifically with goods of the type supplied or whether they are selling off surplus equipment as opposed to their normal stock in trade: Stevenson v Rogers [1999] QB 1028, CA.

143  [1969] 2 AC 31, HL.

144  Both members of the London Cattle Food Traders’ Association (subsequently merged in the Grain and Feed Trade Association) and interchangeable as seller and buyer in their mutual dealings.

145  [1987] 1 WLR 1, CA.

146  [1987] 1 WLR 1, 17, CA. Fox LJ concurred.

147  The pails proved unequal to the task of withstanding extreme conditions of temperature and pressure, not disclosed to the sellers, so the buyers’ claim under sub-section 14(3) failed principally for this reason.

148  See Grant v Australian Knitting Mills Ltd [1936] AC 85, 99. Similarly, a buyer may rely upon a seller to supply boilers suitable for installation in flats but not rely upon the seller in respect of intrinsic aspects of the boilers, such as whether they gave a lower or higher home energy rating: Jewson Ltd v Boyhan [2003] EWCA Civ 1030, [2004] 1 Lloyd’s Rep 505.

149  Note that the old restriction on a seller’s liability, where goods were sold under a recognized trade name, was abolished in 1973. See also para 2.26.

150  Edgington v Fitzmaurice (1885) 29 Ch D 459, 481, CA. cf Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2002] UKHL 43 at [17], [2003] 1 AC 959.

151  Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd [1934] AC 402, 427, HL; UCB Invoice Discounting Ltd v Creative Services Inc [1998] EWCA Civ 1724 at [18].

152  Medway Oil & Storage Co Ltd v Silica Gel Corpn (1928) 33 Com Cas 195, HL.

153  Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd [1934] AC 402, HL; Ashington Piggeries Ltd v Hill (Christopher) Ltd [1972] AC 441, HL.

154  [1969] 2 AC 31, HL.

155  [1969] 2 AC 31, HL at 84 and 116.

156  ibid, 84.

157  [1972] AC 441, HL.

158  ibid, 492–93, 497–98 (Lord Wilberforce).

159  From the Norwegian producers’ point of view, the chances of the herring meal being fed to mink must have been quite slender. cf Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350, HL. This remoteness point lies at the heart of the dissent in Hamilton v Papakura District Council [2002] UKPC 9. Lords Hutton and Rodger, at [58]–[59], considered that it was not unlikely that water supplied for general crop cultivation would be applied to the growth of cherry tomatoes.

160  [1972] AC 441, 492 (Lord Wilberforce): ‘[N]ot only mink have livers’.

161  Quaere how many species? In principle, one ought to suffice. Another point is that such species should be safely fed the herring meal compounded in sensible, rather than microscopic, proportions: see Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 117, HL.

162  See para 2.27.

163  (2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

  1. (2A)  For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

  2. (2B)  For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods—

    1. (a)  fitness for all the purposes for which goods of the kind in question are commonly supplied,

    2. (b)  appearance and finish,

    3. (c)  freedom from minor defects,

    4. (d)  safety, and

    5. (e)  durability.

  3. (2C)  The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory—

    1. (a)  which is specifically drawn to the buyer’s attention before the contract is made,

    2. (b)  where the buyer examines the goods before the contract is made, which that examination ought to reveal, or

    3. (c)  in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

Note that this so-called examination exception has a reduced part to play in the field of international sales. Where commodities are involved, the system of agreed, disinterested inspections by third parties at the point of shipment (see para 2-034) is substituted for any pre-contractual inspection by the buyer and the inspector’s judgment is by agreement binding on both parties.

164  It used to be known as merchantable quality before changes made by the Sale and Supply of Goods Act 1994. For an exceptional case where the goods (jet fuel) can be rendered of satisfactory quality by the end user after delivery, by introducing an additive, see Trasimex Holding SA of Panama v Addax BV of Geneva (Rix J, 3 March 1996).

165  For a fuller discussion of the evolution of the merchantable quality term see MG Bridge, The Sale of Goods (3rd edn, OUP 2014) paras 7.41 et seq.

166  As a result of the Sale and Supply of Goods Act 1994.

167  See now sub-sections 14(2A), (2B).

168  Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, HL. The Henry Kendall case is open to criticism for recognizing, as dual purpose goods for present purposes, goods that at the time of their supply, given extant market knowledge, could not be known to be dual purpose goods. By a majority, the court concluded that the goods were of satisfactory quality given the later knowledge that they could in conservative proportions be fed to one type of animal, namely cattle. See also Marimpex Mineralöl Handelsgesellschaft mbH v Louis Dreyfus et Cie Mineralöl GmbH [1995] 1 Lloyd’s Rep 167.

