2014

LAWCOMM 406
International Sales & Finance

Part 1: International Sales

Paul Myburgh
Elsabe Schoeman

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This casebook is available only to students
enrolled in LAWCOMM 406 at The
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CONTENTS
Part 1: INTERNATIONAL SALES ...................................................................................................... 1
Sale of Goods (United Nations Convention) Act 1994..................................................................... 3
1

APPLICATION OF CISG........................................................................................................... 4
ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001) ............................... 5
RHOMBERG GMBH V OTT, SCHWEIZERISCHES BUNDESGERICHT, SWITZERLAND, 11 DECEMBER
2000 ................................................................................................................................................ 7

CONTRACT FORMATION AND INTERPRETATION .................................................................... 8

MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH11
UNITED
STATES
7
DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS]................................................................ 11
BUNDESGERICHTSHOF, VIII ZR 304/00, GERMANY, 9 JANUARY 2002 (POWDERED MILK CASE) . 14

PARTIES OBLIGATIONS....................................................................................................... 16
3.1

Parties Obligations at Common Law ............................................................................ 16

PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402 .............................................. 16

BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA) ..................................................... 18
COMPTOIR DACHAT ET DE VENTE DU BOERENBOND BELGE S/A V LUIS DE RIDDER LIMITADA
(THE JULIA) [1949] AC 293 (HL) .................................................................................................... 26
BERGER & CO INC V GILL & DUFFUS SA [1984] AC 382 (HL) ......................................................... 30
SCOTTISH & NEWCASTLE INTERNATIONAL LTD V OTHON GHALANOS LTD [2006] EWCA CIV 1750
...................................................................................................................................................... 37
PROFINDO PTE LTD V ABANI TRADING PTE LTD [2013] SGHC 10 ................................................. 48
3.2

Parties Obligations under the CISG .............................................................................. 56

BUNDESGERICHTSHOF, VIII ZR 159/94, GERMANY, 8 MARCH 1995 (NZ MUSSEL CASE) ............. 60
SMALLMON V TRANSPORT SALES LTD [2011] NZCA 340.............................................................. 66
TRIBUNALE BUSTO ARSIZIO, ITALY, 13 DECEMBER 2001 (PLASTIC BAGS CASE)........................... 81
LANDGERICHT, FRANKFURT (MAIN), GERMANY, 11 APRIL 2005 [2-26 O 264/04] (USED SHOES
CASE) ............................................................................................................................................. 82
SOCIT FRANCO-AFRICAINE DE DISTRIBUTION TEXTILE V MORE AND MORE TEXTILFABRIK
GMBH ........................................................................................................................................... 85
3.3
4

Incoterms 2010............................................................................................................ 87

PASSING OF RISK ................................................................................................................ 88

ST. PAUL GUARDIAN INSURANCE CO V89 NEUROMED MEDICAL SYSTEMS & SUPPORT, GMBH
UNITED STATES 26 MARCH 2002 FEDERAL DISTRICT COURT [NEW YORK]
...................................................................................................................................................... 89
BEDIAL SA V PAUL MUGGENBURG & CO GMBH, CMARA NACIONAL DE APELACIONES EN LO
COMERCIAL, SALA C, ARGENTINA, 31 OCTOBER 1995 ................................................................. 92
OBERLANDESGERICHT OLDENBURG, 2 U 54/98, GERMANY,92 22 SEPTEMBER 1998 (SMOKED
SALMON CASE).............................................................................................................................. 92
1

TRIBUNALE DI APPELLO DI LUGANO, SECONDA CAMERA CIVILE, 12.97.00193, SWITZERLAND, 15

JANUARY 1998 (COCOA BEANS CASE) .......................................................................................... 93
5

PASSING OF PROPERTY ....................................................................................................... 94

THE TANG HE [2000] 4 HKC 701 ................................................................................................... 94
CARLOS FEDERSPIEL & CO SA V CHARLES TWIGG & CO LTD [1957] 1 LLOYDS REP 240 ............ 100
RODER ZELT- UND HALLENKONSTRUKTIONEN GMBH V ROSEDOWN PARK PTY LTD [1995] 17
ACSR ............................................................................................................................................ 110

FRUSTRATION .................................................................................................................. 129

