International Sale of Goods Contracts

In seeking to discuss the attitude of the courts to time stipulations in international contracts for the sale of goods, in his judgement in Bowes v. Shand, [1] Lord Cairns recognised “Merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance”. [2] With this in mind, this essay first seeks to consider the nature of Bowes v. Shand [3] itself in terms of the facts and the reasoning behind the decision that was reached in relation to the time stipulation put in place as part of the contract that was so important to this case. However, following on from that, this essay then also considers the nature and scope of other decisions reached with a view to then ascertaining the true value of time stipulations as part of international sale of goods contracts. Finally, the discussion undertaken as part of this essay concludes with a summary of the key points derived from this discussion to make assertions about the attitude of the courts regarding time stipulations that would appear to imply an acceptance of time stipulations value to the parties involved accept where it would be unreasonable to do so in a given case.

That the statement made by Lord Cairns as part of his judgement in Bowes v. Shand [4] is so particularly pertinent is founded on the fact two contracts for the sale of 300 tons of rice each were formed in London for ‘Madras’ rice, to be shipped at ‘Madras’ during the months of March and/or April 1874 in this case. The total of 600 tons of rice filled 8,200 bags. The ship arrived at Madras in February and, on the 23rd, 1,780 bags were put on-board before the same number was placed on board on the 24th and on the 28th a further 3,560 bags were put on board with bills of lading given for those amounts on the days mentioned. However, whilst a bill of lading was then also given for the remaining 1,080 on the 3rd of March, all except 50 bags of rice had already been put on board. On this basis, in an action for refusing to accept the rice, the defence in this case was that it had not been shipped during the months of March and/or April. As a result, the court held the contract had not been complied with since its words should have been construed in their plain and ordinary sense. Additionally, evidence of any use in the particular trade must, to affect its meaning, be very clear and consistent so, in view of such evidence not having been given, the Plaintiffs could not recover on the contract because the rice was not actually delivered in March and/or April so as to reflect Lord Cairns view “Merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance”. [5]

Such an understanding of the legal position relating to the importance of time stipulations in sale of goods contracts internationally was then arguably only further supported by The Osterbeck: Olearia Tirrena v. Algermeene Oliehandel [6] which recognised if there is a time band for the purpose of nominating the vessel, a breach would permit an innocent party to avoid the contract. Additionally, it was also recognised in Colley v. Overseas Exporters [7] that where payment was due at the time of loading in the circumstances, the buyer was considered to have frustrated this event by refusing to nominate a vessel. The reason for this is the court held nomination should have occurred in the absence of expressly agreed time limits because, within a reasonable time, the buyer would be considered to be in breach of the terms of the sale’s contract that was put in place. As a result, the buyer was considered to be liable for damages for breach of contract for a failure to nominate an effective vessel within the time allowed. At the same time, however, the failure to make a nomination served to frustrate the right of the seller to take an action for the price that, from the perspective of the seller, was far better than a mere right to damages, since the seller had to mitigate their losses by seeking to arrange to sell the cargo to another buyer.

The decision in The Naxos [8] is, however, particularly interesting since it serves as an interesting example of a free on board (fob) contract with additional duties. Such a view is founded on the fact that Clause 14(1) of the contract in this case recognised “In cases of (f.o.b.) stowed contracts the seller shall have the sugar ready to be delivered to the buyer at any time within the contract period”. As a result, this meant the buyer could insist upon the seller loading the nominated vessel immediately at any given time that was specified by the buyer within the time slot that was set aside for arrival of the ship. [9] Then, in the event of a default, the seller in such a case would be liable for damages for delay and so the buyer could avoid the contract if the seller was not ready and prepared to start loading immediately in keeping with the terms of the contract in place. [10] More generally, however, the contractual date of shipment serves to not only permit the buyer to regulate his affairs – particularly in relation to the period of time for which finance of the purchase is required on sales and or use of the cargo knowing the goods are likely to arrive at a particular time – but also enables the seller to make arrangements for the procurement of cargo, its shipment to the particular dock and finance the sale. [11] Therefore, it is perhaps little wonder that time is usually considered to be of the essence in any commercial contracts because both the buyer and the seller must look to guarantee they do everything to ensure goods are shipped within a specified time frame.