169  Supply of Goods (Implied Terms) Act 1973, introducing a definition of merchantable quality that later became sub-section 14(6) of the 1979 Act (subsequently modified).

170  M/S Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1, CA.

171  Sub-section 14(2B)(a).

172  Based on a recommendation of the Law Commission that would have benefited from more discussion in the Report: see Sale and Supply of Goods (1987), Law Com No 160, para 3.35. Although the rest of sub-section 14(2) might reasonably be applied as a matter of common law to sui generis supply contracts of the type considered in PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034, this change cannot be treated in the same way.

173  For a fuller discussion of the matters covered in this paragraph see MG Bridge, The Sale of Goods (3rd edn, OUP 2014) ch 10. See also para 9.03.

174  See Sale of Goods Act 1979, sub-section 11(3).

175  See eg Jackson v Rotax Motor & Cycle Co [1910] 2 KB 937, CA.

176  Section 15A. This was amended by the Consumer Rights Act 2015 Sch 1 para 15 to excise the exclusion of consumer sales from the provision. The exclusionary words had become redundant in view of the exclusion of most aspects of consumer contracts from the Sale of Goods Act 1979 by the 2015 Act.

177  This provision does not apply to sui generis supply contracts of the type considered in PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034. These are not governed by the Sale of Goods Act 1979. Furthermore, only the exercise of rights conferred under ss 12–15 of the 1979 Act are affected by s 15A,

178  Sub-section 15A(3).

179  Law Commission, Sale and Supply of Goods (1987), Law Com No 160, para 4.19. This is consistent with the rejection in English law of an implied duty of good faith and fair dealing imposed on the contracting parties; see para 2.14.

180  For example, time of the essence cases: Bowes v Shand (1877) 2 App Cas 455, HL; Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459, 480–81. See also the role of description in the designated port of shipment; Petrotrade Inc v Stinnes Handels GmbH [1995] 1 Lloyd’s Rep 142.

181  See also Law Commission, Sale and Supply of Goods (1987), Law Com No 160, para 4.24.

182  Section 35. Acceptance is discussed at length in ch 9.

183  See eg GAFTA 100, cl 5 (last line).

184  [1962] 2 QB 26, CA.

185  But see sub-section 31(2), a termination provision that eschews the language of conditions and warranties.

186  Sub-section 11(3).

187  See sub-section 61(4) (‘warranty’).

188  See Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS (Rev 1) [2016] EWCA Civ 982 at [19], [2016] 2 Lloyd’s Rep 447, for an account of the emergence of these expressions in the case law.

189  In Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44, CA, the severe overheating of a cargo of citrus pulp pellets resulting in the loss of 20 per cent of its value was not serious enough to give rise to a right to reject the goods and terminate the contract.

190  The expression ‘innominate terms’ is therefore preferable to ‘intermediate stipulations’. See also Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44, 83–84, CA (Ormerod LJ).

191  But particular terms in the Sale of Goods Act, treated as warranties without a right to terminate (see sub-section 12(2): quiet possession and freedom from charges and encumbrances), would have to be treated as a statutory encroachment on the common law. The approach of Diplock LJ, nevertheless, seems to have prevailed. See eg Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS (Rev 1) [2016] EWCA Civ 982, [2016] 2 Lloyd’s Rep 447.

192  [1976] QB 44, CA.

193  See also Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604 (term stipulating a maximum percentage of impurities also held to be an innominate term).

194  The court relied in particular upon what is now sub-section 62(2) of the Sale of Goods Act, preserving the rules of the common law so far as not inconsistent with the Act. See [1976] QB 44, 60, 72, 83, CA.

195  Various examples are given in chs 3–4.

196  Like the FOSFA 26A contract (ex farm/delivered UK rapeseed contract).

197  An example of such a clause is Art 7 of the European Coffee contract considered in Ficom SA v Sociedad Cadex Lda [1980] 2 Lloyd’s Rep 118.

198  For a useful discussion of the way arbitrators deal with matters of quality, see D Kirby Johnson, International Commodity Arbitration (1991), pp 1–5.