MALAYSIA DAIRY INDUSTRIES PTE
LTD V DAIREX HOLLAND BV, RECHTBANKSHERTOGENBOSCH, 9981 ............................................................................................................ 130
BUNDESGERICHTSHOF, VIII ZR 121/98, GERMANY, 24 MARCH 1999 (VINE WAX CASE) ........... 130
VITAL BERRY MARKETING NV V DIRA-FROST NV, RECHTBANK VAN KOOPHANDEL, HASSELT... 131

BREACH, CANCELLATION AND REMEDIES .......................................................................... 132

EGO FRUITS SARL V LA VERJA, COUR DAPPEL DE GRENOBLE, CHAMBRE COMMERCIALE,....... 139
SHUTTLE PACKAGING SYSTEMS V JACOB TSONAKIS INA SA 2001 U.S. DISTRICT COURT
(MICHIGAN) ................................................................................................................................ 140
DELCHI CARRIER SPA V ROTOREX CORP (1995) 71 F3D 1024 ..................................................... 142
DOWNS INVESTMENTS V PERWAJA STEEL [2001] QCA 433 ....................................................... 147
BUNDESGERICHTSHOF, GERMANY, VIII ZR 100/11, 26 SEPTEMBER 2012 (CLAY CASE) ............. 158

SALE OF GOODS (UNITED NATIONS CONVENTION) ACT 1994

An Act to give effect to the provisions of the United Nations Convention on Contracts for the
International Sale of Goods
BE IT ENACTED by the Parliament of New Zealand as follows:
1. Short Title and commencement (1) This Act may be cited as the Sale of Goods (United Nations
Convention) Act 1994.
(2) This Act shall come into force on a date to be appointed by the Governor-General by Order in
Council.
2. Interpretation In this Act, Convention means the United Nations Convention on Contracts for
the International Sale of Goods done at Vienna on the 11th day of April 1980, a copy of the English
text of which is set out in the Schedule to this Act.
3. Act to bind the Crown This Act shall bind the Crown.
4. Convention to have force of law The provisions of the Convention shall have the force of law in
New Zealand.
5. Convention to be a code The provisions of the Convention shall, in relation to contracts to
which it applies, have effect in place of any other law of New Zealand relating to contracts of sale of
goods to the extent
(a) That the law is concerned with any matter that is governed by the Convention; and
(b) That the application of the law is not expressly permitted by the Convention.
6. Certificates about Contracting States A certificate signed by the Secretary of Foreign Affairs and
Trade, or by a Deputy Secretary of Foreign Affairs and Trade, stating whether or not, in respect of
any specified day or period,
(a) A State is a Contracting State:
(b) A declaration made under the Convention is effective in
respect of a State and, if so, the contents of any such declaration
shall be conclusive evidence for all purposes of the matters stated in the certificate.

SCHEDULE: UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF

GOODS
The States Parties to this Convention
Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the
General Assembly of the United Nations on the establishment of a New International Economic
Order,
Considering that the development of international trade on the basis of equality and mutual benefit
is an important element in promoting friendly relations among States,

Being of the opinion that the adoption of uniform rules which govern contracts for the international
sale of goods and take into account the different social, economic and legal systems would
contribute to the removal of legal barriers in international trade and promote the development of
international trade,
Have agreed as follows:

APPLICATION OF CISG

PART I. SPHERE OF APPLICATION AND GENERAL PROVISIONS

CHAPTER I. SPHERE OF APPLICATION
Article 1
(1) This Convention applies to contracts of sale of goods between parties whose places of business
are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting
State.
(2) The fact that the parties have their places of business in different States is to be disregarded
whenever this fact does not appear either from the contract or from any dealings between, or from
information disclosed by, the parties at any time before or at the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the
contract is to be taken into consideration in determining the application of this Convention.
Article 2
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the seller, at any time before or at
the conclusion of the contract, neither knew nor ought to have known that the goods were bought
for any such use;
(b) by auction;
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities, negotiable instruments or money;
(e) of ships, vessels, hovercraft or aircraft;
(f) of electricity.
Article 3
(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales
unless the party who orders the goods undertakes to supply a substantial part of the materials
necessary for such manufacture or production.
(2) This Convention does not apply to contracts in which the preponderant part of the obligations of
the party who furnishes the goods consists in the supply of labour or other services.
Article 4
This Convention governs only the formation of the contract of sale and the rights and obligations of
the seller and the buyer arising from such a contract. In particular, except as otherwise expressly
provided in this Convention, it is not concerned with:
(a) the validity of the contract or of any of its provisions or of any usage;
4

(b) the effect which the contract may have on the property in the goods sold.
Article 5
This Convention does not apply to the liability of the seller for death or personal injury caused by the
goods to any person.
Article 6
The parties may exclude the application of this Convention or, subject to article 12, derogate from or
vary the effect of any of its provisions.

ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001)

JAMES WARE, United States District Judge: The Complaint in this action alleges claims based in tort
and contract. Plaintiff contends that Defendant failed to provide it with electronic components
meeting certain designated technical specifications.
Plaintiff is a Delaware corporation having its primary place of business in Santa Clara County,
California. Plaintiff produces network switchers, a type of electronic component used to connect
multiple computers to one another and to the Internet. Plaintiff purchases component parts from a
number of manufacturers. In particular, Plaintiff purchases application-specific integrated circuits
(ASICs), which are considered the control center of its network switchers, from Defendant.
Defendant is also a Delaware corporation. Defendant asserts that, at all relevant times, its
corporate headquarters, inside sales and marketing office, public relations department, principal
warehouse, and most design and engineering functions were located in Burnaby, British Columbia,
Canada. Defendant also maintains an office in Portland, Oregon, where many of its engineers are
based. Defendants products are sold in California through Unique Technologies, which is an
authorized distributor of Defendants products in North America. It is undisputed that Defendant
directed Plaintiff to purchase Defendants products through Unique, and that Defendant honored
purchase orders solicited by Unique. Unique is located in California. Determining Defendants place
of business with respect to its contract with Plaintiff is critical to the question of whether the Court
has jurisdiction in this case.
Plaintiffs Complaint focuses on five purchase orders. Four of the five purchase orders were
submitted to Defendant through Unique as directed by Defendant. However, Plaintiff does not
dispute that one of the purchase orders, dated January 28, 2000, was sent by fax directly to
Defendant in British Columbia, and that Defendant processed the order in British Columbia.
Defendant shipped all orders to Plaintiffs headquarters in California. Upon delivery of the goods,
Unique sent invoices to Plaintiff, at which time Plaintiff tendered payment to Unique either in
California or in Nevada.
The Parties do not identify any single contract embodying the agreement pertaining to the
sale. Instead, Plaintiff asserts that acceptance of each of its purchase orders was expressly
conditioned upon acceptance by Defendant of Plaintiffs Terms and Conditions, which were
included with each Purchase Order. Paragraph 20 of Plaintiffs Terms and Conditions provides
APPLICABLE LAW. The validity [and] performance of this [purchase] order shall be governed by the
laws of the state shown on Buyers address on this order. The buyers address as shown on each of
the Purchase Orders is in San Jose, California. Alternatively, Defendant suggests that the terms of
shipment are governed by a document entitled PMC-Sierra TERMS AND CONDITIONS OF SALE.
Paragraph 19 of Defendants Terms and conditions provides APPLICABLE LAW: The contract
between the parties is made, governed by, and shall be construed in accordance with the laws of the
5

