Sale Contracts. Three types of FOB contract. Last updated 12-Aug-2014

The fob contract has become a flexible instrument. In what counsel called the classic type as described, for example, in Wimble, Sons & Co v Rosenberg & Sons [1913] 2 KB 743, the buyer’s duty is to nominate the ship and the seller’s to put the goods on board for account of the buyer and procure a bill of lading in terms usual in the trade. In such a case the seller is directly a party to the contract of carriage, at least until he takes out the bill of lading in the buyer’s name. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least of which she is notified. Under present conditions, when space often has to be booked well in advance, the contract of carriage comes into existence at an earlier point of time. Sometimes the seller is asked to make the necessary arrangements, and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer, as in a cif contract. Sometimes the buyer engages his own forwarding agent at the port of loading to book space and to procure the bill of lading; if freight has to be paid in advance this method may be the most convenient. In such a case the seller discharges his duty by putting the goods on board, getting the mate’s receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. The present case belongs to this third type; and it is only in this type, I think, that any doubt can arise about the buyer being a party to the contract.
Per Devlin J in Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 All ER 158 at 167.

There are three types of fob contract:

1. "classic or strict" fob,
2. fob "with additional services" and
3. "simple" fob.

These variations reflect different form legal point of view options, when in case of simple fob the buyer enters into contract of carriage and acquire the right to sue the carrier under this contract. In case of classic fob and fob with additional services, the buyer only becomes party to any contract of carriage and is able to sue on it when the bills of lading were endorsed to him and the only contract of which he could avail himself is that contained in or evidenced by the bill of lading.

Such flexibility allows contracting parties to use fob contract as "skeleton" set of terms for any further amendment as better fits their requirements.

Donaldson LJ in The El Amria and El Minia [1982] 2 Lloyd’s Rep. 28 referring with approval to classification of fob contracts provided by Devlin J In Pyrene & Co. v Scindia Navigation Co.[1954] 2 Q.B. 402, said at p.32:

In the first, or classic type, the buyer nominates the ship and the seller puts the goods on board for account of the buyer, procuring a bill of lading. The seller is then a party to the contract of carriage and if he has taken the bill of lading to his order, the only contract of carriage to which the buyer can become a party is that contained in or evidence by the bill of lading which is endorsed to him by the seller. The second is a variant of the first, in that the seller arranges for the ship to come on the berth, but the legal incidents are the same. The third is where the seller puts the goods on board, takes a mate’s receipt and gives this to the buyer or his agent who then takes a bill of lading. In this latter type the buyer is a party to the contract of carriage ab initio.

Classic type of fob contract where provision of the ship was the duty of the buyer was considered in Scandinavian Trading Co. A/B v Zodiac Petroleum S.A. and William Hudson Ltd., (The Al Hofuf) [1981] 1 Lloyd’s Rep. 81. It was varied by the custom of the oil trade to the extent that the buyer must give, in succession, notices of expected time of arrival of the vessel at the refinery or lifting port in question, 72, 48 and 24 hours in advance of the anticipated date of arrival.

The second type of fob contract differs from the classic fob in several respects. First, the seller nominates the ship and makes the carriage contract in his own name - as principal, secondly, the seller and not the buyer arranges the insurance. See as example of this type of fob contract considered in The El Amria and El Minia [1982] 2 Lloyd’s Rep. 28

Under the third type of fob the buyer or his agent nominates and charters the ship, in other words, enters into contract of carriage with the shipowner. The seller loads the goods on board, collects mate’s receipts from the vessel and gives them to the buyer or his agent, who obtains a bill of lading from the master in exchange for it. In this case the buyer and not the seller is the party to the contract of carriage, see example of such fob in President of India v Metcalfe Shipping Line [1970] 1 QB 289.

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