At the same time, however, that is not to say there is not scope for variation even where specific time stipulations have been set within a give sale of goods contract. Where a potential difficulty arises with regards to predicting the exact date of shipment it is necessary to include a variation clause to provide for the potential impact of unexpected events. For example, in Gonzalez v. Waring [12] the court held here extension clauses can be used as contractual terms that vary loading time in return for additional payments by the fob buyer. Therefore, they are not to be recognised as penalty clauses and are not subject to judicial supervision on the basis of reasonableness regarding damages assessment. Nevertheless, it is still incumbent upon the parties to fulfil a number of criteria. For example, on the basis of Bunge v. Tradax [13] the buyer needs to nominate an effective vessel and communicate nomination to the seller in time for them to get the goods to the dock ready for loading [14] otherwise the seller can avoid the particular contract for failure to nominate in time. [15] In addition, as has already been alluded to, this proposition is further supported by the fact the nominated vessel must be a suitable vessel able to carry the cargo on the basis of Bowes v. Shand [16] that held the vessel nominated by the buyer must sail within the time specified.

Moreover, according to Miserocchi v. A.F.A. [17] under an fob contract a seller can claim an additional payment for any loading costs that arise outside of the specified time band. The reason for this is that the obligations to deliver and accept delivery are mutual and are both contained in the shipment period. In this case the buyer nominated loading to take place within a specified 15-day time band, but the seller was not able to nominate a loading birth since the port was congested and there was none available till the 15-day period ended leading to an extended loading time being required that meant the buyer was held liable for. The reason for this was that it was not in this instance the seller’s duty to provide a berth so his inability to nominate one was not his responsibility in view of the fact that nomination of an effective vessel implies that the vessel nominated will be able to berth to allow for the loading of the cargo. However, unusually in Federal Commerce v. Tradax [18] it was recognised that the contract specifically provided that delay due to congestion was at the seller’s expense so the decision in The Osterberk [19] served to reflect the normal term that extensions in time are to be at the buyer’s expense.

At the same time, however, according to the decision in Gill & Duffus v. Societe des Sucres [20] where no time stipulations are given specifically in the contract, sufficient notice of arrival is required so as to allow the seller to arrange for goods to reach the port in time for their shipment. To this effect, Napier v. Dexters [21] goes on to add that a failure to provide sufficient notice to the seller allows them to repudiate the particular sales contract and, even where the seller waives the breach, the seller’s duty is only to load as much as is possible in the time available – although where there is sufficient time left to re-nominate a vessel then short notice will not necessarily constitute a breach [22] so long as the vessel arrives within that time. [23] However, regardless of whether there is a need for a substitute vessel to be nominated, the decision in Yello v. Machado [24] serves to provide authority for the statement that a shipper needs to complete loading within a specified time or the buyer can repudiate the contract unless it is them that are at fault. Such an understanding was then confirmed in Tradax Export v. Italgrani F.A. [25] where it was confirmed that if the seller fails to promptly deliver so it is a frustrating delay in loading the buyer can withdraw the vessel or its nomination and claim demurrage. This position was then only further emphasised in Wertheim v. Chicoutimi Pulp [26] where the court recognised if it is evident the seller is not going to deliver there is an anticipatory breach and the buyer is relieved of his duty to nominate a vessel but this position has been somewhat complicated where it is the seller’s option to nominate the loading date because they could be found to be in breach of an innominate term. [27]

To conclude, it is clear the courts would generally seem to have accepted Lord Cairns’ view as part of his judgement in Bowes v. Shand [28] that “Merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance”. [29] However, whilst the decisions in cases like Bowes v. Shand [30] specifically would seem to imply that courts attitude to the implementation of time stipulations can be quite strict even where the goods involved in an international sale of goods contract are delivered early, the reality is that there are still some exceptions in place to the general rules exercised in this regard. Therefore, although time stipulations are important for the purpose of clarifying matters with regards to relations between a buyer and a seller, extensions can an will be granted. Nevertheless, even where extensions are granted between the parties, the parties involved must still look to fulfil certain criteria otherwise liability could arise for a breach of terms of the contract in place between the parties meaning that a means of redress will then have to be provided for. Therefore, it would seem that terms of international sale of goods contracts have specific value and importance not only to the parties involved but also the courts as a means of ascertaining the scope of their relations and providing for redress as and where necessary in the circumstances of a given case.

2.