Province of British Columbia and the laws of Canada applicable therein, which shall be deemed to be
the proper law hereof . . . .
The Convention on Contracts for the International Sale of Goods (CISG) is an international
treaty which has been signed and ratified by the United States and Canada, among other countries.
The CISG was adopted for the purpose of establishing substantive provisions of law to govern the
formation of international sales contracts and the rights and obligations of the buyer and the seller.
U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods:
Official English Text, 15 U.S.C. App. at 52 (1997). The CISG applies to contracts of sale of goods
between parties whose places of business are in different States . . . when the States are Contracting
States. 15 U.S.C. App., Art. 1 (1)(a). Article 10 of the CISG provides that if a party has more than one
place of business, the place of business is that which has the closest relationship to the contract and
its performance. 15 U.S.C. App. Art. 10.
The CISG only applies when a contract is between parties whose places of business are in
different States. 15 U.S.C. App., Art. 1 (1)(a). If this requirement is not satisfied, Defendant cannot
claim jurisdiction under the CISG. It is undisputed that Plaintiffs place of business is Santa Clara
County, California, U.S.A. It is further undisputed that during the relevant time period, Defendants
corporate headquarters, inside sales and marketing office, public relations department, principal
warehouse, and most of its design and engineering functions were located in Burnaby, British
Columbia, Canada. However, Plaintiff contends that, pursuant to Article 10 of the CISG, Defendants
place of business having the closest relationship to the contract at issue is the United States.
Plaintiff asserts that Unique acted in the United States as an agent of Defendant, and that Plaintiffs
contacts with Unique establish Defendants place of business in the U.S. for the purposes of this
contract.
Plaintiff has failed to persuade the Court that Unique acted as the agent of Defendant.
Plaintiff provides no legal support for this proposition. To the contrary, a distributor of goods for
resale is normally not treated as an agent of the manufacturer. Restatement of the Law of Agency, 2d
14J (1957) (One who receives goods from another for resale to a third person is not thereby the
others agent in the transaction.); Stansifer v. Chrysler Motors Corp., 487 F.2d 59, 64-65 (9th Cir.
1973) (holding that nonexclusive distributor was not agent of manufacturer where distributorship
agreement expressly stated distributor is not an agent). Agency results from the manifestation of
consent by one person to another that the other shall act on his behalf and subject to his control,
and consent by the other so to act. Restatement of the Law of Agency, 2d, 1 (1957). Plaintiff has
produced no evidence of consent by Defendant to be bound by the acts of Unique. To the contrary,
Defendant cites the distributorship agreement with Unique, which expressly states that the contract
does not allow Distributor to create or assume any obligation on behalf of [Defendant] for any
purpose whatsoever. Furthermore, while Unique may distribute Defendants products, Plaintiff
does not allege that Unique made any representations regarding technical specifications on behalf of
Defendant. Indeed, Unique is not even mentioned in the Complaint. To the extent that
representations were made regarding the technical specifications of the ASICs, and those
specifications were not satisfied by the delivered goods, the relevant agreement is that between
Plaintiff and Defendant. Accordingly, the Court finds that Unique is not an agent of Defendant in this
dispute. Plaintiffs dealings with Unique do not establish Defendants place of business in the United
States.
Plaintiffs claims concern breaches of representations made by Defendant from Canada.
Moreover, the products in question are manufactured in Canada, and Plaintiff knew that Defendant
was Canadian, having sent one purchase order directly to Defendant in Canada by fax. Plaintiff
supports its position with the declaration of Anthony Contos, Plaintiffs Vice President of Finance and
Administration, who states that Plaintiffs primary contact with Defendant during the development
and engineering of the ASICs at issue . . . was with [Defendants] facilities in Portland, Oregon. The
Court concludes that these contacts are not sufficient to override the fact that most if not all of
Defendants alleged representations regarding the technical specifications of the products emanated
6

from Canada. Moreover, Plaintiff directly corresponded with Defendant at Defendants Canadian
address. Plaintiff relies on all of these alleged representations at length in its Complaint. In contrast,
Plaintiff has not identified any specific representation or correspondence emanating from
Defendants Oregon branch. For these reasons, the Court finds that Defendants place of business
that has the closest relationship to the contract and its performance is British Columbia, Canada.
Consequently, the contract at issue in this litigation is between parties from two different
Contracting States, Canada and the United States. This contract therefore implicates the CISG.
Plaintiff next argues that, even if the Parties are from two nations that have adopted the
CISG, the choice of law provisions in the Terms and Conditions set forth by both Parties reflect the
Parties intent to opt out of application of the treaty. Article 6 of the CISG provides that the
parties may exclude the application of the Convention or, subject to Article 12, derogate from or vary
the effect of any of its provisions. 15 U.S.C. App., Art. 6. Defendant asserts that merely choosing the
law of a jurisdiction is insufficient to opt out of the CISG, absent express exclusion of the CISG. The
Court finds that the particular choice of law provisions in the Terms and Conditions of both parties
are inadequate to effectuate an opt out of the CISG.
Although selection of a particular choice of law, such as the California Commercial Code or
the Uniform Commercial Code could amount to implied exclusion of the CISG, the choice of law
clauses at issue here do not evince a clear intent to opt out of the CISG. For example, Defendants
choice of applicable law adopts the law of British Columbia, and it is undisputed that the CISG is the
law of British Columbia. (International Sale of Goods Act ch. 236, 1996 S.B.C. 1 et seq. (B.C.).)
Furthermore, even Plaintiffs choice of applicable law generally adopts the laws of the State of
California, and California is bound by the Supremacy Clause to the treaties of the United States. U.S.
Const. art. VI, cl. 2 (This Constitution, and the laws of the United States which shall be made in
pursuance thereof; and all treaties made, or which shall be made, under the authority of the United
States, shall be the supreme law of the land.) Thus, under general California law, the CISG is
applicable to contracts where the contracting parties are from different countries that have adopted
the CISG. In the absence of clear language indicating that both contracting parties intended to opt
out of the CISG, and in view of Defendants Terms and Conditions which would apply the CISG, the
Court rejects Plaintiffs contention that the choice of law provisions preclude the applicability of the
CISG.
For the foregoing reasons, Plaintiffs Motion to Remand is DENIED. Accordingly, the
Request for Attorneys Fees is also DENIED.