199  Like Shell and, in an even more pronounced way, Total contracts. Under Shell’s General Terms & Conditions for Sales and Purchases of Crude Oil (2010): ‘28.1 Quality The quality of the crude oil delivered hereunder shall be the quality of such crude oil as usually made available at the time and place of loading. Whether set out in these General Terms and Conditions or in the Special Provisions neither typicals (sic) nor any stipulation as to time of delivery shall form part of the crude oil’s description, quality or fitness. This sub-section constitutes the whole of the Seller’s obligations with respect to the description, quality and fitness for purpose of the crude oil to be delivered and (save to the extent that exclusion thereof is not permitted or is ineffective by operation of law) all statutory or other conditions or warranties, express or implied, with respect to the description or satisfactory quality of the crude oil or its fitness for any particular purpose or otherwise are hereby excluded.’ Under Total’s General Terms and Conditions for CFR/CIF/Delivered Ex Ship Sales of Crude Oil (2007): ‘SECTION III: QUALITY THERE ARE NO REPRESENTATIONS, DUTIES (WHETHER IN NEGLIGENCE OR OTHERWISE), CONDITIONS, GUARANTEES, WARRANTIES OR TERMS, EXPRESS OR IMPLIED, WHETHER IMPLIED BY STATUTE OR OTHERWISE, AS TO THE DESCRIPTION OR SATISFACTORY QUALITY, FITNESS OR SUITABILITY OF THE OIL FOR ANY PURPOSE WHATSOEVER, OR OTHERWISE RELATING TO THE QUALITY OF THE OIL, WHICH EXTEND BEYOND THE DESCRIPTION OF THE OIL APPEARING IN THE AGREEMENT (original capitals).’ The NAEGA (North American Export Grain Association) No 2 form (2000), an American FOB contract, excludes merchantable quality in cl 7. It is interesting for the way that that same clause allows the seller to deliver ‘higher grades of grain of the same type and description’.

200  Sub-section 14(2C).

201  There are special provisions (ss 26–27) in the Unfair Contract Terms Act 1977 that exempt international contracts from the application of the Act: discussed at para 2.45.

202  The contract may leave the appointment of the inspector to one of the parties: Wilmar Oleo Pte Ltd v Vinmar Chemicals and Polymers BV (Rev 1) [2011] EWHC 1167 (Comm) at [120]–[121].

203  Which does not mean that the contract is a sale by sample under s 15 of the Act.

204  Under the World Trade Agreement/Gatt 1994, Member States to the Agreement on Preshipment Inspection (http://www.wto.org) undertake to ensure that pre-shipment inspection takes place in an objective, non-discriminatory, transparent, uniform way in accordance with the standards laid down in the contract of sale (Art 2(1)).

205  The provisions on sampling in FOSFA 53, a bulk FOB contract, run to 745 words. GAFTA 100, a bulk CIF contract, incorporates an extensive document, the GAFTA 124 (Sampling Rules), which runs to 16 pages. The extent to which GAFTA 124 is incorporated in a contract may depend upon the terms of another incorporated document: Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015] EWHC 80 (Comm), [2015] 1 Lloyd’s Rep 413.

206  The contract may allow a buyer dissatisfied by the analysis to call for a second sample to be done by another inspector. In RG Grain Trade LLP (UK) v Feed Factors International Ltd [2011] EWHC 1889 (Comm), [2011] 2 Lloyd’s Rep 433, the court, after a close analysis of the contract and the sampling rules in GAFTA 124 (incorporated in the particular contract), concluded that the second analysis overrode the otherwise conclusive effect in the contract of the first analysis.

207  A good discussion of the merits of these certification processes is given by Donaldson J in Rolimpex Centrala Handlu Zagranicznego v Dossa (Haji E) & Sons Ltd [1971] 1 Lloyd’s Rep 380, 382.

208  If the contract fails to stipulate that the inspector must come from an approved list, such as a GAFTA list, the use of a GAFTA form (in this case supplemented by another form) will not lead to the conclusion that the inspector must be GAFTA-approved: Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015] EWHC 80 (Comm), [2015] 1 Lloyd’s Rep 413.

