University of East Anglia

Norwich Law School

LAW- M602

INTERNATIONAL SALES LAW II

PG COURSEWORK 2009-2010

STUDENT REGISTRATION NUMBER [4230531]

Word count 4000

Table of Contents

1. Introduction

2. Demurrage Claim

2.1. Arrived Vessel

2.2. Commencement of Lay Time

3. Cargo Claim

3.1. The Governing Contract.

3.2. The Carrier Default

3.3. The Effect of Relieving Clause

4. C.I.F. (Cost, Insurance and Freight)

4.1. Sale of Goods by Description

4.2. The Seller Duties under CIF Contract

4.3. The Types of Remedy Available

5. Marine Insurance

5.1. Material Misrepresentation

6. Conclusion

7. Bibliography

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1. Introduction

It is generally agreed that English law still occupies a prominent place in International

Commercial Law. This position is evident in considerable number of the international

trade contracts that refer to English law as an applicable law or as a resolution of

disputes. English law regarding to goods carried by sea and maritime insurance has

also the same momentum. It is important to note that the UK has ratified The Hague

Vispy convention which is related to carriage of goods by sea. Thus, these rules have

become a part of English law.

The aim of this essay is to examine the most important of the legal issues arisen in the

question problem provided. In doing so, first, this essay will address the possible

demurrage and cargo claim. Then, it will consider whether the CIF contract has been

breached by Cream or not. After that, it will advise the insurers in respect of the

possibility of avoiding the insurance policy. This advice will base on that English law

is the applicable law and all the involved contracts are subject to English jurisdiction.

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2. Demurrage Claim

It is a fact of life that goods carried by sea are prone to delay whether before and

during loading or after arrival. Generally speaking, where there is a delay beyond

agreed upon time for the loading or discharge of a ship (known as a lay time or day

time), demurrage charges is likely to be incurred.1 The term ‘demurrage’ can be

defined in this context as “a payment provided by contract or by law for the use of

the charterer of a ship, of time beyond that which is conceived to be absolutely

necessary for loading or discharging a ship or for the performance of certain functions

relating hereto” .2

In the respect of possible demurrage in our case, the main issue here is whether the

Orange as a carrier has the right to demurrage claim depending on the fact that lay

days have been exceeded. To provide a comprehensive answer to this question, two

subissues must be examined with regard to is the vessel arrived? And if so was there

an exceeding in the lay days.

2.1. Arrived Vessel

First, whether the Star Sea is considered legally as an arrived ship when it reached the

port on 26 January or not.

The geographical confines of the port were not considered to be important until Lord

Reid in EL Oldendorff & Co GmbH v Tradax Export SA3 laid down a proposed test to

determine when a vessel can become an arrived ship under a port charterparty. This

test can be summed up as following: first, the vessel must be within the geographic

confines and administrative limits of the port. Second, she must be anchored, within

the port, at a position that enables it to proceed immediately and effectively to a berth

once she informed that one is available. Third, if the vessel was at a place where ships

are usually lie, then is presumed that she has arrived and at the disposal of the

charterer unless the charterer proven otherwise.

1 Paul W. Stewart and Christine H. Scheinberg, ‘Time and Demurrage’ (2002) 29 Transp. L.J. 235 2 Tiberg Hugo, The Law of Demurrage (4th edn Sweet & Maxwell, 1995) Ch. 13 EL Oldendorff & Co GmbH v Tradax Export SA [1974] AC 479

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It would appear that, in our scenario, the charterparty between Orange and Cream was

a port charterparty as the former was spouse to deliver the goods to the port of

Liverpool and no berth was identified. Hence, this test can be applied.

However, it could be argued that the Stare Sea was not anchored actually within the

boundaries of the port since the port authorities ordered it to stay 11 miles outside port

limits. Even if we accept this argument, the fact that the Star Sea was anchored at a

spot customarily used as a waiting place cannot be negated especially the charterer did

not prove otherwise. Therefore, she is likely to be held as an arrived ship.