In seeking to advise Martin as to the legal position of Clothesline plc in relation to the contracts with Teeprint plc and Lee & Lee, on 10th June 2010, the goods were examined by Teeprint plc and it was found all of the teeshirts that formed part of the contract were large. Moreover, some of the boxes only contained 30 teeshirts with the result only 600 teeshirts had been supplied instead of the 900 teeshirts that were meant to be supplied as 300 small, 300 medium, and 300 large that were to be placed in boxes of 50. Additionally, upon further examination it was found that a number of the teeshirts were of inferior quality in that they were very thin and unsuitable for printing. Therefore, Teeprint plc refused to pay for the teeshirts because they did not accord with the sample provided so as to fall under section 15 of the Sale of Goods Act (SGA) 1979. In advising Martin, the reason for this is that where goods are bought in bulk and a buyer like Teeprint plc has tested or examined a small number of them, the seller is obliged to make sure every item that follows in the bulk corresponds with the quality of the sample. However, Martin needs to be advised it is not enough that a sample is used because it needs to have been the intention of the parties for there to be a sale by sample. For example, in Gardiner v. Grat [31] where 12 bags of waste silk were sold to the plaintiff after his agent had inspected a sample it was held by the court here that this was not a sale by sample because it was not produced as a warranty that the bulk was to correspond with it, but to allow the purchaser to form a reasonable judgment of the commodity so there is some debate here.

With a view to clarifying matters for advising Martin with regards to Teeprint plc’s claim, the classic description of a sale by sample was put forward by Lord Macnaghten in Drummond v. Van Ingen [32] when he said a sample is meant “to present to the eye the real meaning and intention of the parties with regard to the subject matter of the contract which, owing to the imperfections of language, it may be difficult or impossible to express in words”. [33] At the same time, however, it was also recognised “it cannot be treated as saying more than such a sample would tell a merchant of the class to which the buyer belongs, using due care and diligence, and appealing to it in the ordinary way and with the knowledge possessed by merchants of that class at the time”. [34] On this basis, Martin needs to be advised that, where the sale of ths teeshirts is recognised as a sale by sameple, the bulk must correspond with the sample. However, that does not mean the bulk has to be exactly the same. Additionally, where, according to normal trade usage, the sample is merely meant for visual examination, the buyer cannot complain the bulk does not correspond with it so long as, on a normal visual examination, it would appear to correspond. Fo example, in Steels & Busks v. Bleecker Bik & Co [35] B contracted to buy 5 tons of pale crepe rubber ‘quality as previously delivered’ and the court construed this as a sale by sample, the ‘sample’ being the rubber delivered under previous contracts. However, unlike the rubber in earlier deliveries, it turned out to contain an invisible preservative which stained the fabric of the corsets it was used in. Nevertheless, it was held there had been no breach of section 15(2) of the SGA 1979 since the rubber was considered to be in accordance with the sample on any visual test because quality is determined by a visual inspection of samples extending to colour, texture, and the possibility of specks of sand, cotton, and deterioration – although this is still dependent upon what is contemplated by the parties.

At the same time, however, there is also a need to consider sale by description under section 13(1) of the SGA 1979 in advising Martin with regards to Lee & Lee’s conduct. The reason for this is that where there is a contract for the sale of goods by description, there is an implied term the goods correspond with that. However, under section 13(2) if the sale is by sample, as well as by description, it is not sufficient for the bulk to correspond with the sample if the goods do not also correspond with the description. With this in mind, it is first necessary to consider whether the term forms part of the contract or is a mere representation [36] and if so which words form part of the description because, for example, in Harlingdon & Leinster Enterprises Ltd v. Christopher Hull Fine Art Ltd [37] it was held the sale of a painting as a ‘Gabriele Munter’ was not a sale by description. Therefore, for a sale to be by description, it had to be influential in the sale to become an essential term or condition of the contract because the absence of reliance on the part of a buyer like Clothesline plc or Teeprint plc was a significant factor. However, even if it is a sale by description, that does not mean all words used fall automatically within that description to form part of the section 13 condition under the SGA 1979. For example, in Re Moore & Co Ltd v. Landauer & Co Ltd [38] the buyers agreed to buy 3,000 tins of Australian canned fruit packed in cases of 30 tins, but when the goods were delivered it was found half the cases contained only 24 tins – although the correct total was delivered. Interestingly, however, whilst the arbitrator found there was no difference in value, the Court of Appeal in this case held there was still an entitlement to reject the goods because of a breach of section 13. This decision was then criticised by the House of Lords in the case of Reardon Smith v. Hansen Tangen [39] because they argued it would be better if section 13 of the SGA 1979 were confined to descriptive words that constitute “words of identification”.