209  Kollerich & Cie SA v State Trading Corpn of India [1980] 2 Lloyd’s Rep 32, CA.

210  eg GAFTA 119 (a general bags or bulk FOB contract), which provides in cl 5: ‘Should the whole, or any portion, not turn out equal to warranty, the goods must be taken at an allowance to be agreed or settled by arbitration …’ The clause goes on, however, to provide that an adulteration of sand and silica in excess of 3 per cent will justify rejection of the mark or parcel of goods (each of which is to stand as a separate shipment) so affected but not the entire quantity of the shipment.

211  Sub-section 11(4).

212  In Meyer (Montagu L) Ltd v Osakeyhtio Carelia Timber Co Ltd (1930) 36 Com Cas 17, 20, CA.

213  Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11, 14, CA (Cairns LJ); Veba Oil Supply & Trading GmbH v Petrotrade Inc (The Robin) [2001] EWCA Civ 1832, [2002] 1 Lloyd’s Rep 295, which recognizes at [26] that a mere mistake is not enough to vitiate the inspection and quotes with approval the following passage from the judgment of Lord Denning MR in Campbell v Edwards [1976] 1 WLR 403, 407, CA: ‘It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion, of course, it would be very different. Fraud or collusion unravels everything.’ For ‘valuer’, substitute ‘expert’.

214  Veba Oil Supply & Trading GmbH v Petrotrade Inc (The Robin) [2001] EWCA Civ 1832 at [98], [2002] 1 Lloyd’s Rep 295; Jones v Sherwood Computer Services Plc [1992] 1 WLR 277, CA.

215  For the meaning of ‘manifest error’, a relatively recent expression, see Galaxy International Energy Ltd (BVI) v Eurobunker SpA [2001] 2 Lloyd’s Rep 725, 728 (‘plain and obvious’ error relating to the inspection certificate or the procedure leading to that certificate (wrong test method immaterially (ie trivially or in a de minimis way) departing from instructions not a manifest error)); Veba Oil Supply & Trading GmbH v Petrotrade Inc (The Robin) [2001] EWCA Civ 1832, [2002] 1 Lloyd’s Rep 295; AIC Ltd v ITS Testing Services Ltd (The Kriti Palm) [2006] EWCA Civ 1601, [2007] 2 CLC 223; Conoco (UK) Ltd v Phillips Petroleum (unreported, 19 August 1996) (‘oversights and blunders so obvious as to admit of no difference of opinion’); Franbar Holdings Ltd v Casualty Plus Ltd [2011] EWHC 1161 (Ch) at [53] (‘more than just patent mistake’); Walton Homes Ltd v Staffordshire CC [2013] EWHC 2554 (Ch), [2014] 1 P & CR 10 at [46] (‘Manifest is a word which gives a very limited window of opportunity to challenge’). See also Natoli v Walker (1994) 217 ALR 201, NSWCA: ‘The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon [these] contracts. An objective, not a subjective, test for what is “manifest” is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error.’ As for the evidence that may be considered for the existence of a manifest error, see Invensys plc v Automotive Sealing Systems Ltd [2002] 1 All ER (Comm) 222, noting at [22] also that the word ‘manifest’ must not be diluted. As for attempts to invoke implied terms so as to facilitate the establishment of manifest error, see Exxonmobile Sales and Supply Corp v Texaco Ltd (The Helene Knutsen) [2003] EWHC 1964 (Comm), [2003] 2 Lloyd’s Rep 686.

216  Note, of the particular form.

217  [1956] 1 Lloyd’s Rep 319.

218  [1994] 1 Lloyd’s Rep 93, 102.

219  [1963] 1 Lloyd’s Rep 437, CA.

220  [2015] EWHC 80 (Comm) at [30], [2015] 1 Lloyd’s Rep 413.

221  Charles E Ford Ltd v AFEC Inc [1986] 2 Lloyd’s Rep 307, 313.

222  KG Bominflot Bunkergesellschaft fur Mineraloele mbh & Co v Petroplus Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145 at [44], [2010] 2 CLC 637.

223  Lindsay (WN) & Co Ltd v European Grain and Shipping Agency Ltd [1962] 2 Lloyd’s Rep 387, 395 (‘[S]uch a clause, even though it operates against each party, has to be read with a considerable degree of strictness, because the effect of it is to exclude the bringing in of evidence which would otherwise be admissible under ordinary law’); Charles E Ford Ltd v AFEC Inc [1986] 2 Lloyd’s Rep 307, 313.

224  KG Bominflot Bunkergesellschaft fur Mineraloele mbh & Co v Petroplus Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145 at [44], [2010] 2 CLC 637.