2.2. Commencement of Lay Time

In order to examine whether the lay time in this case has been exceeded, we shall first

address when did the lay time start?

In fact, there are two requirements that have to be met in order to define the point of

time at which laytime will commence to run. Theses requirement, which are derived

from Transgrain Shipping BV v Global Transporte Oceanico 4, can be summarised as

following: First, the vessel has become an arrived ship. Second, a valid Notice of

Readiness (NOR) has been provided in accordance with the terms of the charterparty.

Such notice, in theory, issued by the master of the vessel to the charterer informing

him that ship has arrived and ready to be load or discharge. In order to be valid and

effective under English law, NOR must be given when the vessel is actually arrived

and ready to load or unload. Consequently, any premature or anticipated NOR is

invalid as the court held that in Glencore Grain Ltd v Flacker Shipping Ltd5.

As the master of the vessel, in our scenario, gave NOR once the ship received the

order to wait at the regular whiting place for a berth on the 26 January, and as the

vessel is high likely to be held as an arrived ship at the time the notice was issued.

Therefore, this notice is likely to regard as an effective and valid.

4 Transgrain Shipping BV v Global Transporte Oceanico SA (The Mexico 1) [1990] 1 Lloyd's Rep. 5075 Glencore Grain Ltd v Flacker Shipping Ltd (The Happy Day)[2002] 2 Lloyd's Rep. 487

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Also, what may support this conclusion that NOR was apparently accepted without

qualification or any things indicate the opposite by the charterer at that time. And

according to conclusion that held by the court in Sofial SA v Ove Skou Rederi6 which

provided that the charterer has no right to reject NOR once he accepted it unless it

was issued on the ground of fraud. Therefore, NOR in this case are likely to be

effective on that basis. Thus the lay times may be commenced on the same day that it

was issued (January 26).

From tow subissues examined above we can conclude that it seems probable that

Orange will succeed in its claim relaying upon the facts that the ship has arrived and

the commencement of lay time has been identified on January 26. As the cargo was

fully discharge on February 5 and as the agreed lay time was 6 days, the total of

exceeded days is four, thus the amount of the possible demurrage charges will be

£60,000 based on 15,000 for each day.

6 Sofial SA v Ove Skou Rederi [1976] 2 Lloyd's Rep. 205 QBD

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3. Cargo Claim

Under English law cargo claims are generally governed by either the terms contained

in the charterparty or by those involved in the bill of lading. Also, a number of related

laws can be engaged. In order to consider whether Drab has the right to claim against

Cream for loss and damages of some of the excavators received, first we should

identify the contract that governs the issue. Then, we should examine whether the

carrier has failed in satisfying its legal obligations under this contract. And if so, has

he relieved from liability for loss or damage to goods as he had provided that in BOL?

After that, we shall clarify how cargo claims take place in this scenario.

3.1. The Governing Contract

First subissue is, whether the cargo claims in this case is governed by charterparty or

by the bill of lading?

The key area that this question is concerned with is the differences between the bill of

lading (BOL) and charterparty. In fact, both embody a contract of carriage.7 However,

BOL has two more functions. First, it constitutes a receipt by the carrier for cargo

accepted for transportation and also, second, a title of document wh’en BOL is

negotiable (can be transferred by its consignee to a third party). 8 In theory, BOL

details the type, quality, and quantity of the goods being transported besides

information about the trip such as, dates of departure and arrival, names of the ports of

departure and destination, the ship name etc.

In this context, the House of Lords in Hain v Tate&Lyle9 held that, if the bill of lading

was handed by a buyer who is not a party to the charterparty, the bill of lading

governs the cargo claims.

In our scenario, Drab is not a party in the charterparty between Orange and Cream.