Martin will also need to be advised in relation to the matter of ‘satisfactory quality’ under section 14 of the SGA 1979 because this is a claim that Teeprint plc is likely to make against Clothesline plc on the basis of what has been said and so equally a similar claim in this regard could be made by Clothesline plc against Lee & Lee. This is because, under English law, the issue of damages within sale of goods contracts are dealt with under the SGA 1979 because the Act established standards for trading with its implied terms regarding ‘satisfactory quality’ and fitness for purpose regarding both business-to-consumer and business-to-business contracts. [40] However, whilst, in view of the changes made under the Sale of Goods Act (SGA) 1995, the standard covering issues such as freedom from minor defects and durability seems to have become quite high, this may prove a misnomer in advising Martin as to the legal position of Clothesline plc. [41] Problems may also arise where goods are used for a variety of purposes and the goods supplied were fit for some of these purposes but not for others (e.g. the shirts in this case may have been fit to wear even if they could not be printed on). For example, in Aswan Engineering Establishment Co v. Lupdine Ltd [42] the plaintiff bought waterproofing compound in plastic bales for export to Kuwait from the first defendant who had purchased them from the second defendant. When they were unloaded they were stacked in the sun for some days which caused some to collapse so that the plaintiff then claimed against the first defendant who then sued the second defendant. However, as far as liability under section 14(2) of the SGA 197, the pails were perfectly fit for most of the purposes for which such pails were used so they were held to be of ‘merchantable quality’. On this basis, it would seem that Martin needs to be advised that action could be taken against Clothesline plc by Teeprint plc and this would then seem to provide scope for Clothesline plc to look to take action against Lee & Lee.

The reason for this is then only further supported by the fact that section 14(3) of the SGA 1979 provides for the recognition of an implied term that goods are fit for a particular purpose (i.e. in this case the shirts were meant for printing on). This is because, in consumer sales in particular, the courts lean heavily in favour of the buyer in this regard. [43] On this basis, partial reliance is enough. For example, in Cammell Laird & Co Ltd v. Manganese Bronze & Brass Co Ltd [44] the defendants agreed to construct two propellers for two ships for the plaintiff to be made according to certain specifications of the plaintiffs and, as a result, one of the propellers proved to be useless owing to defects in matters not established in the specifications. Nevertheless, it was held “there was a substantial area outside the specification which was not covered by its directions and was therefore necessarily left to the skill and judgment of the seller”. Therefore, to recognise Clothesline plc and Teleprint plc’s rights of redress, Martin needs to be advised a breach of contract arises out of a recognised failure or refusal by one of the parties to a contract to fulfil obligations imposed under that contract. A sale of goods contract will be discharged where a breach has been found to lead to the innocent party treating it as having been rescinded and, where it has been found to have deprived one of the parties of the whole benefit with undertakings still to be performed, a claim in damages will accrue. [45] English law generally seeks to differentiate between consumer and business sale of goods contracts in dealing with breaches of contract where they arise. This is because the notion of a private purchaser is almost entirely dependent upon whether they are ‘carrying on a business’ within the context of the Unfair Contract Terms Act 1977 [46] and the SGA 1979 [47] . However, whilst it was argued in GE Capital Bank Ltd v. Rushton & Jenking [48] ‘business’ implies the existence of a continuing commercial state of affairs, [49] in Davies v. Sumner [50] Lord Keith of Kinkel’s recognised “the need for some degree of regularity does not (hold) that a one-off adventure in the nature of trade … would not fall within section 1(1) [of the Trade Descriptions Act 1968]”.

To conclude, where any damage is found to the goods in this case, Martin needs to be advised it is incumbent upon the seller [51] to repair or replace the goods within a reasonable time [52] without causing any significant inconvenience to the buyer including costs so that they would be looking at Lee & Lee to act in this regard so that Clotheline plc will then know how to act in relation to any claim made by Teeprint plc. [53] However, Martin also needs to be advised that where the buyer requires the seller to repair or replace the goods under the SGA 1979 at section 48A(2) (added by the SGA 1995), the buyer must not reject the goods and terminate the contract for breach of condition until they have given the seller a reasonable time to repair or replace the goods before they can then be awarded damages. [54] Then, Martin also needs to know if they (i.e. Clothesline plc and/or Lee & Lee) fail to have the goods repaired or replaced within a reasonable time and without any significant inconvenience to the buyer [55] , they may (subject to the remedy being possible and proportionate [56] ) require the seller to reduce the purchase price [57] , or to rescind [58] the contract regarding the goods. [59]