225  [1980] 2 Lloyd’s Rep 601, distinguished in Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2002] EWHC 2088 (Comm) at [503]–[504], where a ‘final in all respects’ clause was held to cover matters of description, namely the crop year of certain seeds (this issue was not dealt with on appeal: [2003] 2 Lloyd’s Rep 780, CA).

226  cf Total International Ltd v Addax BV [1996] 2 Lloyd’s Rep 333 (crude oil ‘of the usual Dakar quality’ was a matter of quality and not of description or identity).

227  (1932) 49 TLR 142.

228  [1901] 1 QB 608.

229  [1974] 1 Lloyd’s Rep 11, CA, approved in Gill & Duffus SA v Berger & Co Inc [1984] AC 382, 394, HL. See also Mena Energy DMCC v Hascol Petroleum Ltd [2017] EWHC 262 (Comm) at [139] et seq.

230  According to Lord Denning MR: ‘The “description” of goods often includes a statement of their quality. Thus “new-laid eggs” contains both quality and description all in one. “Quality” is often part of the description. In this very case the word “hard” is a word both of quality and of description. If a certificate is final as to the quality “hard”, it is final as to that description also. The quality and description cannot be separated. Finality as to one means finality as to the other’: [1974] 1 Lloyd’s Rep 11, 13, CA.

231  See ‘Agroexport’ v NV Goorden Import Cie SA [1956] 1 Lloyd’s Rep 319.

232  Tradax Export SA v European Grain & Shipping Ltd [1983] 2 Lloyd’s Rep 100.

233  Aron (J) and Co Ltd v Comptoir Wegimont [1921] 3 KB 435, CA.

234  Total International Ltd v Addax BV [1996] 2 Lloyd’s Rep 333.

235  [1924] AC 43, HL.

236  Charles E Ford Ltd v AFEC Ltd [1986] 2 Lloyd’s Rep 307.

237  [1979] 2 Lloyd’s Rep 442.

238  [1974] 1 WLR 341.

239  Ets Soules & Cie v International Trade Development Co Ltd [1979] 2 Lloyd’s Rep 122, CA (US No 2 wheat 79 kilograms per hectolitre).

240  [1995] 1 Lloyd’s Rep 124.

241  Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44, CA.

242  Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604.

243  Total International Ltd v Addax BV [1996] 2 Lloyd’s Rep 333.

244  Parbulk II A/S v Heritage Maritime Ltd SA [2011] EWHC 3108 (Comm) (charterparty). See also Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s Rep 599; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27.

245  [1980] 2 Lloyd’s Rep 118.

246  The discussion below is confined to non-consumer contracts. For a discussion of the Act in general, as well as of the incorporation and construction of exclusion clauses in general, see the standard works in contract law. It should be noted that a strict, though not a tortuous, approach will be taken to exclusionary language: Dalmare SpA v Union Maritime Ltd [[2012] EWHC 3537 (Comm), [2013] 1 CLC 59 (sale of ship ‘as she was’ (equivalent to ‘as is’) on Norwegian Sale Form); Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 CLC 145; KG Bominflot Bunkergesellschaft fur Mineraloele mbh & Co v Petroplus Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145, [2010] 2 CLC 637.

247  In Econoler Sociedade Energetica SA v GEC Alsthom Mirrlees Blackstone (Stockport) Ltd (Unreported, 16 April 1999), the court declined to deal with the argument raised in an early stage of the action in that case that s 26 of the Unfair Contract Terms Act 1977 should not be applied because it constituted discrimination on the ground of nationality contrary to Art 6, and a restriction on the freedom to provide or receive services contrary to Art 59, of the EC Treaty. See further P Burbridge, ‘Selling in the Single Market’ (2000) 150 NLJ 1544–46. An argument advanced by the Law Commission in proposing the disapplication in international supply contracts of what later became the Unfair Contract Terms Act was that, if this were not done, UK exporters would be placed under restrictions that did not apply to their foreign competitors: Second Report on Exemption Clauses (Law Com 1975, No 69), para 213. The Law Commission’s involvement in this matter is extensively discussed and analysed by Mance LJ in Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447 at [36]–[40], [2003] 2 Lloyd’s Rep 767.