Also, he has actually received BOL as a buyer. Therefore, the cargo claims is high

likely to be governed by clauses and terms derived from the Bill of Lading.

7 Richard Aikens, Richard Lord and Michael Bools, Bills of lading (Informa, London 2006) 2.318 Chester B. McLaughlin, ‘The Evolution of the Ocean Bill of Lading‘ (1926) 35 Yale L. J. 555 9 Hain v Tate&Lyle [1936] 2 All E.R. 597

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3.2. The Carrier Default

Second, has the carrier default to satisfy its obligations under contract of carriage?

Art. III, (2) of The Hague Visby Rules10 (HVR) provided that "... the carrier shall

properly and carefully load, handle, stow, carry, keep, care for, and discharge the

goods carried. " This article shows that one of the carrier obligations is to be careful in

stowing and protecting each part of the cargo. In doing so, the carrier, through his

master, ought to take all available measures and precautions to care for the goods

during the voyage. Consequently, putting the goods on deck may be improper place

unless an explicit permit has been given by the charterer as the court held that in

Messers Ltd v Morrison's Export Co Ltd11.

It seems that, in our scenario, four of excavators received had been washed overboard

and some of them were rusty. The loss and damage to these excavators occurred due

to the negligence of the carrier in taking the all the available precautions to protect

them from sever whether and from being rusty. This negligence is evident in the

performance of the carrier in shipping the excavators on deck, without explicit permit,

rather in a proper place. Hence, It is high likely that the carrier default to fulfil its

obligations under contract of carriage thus he is liable to the loss and damages of

some excavators.

3.3. The Effect of Relieving Clause

Third, has Orange relieved from liability for loss or damage to goods since he had

provided that in the carriage of goods contract?

Art. III, (8), of HVR provided that any clause or provision in a contract of carriage

will not relieve the carrier from responsibility for loss or damage if such damage

occurred as result of negligence or default by the carrier.

In this case, the bill of lading has stated that Orange as a carrier “does not accept any

liability for any damage to or loss of the cargo caused by perils of the sea”. As the

10 Have been incorporated in the Carriage of Goods by Sea Act 1971,11 Messers Ltd v Morrison's Export Co Ltd [1939] 1 All ER 92,

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damage and loss of some of the excavators was arising from negligence of Orange, as

we clarified earlier. Hence, this clause is likely to be void and has no effect.

Based on the above analysis, it would appear that Drab has right to claim against

Cream for lost of four excavators and damaged of some as the BOL has clarified that

“34 excavators shipped on board, in apparent good order and condition”, whereas

only 30 excavators were received moreover some of these excavators were rusty.

Cream, in turn, is entitle to claim against Orange as a carrier according to the contract

of carriage between them, especially that the relieving clause placed by Orange is

likely to be void under English law.

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4. C.I.F. (Cost, Insurance and Freight)

CIF is a term used in shipping and transportation for one of standardized contracts

whereby the price of traded goods is included the cost of the goods, the cost of the

insurance on the goods and the fright charges to the point of destination.12 Under such

contract the risk of loss or damage to the goods during transportation is borne by the

seller.

For the purpose of advising Drabs with regard to any claim he may have against

Cream for breach of the CIF contract. First, we shell identify whether this contract is a

sale by description thus Sales of Goods Act 1979 namely article 13 can be applied.

Then, I will consider whether Cream as a seller has fully satisfied his obligations

related to the expressed or implied terms of the contract. And if not, I will classify

what types of remedy that it available for Drab.

4.1. Sale of Goods by Description

First, whether the term "sale of goods by description" can be apply to this contract of

sale between Drab and Cream?

In Varley v. Whipp13 the House of Lords held that, if the buyer has not seen the goods,

but was depending solely upon the description given by the seller, the expression

‘contract for the sale of goods by description’ in the Sale of Goods Act, 1893, s. 13

can apply.

it seems that Drab has purchased the excavators relying only on an advertisement

placed by Cream. Also, there are no indications that he saw the excavators before he

had purchased it. Hence, the term ’sale of goods by description’ can apply.

