Sale Contracts. Right to Sue. Contracts of Carriage as a Part of International Sale Transactions. 12-Aug-2014
Under FOB contracts

Under both c.i.f. and f.o.b. form of sale contracts one party has to conclude a contract of carriage for sea transportation of the goods to destination. With a cif contract this party is generally the seller, with a fob contract this party is generally the buyer. Under sale contract between the seller and the buyer, unless stated otherwise, risk passes when the goods cross ship’s rail but possession passes only on delivery of the goods to the buyer. It follows that generally f.o.b. buyer will have a right to sue the carrier under the charterparty contract.

Relationships between the parties and corresponding contracts, both express and implied, which emerge as a result of ordinary international sale contract transaction were examined in President of India v Metcalfe Shipping Co [1970] 1 QB 289. Lord Denning M.R. distinguished four contracts:

 • the contract of sale between the seller and the buyer

 • the charterparty contract between the shipper (the seller in that case) and the shipowners

 • the bill of lading contract between the shipowners and the shipper, signed by the master on completion of loading

 • the indorsement and delivery of the bill of lading

First two contracts are express, third contract is implied and the last contract is statutory by operation of s2 of the Carriage of Goods by Sea Act 1992.

When the charterers are buyers as in President of India v Metcalfe Shipping Co [1970] 1 QB 289, they shall have both bill of lading and charterparty contracts with the carrier. How these two contracts interrelate with each other was defined by Lord Denning M.R:

It seems to me that whenever an issue arises between the charterer and the shipowner, prima facie their relations are governed by the charterparty. The charterparty is not merely a contract for the hire of the use of a ship. It is a contract by which the shipowners agree to carry goods and to deliver them. If the shipowners fail to carry the goods safely, that is a breach of the contract contained in the charterparty; and the charterers can claim for the breach accordingly, unless that contract has been modified or varied by some subsequent agreement between the parties. The signature by the master of a bill of lading is not a modification or variation of it. The master has no authority to modify or vary it. His authority is only to sign bills of lading "without prejudice to the terms of the charterparty".

This analysis agrees with earlier decision of the House of Lords in Love and Stewart Ltd. v Rowtor Steamship Co. Ltd. [1916] 2 A.C. 527. Lord Sumner himself, giving the only judgment, made it clear that the position was governed by the charterparty and not by the bill of lading, he said, at p.540:

Furthermore, in presenting the bill of lading the defenders [charterers] merely did what they must needs do in order to get delivery of their cargo. They received it from Grankull [seller] under the contract of sale as the symbol of the delivery of goods while afloat. Nothing had occurred by which any contract for the carriage of the goods arose between them and the shipowners other than the charter itself. No new bargain had been made, under which the pursuers [shipowners] carried for the defenders [charterers] under a bill of lading instead of a charter. The freight earned was chartered freight and the bill of lading in the defenders’ [charterers] hands was only the ship’s receipt for the goods. This is the ordinary effect of documents such as these under such circumstances, and the cases cited do not bear upon them.

Nowadays bill of lading usually incorporates clause by which its terms expressly governed by provisions of superseding charterparty.

Under CIF Contracts

Generally, same four main contracts exist also when goods are sold on c.i.f. terms. In cases when c.i.f. seller directly employs the shipowner, risk passes on loading but property and possession pass when the bill of lading is transferred in exchange for the price.

…it is perfectly true, generally speaking, without regard to any special circumstances which may arise, that the delivery by the consignor to the carrier is a delivery to the consignee, and that the risk is the risk of the consignee.

Without nexus between the consignee buyer and the shipowner it will leave the former without recourse if the goods are lost or damaged on the voyage because:

i) under the doctrine of privity of contract only the parties to a contract may sue on it and

ii) damages for breach of contract are assessed by relation only to the loss suffered by a party to that contract

Obviously, the consignee shall need some means of recovering the loss from the carrier when it occurred while the goods were in his custody. Such a nexus had been created by virtue of s 1 of the Bills of Lading Act, 1855:

…every indorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or indorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself…

later amended by the Carriage of Goods by Sea Act 1992:

§ 2 Rights under shipping documents.
(1) Subject to the following provisions of this section, a person who becomes —
(a) the lawful holder of a bill of lading;
(b) the person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order, shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.

For statutory transfer of rights no property link anymore required. It is therefore sufficient for the claimant to establish that he is the 'lawful holder' of the bill of lading at the time it commences suit.

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