248  In proceedings before English courts, foreign law faces a certain disadvantage. It has to be proved as a fact, the court taking no judicial notice of it: L Collins (ed), Dicey, Morris and Collins on the Conflict of Laws (15th edn, Sweet & Maxwell 2012) r 25: ‘The way of knowing foreign laws is, by admitting them to be proved as facts’: Mostyn v Fabrigas (1774) 1 Cowp 161, 174, 98 ER 1021 (Lord Mansfield). Where foreign law is not pleaded and proved, it will be presumed to be the same as English law. This principle applies also to statutes and in particular the Unfair Contract Terms Act 1977: Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [2006] 2 CLC 220. No distinction is to be drawn for present purposes between those statutes codifying the common law, like the Sale of Goods Act 1979 (to the extent that it does) and those, like the 1977 Act, that are not declaratory of the common law: Balmoral Group at [432].

249  This includes s 3 of the Misrepresentation Act 1967, since the Unfair Contract Terms Act 1977 is ‘the controlling instrument’ (Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290 at [19], [2010] QB 86, supplying an expansive interpretation of the 1977 Act, s 26). See also Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 (Comm) at [612].

250  The word ‘supply’ includes but is broader than sale.

251  Section 26 does not apply to sui generis contracts of the type considered in PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034 since these fall outside the Sale of Goods Act.

252  The position is the same regardless of the location of any agents negotiating the contract: Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep 446, CA. It is, furthermore, irrelevant for present purposes whether the agent incurs personal liability on the contract: Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm) at [438], [2006] 2 CLC 220. The test is very close indeed to the test of an international sale contract in the Uniform Law on the International Sale of Goods (ULIS) (Art 1), enacted in the UK in the Uniform Laws on International Sales Act 1967 and is quite different from the test of an international sale laid down in the United Nations Convention on the International Sale of Goods 1980 (see chs 1 and 10).

253  For the rightly rejected argument that the ‘conclusion’ of a contract occurs at some indeterminate moment after its formation by offer and acceptance but before performance, see Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm) [440]–[441], [2006] 2 CLC 220. See also Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 (Comm) at [575] (not at the time the property passes).

254  For a non-technical view of the meaning of ‘goods … in the course of carriage … from the territory of one State to the territory of another’, see Balmoral Group at [447]–[448], holding that goods are in the course of carriage when they have been dispatched in advance by the foreign company to a company in the UK and are being held in a transhipment centre in the UK awaiting release by the foreign company. This paragraph is capable of including FOB and CIF contracts since neither seller undertakes that the goods will actually be ‘delivered by the carrier to their overseas destination’: Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2003] 2 Lloyd’s Rep 767. The act of transportation may be in order to fulfil the commercial function of the contract and not necessarily pursuant to any contractual commitment: Amiri Flight Authority v BAE Systems plc at [32]; Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290 at [28]–[32], [2010] QB 86; Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm) at [89], [2012] 1 CLC 145. Self-propelling goods such as aircraft and ships may be ‘carried’ under this first paragraph, even if they move under their own power: Turboprop (Dublin) Ltd v First Flight Couriers Ltd (above).

255  A posted acceptance would be ‘done’ in the country where posting was made, not received. For an extensive discussion of the meaning of ‘done’, and for the conclusion that acts of offer and acceptance are not to be divorced for present purposes from the communication of them to the other party, see Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm) at [82], [2012] 1 CLC 145.

256  This is a clumsy and troublesome expression. It appears to mean ‘transported to’ or ‘carried to’. Delivery in the Sale of Goods Act 1979 s 61(1), as in the law of personal property in general, connotes the voluntary transfer of possession from one person to another, a meaning it cannot have in sub-section 26(4) of the 1977 Act.

257  Viz constituting offer and acceptance.

258  The equivalent case in ULIS (see above) was delivery in a State other than where offer and acceptance were effected. This case emphasized that a contract could in certain circumstances be international even if the goods at no time crossed national frontiers in the course of performance of the contract.

259  For example, bunker supply contracts.

260  [2003] EWCA Civ 1447, [2003] 2 Lloyd’s Rep 767.

261  [2003] EWCA Civ 1447 at [32], [2003] 2 Lloyd’s Rep 767.

262  [2003] EWCA Civ 1447 at [34], [2003] 2 Lloyd’s Rep 767.

263  Reversing the court below: Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2003] 1 Lloyd’s Rep 150. See also Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm) at [97], [2012] 1 CLC 145.

264  Section 27 does not apply to sui generis contracts of the type considered in PST Energy Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] AC 1034 since these fall outside the Sale of Goods Act.