12Edward A. Craighill, ‘Sales of Goods on C.I.F. Terms’ (1920) 6 Va. L. Rev. 229 13 Varley v. Whipp, [1900] 1 Q. B. 513

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4.2. The Seller Duties under CIF Contract

In order to examine whether Cream as a seller (S) has fully satisfied his obligations

under CIF contract, we should identify first what these duties are.

In fact, Under CIF contract the seller undertakes more obligations than the buyer. The

main obligations upon the seller as following: First, the seller are required to ship the

goods, either through contract to carriage on usual term or by himself, in conformity

with the contract of sale agreed upon14. Second, the seller must obtain at his own

expenses marine insurance, on minimum coverage, against the buyer’s risk of loss of

or damage to the goods during the carriage provided that, this insurance entitled the

payer to claim directly from the insurer15. Third, the seller must tender valid and

accurate shipping documents in order to the buyer including, contract of carriage,

contract of insurance, the commercial invoice, bill of lading and any other pertain

documents.16

By applying this set of duties to the facts of our scenario, it seems probable that, on

one hand, Cream as a seller obtains, at his own expenses, proper marine insurance as

well as a contract of carriage. He had, also, tendered in order all shipping documents

to Drab as nothing indicates the opposite.

On the other hand, the Drab has ordered 40 excavators that have 12 litres engine,

depending on an advertisement placed by Cream, whereas he received excavators that

have only 10 litres as well as the colour of these excavators is different from what he

has chosen. In addition, the bill of lading tendered had been deliberately misdated as it

showed that the ship had departed on January 6 whereas the CIF contract took place

on January 10.

Hence, it would appear that Cream has failed in fulfil his obligation related to

shipping the goods which are in conformity with the contract as well as his obligation

related to tender an accurate shipping documents to the buyer (more detailed to be

given later in the context of the types of remedy available).

14 Roy Goode and Ewan McKendrick, Commercial Law (4th edn Penguin Books 2009) p 93815 Ibid. p 93916 Ibid. p 939

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4.2. The Types of Remedy Available

Based on the previous point, the issue arise here is what types of remedy that is

available for breaching the contract by Cream?

To answer this question we shall divided into two sections.

- First, breach of the contract for provision goods which is not in conformity

with the contract.

Under s.13, sub-s 1 and 1a in the Sales of Goods Act 1979, any contract for the sale of

goods by description have implied condition that the goods must match the

description. And, according to s. 15a of the same act the seller has the right to reject

the goods by reason of a breach of a term implied by section13. Also, Lord Abinger

has support this consequence in Chanter v. Hopkins17 as he provided that the buyer is

entitled to obtain what he bargained for.

In our case, as the contract between Drab and Cream was a sale by description. And

as the excavators received by Drab where not match the excavators described in the

contract with regard to the engine capacity and the colour of the excavators.

Therefore, Drab is entitled to damage under s.13 and may be able to reject the goods.

Nevertheless, it could be argued that the breach was trivial in respect of the colour of

excavators, thus according to s. 15A the buyer has no right to reject the goods when

the breach is so slight. If so, the fact that there was a serious breach in terms of the

engine capacity of the excavators is likely to be considered by the court.

- Second, breach of the contract for providing inaccurate bill of lading.

The tender of inaccurate bill of lading might constitute a breach of conditions of the

contract especially under C.I.F. as it is one of the main duties of the seller. Under

English law breach of condition entitled the innocent party to repudiate the contract

whereas breaching a warranty entitled him only to claim for damages.18

17 Chanter v. Hopkins, 1838, 4 M. & W. 39918 See Hong Kong Fir v. Kawasaki Kisen Kaisha [1962] 2 QB 26

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However, the court in United Baltic Corporation v. Burgett & Newsam19 has

interestingly held that, if the buyer had accepted the tender, even if he was unaware of

that BOL has misdated at that time, he has the right only to claim for damages.

