Understanding International carriage contracts F.O.B with additional services

Export sales agreements are usually characterized by trade terms that are not used in traditional sales agreements.
F.o.b. is a trade term that stands for Free on Board and the nature of this contract is that the seller assumes responsibility for placing the goods on Board a ship that has been named to him by the buyer. The seller in this instance bears all costs up to the delivery of the goods on board the vessel.


Export sales agreements are usually characterized by trade terms that are not used in traditional sales agreements.

F.o.b. is a trade term that stands for Free on Board and the nature of this contract is that the seller assumes responsibility for placing the goods on Board a ship that has been named to him by the buyer. The seller in this instance bears all costs up to the delivery of the goods on board the vessel.
There are different types of F.o.b. contracts but we shall focus on an F.o.b. contract with “additional services”. Under this arrangement, the shipping and the insurance are made by the seller for the buyer.

Passing of property.
Cargo like oil is treated as an ascertained good if it is clearly earmarked for the recipient. According to Schmitthoff[1], the property in ascertained goods passes when they are shipped. 

But, in instances of F.o.b. contracts with additional services, property passes when the parties intend it to pass and this is further evidenced in the Sales of Goods Act, 1971[2]. So, in this instance, property in the goods and the risk with it would have passed when the oil was delivered and consideration furnished by the buyer in form of the cash against the documents.

However, in Kwei Tek Chao v British Traders and Shippers Ltd[3] it was held that property in the goods reverts to the seller if upon examination the goods are found to be different from the description in the contract and this shall be looked at in detail below.

Delivery would be deemed to have taken place when the goods are in the custody of the buyer.

However, there is always an implied term that the goods will correspond with the description. In the case of Gill and Duffus S.A. V Berger & Co. Inc[4], it was seen by Lord Diplock that sale must be a sale by description for section 13 to apply and a sale cannot be by description unless the parties intend the description to be a term of the contract. 

There is also an implied term for the goods supplied to be of satisfactory quality. The effect of the breach of these terms is that the buyer has the right to reject the goods.

In Bernstein v. Pamson Motors (Golden Green) LTD[5], it was seen that goods can be rejected as long as this rejection is done within the reasonable time. However, in cases where the goods are already accepted, the buyer is estopped from rejecting the goods and can only claim for damages. But, cannot take place till the goods have been inspected. In the UK, Section 34 of the Sale of goods act, gives the buyer the option of inspecting the goods and making sure they conform to the contract. 

Tendering of Documents

Would the issuance of a copy of the certificate of insurance be seen as bad tender of documents. According to the doctrine of strict compliance, the bank is entitled to reject documents that do not conform to the terms of the credit this is because it is deemed to be the agent of the buyer. In cases where the bank has already paid against the documents without objection even if the documents are defective, then the buyer cannot object. This was seen in the case of Panchaud Feres SA V Establissements General Grain Co. Ltd[6] where it was held by Lord Denning M.R. that by taking up the documents and paying for them, they are precluded afterwards from complaining of any other problems in the documents.

The effect of the above is that the bank cannot rely on the doctrine of strict compliance if they wanted to claim for the money since they accepted the documents.

This was seen in the case of Equitable Trust Company of Newyork v Dawson Partners Ltd[7] where it was held that the plaintiff’s bank was not entitled to be reimbursed by the buyers because, contrary to their instructions, it made available finance on the certificate of one expert instead of the two experts. 

It was also seen in NV Handel My j Smits Import Export v English Exporters Ltd[8] that it is the buyer’s duty to arrange marine insurance on F.o.b. terms and that if the seller takes out insurance he does so as an agent of the buyer and cannot then reject the tender of his agent. Also, it came to light that the master of the ship had actually given a false Bill of lading concerning the quantity of oil in the hold. 

Article 3 of the Carriage of Goods by sea act, 1971, makes the carrier responsible for issuance of a bill of lading and this should be a true manifestation of the cargo in relation to size or quantity. It was held in the Kwei case[9] that in instances of fraud, the buyer has a right to claim for damages even if he has lost his right of rejection. In this instance, the carrier would be liable for misrepresentation and the buyer would be entitled to sue as per the provisions of article 3 (ibid) and also because the buyer was In possession of the bill of lading. 

Unascertained goods
The general rule is that no property can pass in unascertained goods till they become ascertained and this was seen in the case of Re Wait[10]. 

Appropriation
It was seen in the Comptoir d’Achat et de Vente Du Boerenbond Belge S/A v Luis de Ridder Limitada[11], that property cannot pass till appropriation has taken place and a reasonable measures have been taken to earmark the goods.

A delivery order in this instance would be a good sign of appropriation. It is also worth noting that there was use of letters of credit which are mostly commonly used method of payment for goods in export trade. 

It was held in Power Curber International Ltd v National Bank of Kuwait[12] that is, it is vital for every bank that issues a letter of credit to honor its obligations and the bank is in no way concerned with any dispute that the buyer may have with the seller. So in this instance, the bank has to honor the documentary credit. 

[1][1927] 1 Ch 606
[2]The Julia House Of Lords [1949] A.C. 293
[3][1981]2 WLR 1233 

END NOTES.
[1]Murray,c. Holloway,D & Timson-Hunt, D. Schmitthoff’s Export Trade, Eleventh Edition, Sweet and Maxwell, 2010 at page 30
[2] In Section 17(1)
[3][1954] 2 QB 459 AT 487
[4](no2) 1984) AC 382 AT 394
[5][1987] 2 ALLER 220
[6][1970] 1 Lloyds Rep 53, CA
[7](1927)27 L.I.L.R 49
[8][1957]1 Lloyds Rep 517
[9] Supra 12
[10][1927] 1 Ch 606
[11]The Julia House Of Lords [1949] A.C. 293
[12][1981]2 WLR 1233