265  Or some other body of UK law. The provision has been said not to be a conflict of laws provision, since it does not refer to a foreign law, but rather one that disapplies provisions of the Unfair Contract Terms Act 1977 as ‘a matter of substantive English law’: Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm) at [99], [2012] 1 CLC 145.

266  A contract of this sort would be subject to the ‘overriding mandatory provisions’ of another country (see para 1.32) if all the other ‘elements’ of the contract were located in that country: Rome I Regulation on the Law Applicable to Contractual Obligations, Regulation 593/2008, Art 3(3). See Emeraldian Ltd Partnership v Wellmix Shipping Ltd (The Vine) [2011] EWHC 1411 (Comm) at [174]; [2011] 1 Lloyd’s Rep 301. For the converse case of a law selected to avoid the application of the 1977 Act, see sub-section 27(2) and, on an antecedent of that provision, FA Mann, ‘The Amended Sale of Goods Act 1893 and the Conflict of Laws’ (1974) 90 LQR 42.

267  For the seller’s habitual residence, there is substituted the place of central administration in the case of a company and the principal place of business of a natural person acting in a business capacity: Rome I Regulation, Art 19(1).

268  Or where another country was manifestly the place of closest connection under Rome I Regulation, Art 4(3).

269  In Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 (Comm) at [570]–[571], the court found no evidence of any evasive intention.

270  Nor may the seller deliver more than the agreed quantity and expect the buyer to separate the contract amount from that quantity: Cunliffe v Harrison (1851) 6 Ex 903, 906, 155 ER 813 (‘[T]he person to whom [the goods] are sent cannot tell which are the [ones] that are his; and it is no answer to the objection to say, that he may choose which [ones] he likes, for that would be to force a new contract on him’).

271  See Tamvaco v Lucas (No 1) (1859) 1 E & E 581, 120 ER 1027 (more); Tamvaco v Lucas (No 2) (1859) 1 E & E 592, 120 ER 1032 (less); Harland and Wolff Ltd v Burstall and Co (1901) 6 Com Cas 113 (less).

272  Section 30 gives the buyer a right to reject the non-conforming delivery. In English law, there is no right to cure defective performance unless the contract itself so provides: MG Bridge, The Sale of Goods (3rd edn, OUP 2014), paras 10.129 et seq. Rejection therefore leads to the termination of the contract: sub-section 11(3).

273  Shipton Anderson & Co v Weil Bros & Co [1912] 1 KB 574 (exceeding contract amount by 0.0005 per cent). Microscopic may be a more exact word than trivial in the present circumstances: see Margaronis Navigation Agency Ltd v Henry W Peabody & Co Ltd [1965] 2 QB 430 (upholding umpire’s conclusion that loading 12,588.2 tons under a charter party did not amount to loading the required 12,600 tons). A delivery of 470 instead of 500 tons was not excused under the de minimis rule in Harland and Wolff Ltd v J Burstall & Co (1901) 84 LT 324. Courts have also been resistant to the maxim in matters going to the description of the goods: Arcos Ltd v EA Ronaasen & Son [1933] AC 470; Rapalli v K L Take Ltd [1958] 2 Lloyd’s Rep 469; Wilensko Slaski Towarzystwo Drewno v Fenwick & Co (West Hartlepool) Ltd [1938] 3 All ER 429. See further MG Bridge, The Sale of Goods (3rd edn, OUP 2014) paras 6.39 et seq.

274  See MG Bridge, The Sale of Goods (3rd edn, OUP 2014), para 10.94. The same approach is evident in the CISG, Art 51(1), which deals with avoidance in respect of individual instalments, clearly differentiated in Art 51(2) from avoidance of the contract in its entirety.

275  See paras 2.32 and 2.56. Similarly, a buyer under the CISG could avoid the contract for non-performance only if this amounted to a fundamental breach of contract (Art 51(2)). See paras 12.4 et seq.

276  Adding Sale of Goods Act, sub-sections 30(2A), (2B).

277  See para 2.32.

278  Sale of Goods Act, sub-sections 11(4), 30(2).

279  Delivery of the contract goods mixed with goods of a different description.

280  eg ‘5% more or less’ etc. The courts will not allow further latitude: Payne & Routh v Lillico and Sons (1920) 3 Ll LR 110.

281  eg GAFTA 100, cl 5.