Applying these facts to our scenario, we can assume that the bill of lading had been

deliberately misdated to show that the ship had departed on January 6. Also, it seems

probable that Drab as a buyer accepted the tender of BOL at the time when it had sent

it to him as nothing indicate the opposite. Therefore, Drab is entitled to merely claim

for damages resulting from presenting an inaccurate bill of lading but has no right to

reject the goods in this respect.

Based on the above analysis, it would appear that Cream had indeed breached the CIF

contract with Drab by provision excavators that were not in conformity with the

contract as well as tendering inaccurate shipping document namely a misdated bill of

lading. Therefore, Drab is entitled either (1) to repudiate the contract given that the

excavators received are 10 litre engine instead of 12 litre engine advertised by Cream

(contingent upon s.13 of the Sales of Goods Act 1979) or (2) to claim for damages

arising from provision goods in unconformity with the contract as well as presenting

an inaccurate bill of lading.

In this scenario, it would be advisable for Drab to sell the excavators received and

then claim against Cream for loss and damages especially he has already made a

claim against the insurers which could mean that he accepted the goods.

19 United Baltic Corporation v. Burgett & Newsam (1921) 8 Ll. L. Rep. 190, 191.

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5. Marine Insurance

Marine Insurance forms the cornerstone of the shipping industry and in shipping law.

In our scenario, Cream is liable to obtain cargo insurance as agreed in the contract.

Such insurance usually protect the buyer, or any other person having an insurable

interest in the goods, against loss or damage to cargo in transit. Also, it enables him to

claim directly from the insurer.20

It is important to note that, the marine insurance is a contract that based on the utmost

good faith. The innocent party has the right to avoid the contract if this doctrine had

not observed by other party according to s.17 from The Marine Insurance Act 1906

(MIA).21

5.1. Material Misrepresentation

The issue arises from previous section is, whether the insurers are entitled to avoid the

insurance policy for material misrepresentations?

In fact, s. 22 MIA has stated that ‘If any material representation made by the insured

(...) to the insurer during the negotiations for the contract is not true (...) the insurer

may avoid the contract’. Despite of that, the most recent cases have considered some

overvaluation as not material, in particular, when (1) there no fraud or fraudulent

documents had been provided by the insured as in Eagle Star Insurance Co Ltd v

Games Video Co22. Also, when (2) the insurer would not have taken the risk if he had

kwon the overvaluation as in biggin v. british marine mutual insurance association23.

Furthermore (3) in North Star Shipping Ltd v Sphere Drake Insurance Plc24 the court

held that, in the light of the fact that the insurer might prefer to take a higher premium

grounded on an overvaluation of the goods, the overvaluation is not necessarily a

material fact.

20 Raymond P. Hayden and Sanford E. Balick, ‘Marine Insurance: Varieties, Combinations, and Coverages’ (1991-1992) 66 Tul. L. Rev. 31121 Robert Markin, Marine insurance legislation (4th edn Loyd’s list group, London 2010) p 1822 Eagle Star Insurance Co Ltd v Games Video Co, the game boy [2004] Lloyd’s Rep IR 86723 biggin v. british marine mutual insurance association (1992) 14 CCLI (2d) (Nfld TD)24 North Star Shipping Ltd & Ors v Sphere Drake Insurance Plc & Ors [2006] EWCA Civ 378

14

By applying these exceptions to our scenario, it would appear that, no fraud had been

indicated or fraudulent documents had been provided by Cream when he informed the

insurers that each excavator had been valued at £40,000. Also, the insurers had not

proven that they were induced into the contract by this overvaluation. In addition,

there is possibility that the insurers may have accepted this overvaluation in order to

acquire a high premium from Cream.

Therefore, it is likely that insurers have no right to avoid the insurance policy

especially if the court relies upon the recent cases in this subject which implied that

some overvaluation is not material.

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6. Conclusion

This essay has briefly knocked on the most important of the legal issues arisen in the

question problem provided. To sum up, first, it seems probable that Orange will

succeed in its claim related to demurrage due to the facts that Stare Sea is likely to be

considered as arrived ship when she was anchored at a spot customarily used as a

waiting place on Jan. 26 as well as effective notice of readiness has been given on the

same days.

Second, regarding with cargo claim, it seems that Drab is entitled to claim for loss and

damage of some excavators which occurred as a result of negligence of the carrier in

taking the all the available precautions and measures to protect the goods.

Third, it would appear that Drab will succeed in its claim against Cream for breach of

the CIF contract. Given that the latter has provided excavators had only a 10 litre

engine instead of the 12 litre engine agreed upon in the contract as well as tendering

an inaccurate bill of leading in respect of the date of depart.

Finally, in respect of avoiding the insurance policy by the insurers, it is likely that the

court will not consider the overvaluation given by Cream as material

misrepresentations for many reasons, mentioned above. Consequently, it is high likely

that the insurer will have no right to avoiding the insurance policy.

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6. BIBLIOGRAPHY

Cases

Chanter v. Hopkins, 1838, 4 M. & W. 399

Eagle Star Insurance Co Ltd v Games Video Co, the game boy [2004] Lloyd’s

Rep IR 867

EL Oldendorff & Co GmbH v Tradax Export SA [1974] AC 479

Glencore Grain Ltd v Flacker Shipping Ltd [2002] 2 Lloyd's Rep. 487

Hain v Tate&Lyle [1936] 2 All E.R. 597

Hong Kong Fir v. Kawasaki Kisen Kaisha [1962] 2 QB 26Sofial SA v Ove Skou

Rederi [1976] 2 Lloyd's Rep. 205 QBD

Messers Ltd v Morrison's Export Co Ltd [1939] 1 All ER 92

North Star Shipping Ltd & Ors v Sphere Drake Insurance Plc & Ors [2006]

EWCA Civ 378

Transgrain Shipping BV v Global Transporte Oceanico SA (The Mexico 1)

[1990] 1 Lloyd's Rep. 507

Varley v. Whipp, [1900] 1 Q. B. 513

United Baltic Corporation v. Burgett & Newsam (1921) 8 Ll. L. Rep. 190, 191.

Legislation

Sales of Goods Act 1979

Marine Insurance Act 1906

The Hague-Visby Rules (amended by the Brussels Protocol 1968)

Journal Articles

Paul W. Stewart and Christine H. Scheinberg, ‘Time and Demurrage’ (2001-

2002) 29 Transp. L.J.

Chester B. McLaughlin, ‘The Evolution of the Ocean Bill of Lading‘ (1925-

1926) 35 Yale L. J.

Raymond P. Hayden and Sanford E. Balick, ‘Marine Insurance: Varieties,

Combinations, and Coverages’ (1991-1992) 66 Tul. L. Rev.

Edward A. Craighill, ‘Sales of Goods on C.I.F. Terms’ (1920) 6 Va. L. Rev.

17

Books

Tiberg Hugo, The Law of Demurrage (4th edn Sweet & Maxwell, 1995)

Richard Aikens, Richard Lord and Michael Bools, Bills of lading (Informa,

London 2006) 2.31

Robert Markin, Marine insurance legislation (4th edn Loyd’s list group,

London 2010)

John D. Falconbridge, Handbook of The Law of Sale of Goods (Canada Law

Book Company, Canada 1921)

Roy Goode and Ewan McKendrick, Commercial Law (4th edn Penguin Books

2009)

John F. Wilson, Carriage of goods by sea (5th edn Pearson Education, 2004)

Kyriaki Noussia, The principle of indemnity in marine insurance contracts

(Springer, 2007)

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