282  If the nomination (or expected readiness to load) clause in a contract calls upon the buyer to name not just the vessel but also the expected tonnage required, as some contract forms do (eg GAFTA 119 cl 6), this points towards more than one shipment.

283  [1980] 1 Lloyd’s Rep 665.

284  [1982] 1 Lloyd’s Rep 528, affd [1983] 2 Lloyd’s Rep 386, CA.

285  On extension clauses see paras 3.31 (FOB) and 4.59 (CIF).

286  (1879) 4 CPD 239, CA.

287  [1965] 1 WLR 1117, HL.

288  ibid, 1125.

289  ibid, 1131.

290  [1977] 2 Lloyd’s Rep 582, CA.

291  See eg GAFTA 100, cl 2, which also provides that, in the event that separate deliveries are made, ‘the margin on the mean quantity sold shall not be affected thereby’, which for example protects the seller’s entitlement to deliver +/– 5 per cent of the overall quantity, even if the full quantitative range is not exercised within the particular delivery constituting the ‘separate contract’.

292  [1965] 1 WLR 1117, HL.

293  This might be taken to mean that even a serious breach in respect of one shipment could not therefore be a breach going to the root of the contract as a whole under sub-section 31(2): see para 2.56.

294  [1986] 2 Lloyd’s Rep 654, 658.

295  [1936] 3 All ER 895.

296  For general contract case law controlling the exercise of a contractual discretion to prevent arbitrary capricious and unreasonable action, see Paragon Finance v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685; Sucden Financial Ltd v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm) at [48]–[50], [2010] 2 CLC 216. See also para 2.14.

297  Hong Guan & Co Ltd v Jumabhoy (R) & Sons Ltd [1960] AC 684, PC; cf Hollis Bros & Co Ltd v White Sea Timber Trust [1936] 3 All ER 895, 900 (Porter J).

298  Star Public Saw Mill Co v Bruce (Robert) & Co Ltd (1923) 17 Ll LR 7, CA; Gray v Slater Birds & Co (1924) 19 Ll LR 59.

299  Initially, the Bills of Lading Act 1855. See ch 8.

300  Where a bill of lading is issued under a charter party, for example, a charter entered into by a CIF seller, the bill of lading is not as between seller and carrier the contract of carriage or evidence of such a contract, but it becomes the embodiment of the contract of carriage when it is transferred to the buyer: Leduc & Co v Ward (1888) 20 QBD 475, CA; Hain Steamship Co v Tate & Lyle Ltd (1936) 41 Com Cas 350, 356–57, HL.

301  See ch 4.

302  See ch 9.

303  See sub-sections 6(5) and (7) of the 1999 Act.

304  Law Com No 242, 1996.

305  See, eg the ‘International Conventions’ clause (sic) of GAFTA 100 (1 September 2010), cl 29(e); Shell International Trading and Shipping Co Ltd, ‘General Terms & Conditions for Sales of Crude Oil’ (2010), cl 42.13.

306  Sub-sections 1(1), (2) of the 1999 Act.

307  Sub-section 1(3).

308  The word ‘agent’, however, may be given a flexible meaning: see Laemthong International Lines Co Ltd v Artis (The Laemthong Glory) (No 2) [2005] 1 Lloyd’s Rep 688, CA, discussed at para 4.88.

309  Sub-section 1(6).

310  Sub-section 1(1)(a).

311  See the problem posed by statutory implied terms: para 2.63.

312  Sub-sections 1(1)(b), (2). For a useful demonstration of a court working through the provisions of the Act, see Dolphin Maritime &Aviation Services Ltd v Sveriges Angartys Assurance Forening [2009] EWHC 716 (Comm) at [72] et seq.

313  Law Com No 242, 1996, paras 7.18(ii), 7.25.

314  Article 4(a).

315  The wording of sub-section 1(2) points to the burden lying on those who claim that a contract purporting to benefit a third party is not directly enforceable by that third party.

316  The Act does not define reliance or state whether it has to be to the third party’s detriment.

317  Sub-sections 2(1), (2).

318  Sub-section 2(3).

319  Sub-section 1(5).

320  Section 3. Nothing in the Act confers a right on the third party against the promise not to take any action, or fail to take an action, that would diminish the content of the promise and therefore its value to the third party. A relevant example is a contract term requiring payment to be made by the buyer to the third party if goods are supplied by the promise, with payment not being made because the goods are never supplied.

321  Section 4.