RHOMBERG GMBH V OTT, SCHWEIZERISCHES BUNDESGERICHT, SWITZERLAND, 11 DECEMBER 2000

A Swiss couple consulted an Austrian kitchen manufacturing company in order to buy a fitted kitchen
of a specific brand. Although the seller was aware of the fact the buyers were only interested in a
kitchen of that specific brand, it delivered a fitted kitchen manufactured by its own firm. A dispute
arose when, a few days after delivery, the buyers realized that the kitchen was not of the expected
brand; therefore, they asked the seller to take back the kitchen against reimbursement of the
deposit paid. The seller objected and brought an action against the buyers to recover the
outstanding purchase price. Both the First and the Second Instance Courts dismissed the sellers
claim.
The Supreme Court confirmed the Appellate Court decision. In doing so, the Supreme Court
held that the lower Court had appropriately established that the contract was governed by CISG,
since both parties had their place of business in Contracting States. The fact that the buyers intended
to purchase the kitchen for their family use was not taken into consideration by the Court.
As to the merits, the Court ruled that no contract has been validly concluded because the
parties were in disagreement as to the exact nature of the goods to be sold. Yet even assuming that a
7

valid contract was concluded, the buyers were entitled to set it aside on the ground of a mistake on
their part in accordance with the domestic law governing defects of consent.

CONTRACT FORMATION AND INTERPRETATION

CHAPTER II. GENERAL PROVISIONS

Article 7
(1) In the interpretation of this Convention, regard is to be had to its international character and to
the need to promote uniformity in its application and the observance of good faith in international
trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it
are to be settled in conformity with the general principles on which it is based or, in the absence of
such principles, in conformity with the law applicable by virtue of the rules of private international
law.
Article 8
(1) For the purposes of this Convention statements made by and other conduct of a party are to be
interpreted according to his intent where the other party knew or could not have been unaware
what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are
to be interpreted according to the understanding that a reasonable person of the same kind as the
other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had,
due consideration is to be given to all relevant circumstances of the case including the negotiations,
any practices which the parties have established between themselves, usages and any subsequent
conduct of the parties.
Article 9
(1) The parties are bound by any usage to which they have agreed and by any practices which they
have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their
contract or its formation a usage of which the parties knew or ought to have known and which in
international trade is widely known to, and regularly observed by, parties to contracts of the type
involved in the particular trade concerned.
Article 10
For the purposes of this Convention: (a) if a party has more than one place of business, the place of
business is that which has the closest relationship to the contract and its performance, having regard
to the circumstances known to or contemplated by the parties at any time before or at the
conclusion of the contract;
(b) if a party does not have a place of business, reference is to be made to his habitual residence.
Article 11
A contract of sale need not be concluded in or evidenced by writing and is not subject to any other
requirements as to form. It may be proved by any means, including witnesses.

Article 12
Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its
modification or termination by agreement or any offer, acceptance or other indication of intention to
be made in any form other than in writing does not apply where any party has his place of business
in a Contracting State which has made a declaration under article 96 of this Convention. The parties
may not derogate from or vary the effect of this article.
Article 13
For the purposes of this Convention ``writing includes telegram and telex.

PART II. FORMATION OF THE CONTRACT

Article 14
(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an
offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes
or makes provision for determining the quantity and the price.
(2) A proposal other than one addressed to one or more specific persons is to be considered merely
as an invitation to make offers, unless the contrary is clearly indicated by the person making the
proposal.
Article 15
(1) An offer becomes effective when it reaches the offeree.
(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before
or at the same time as the offer.
Article 16
(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before
he has dispatched an acceptance.
(2) However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable;
or
(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has
acted in reliance on the offer.
Article 17
An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.
Article 18
(1) A statement made by or other conduct of the offeree indicating assent to an offer is an
acceptance. Silence or inactivity does not in itself amount to acceptance.
(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the
offeror. An acceptance is not effective if the indication of assent does not reach the offeror within
the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the
circumstances of the transaction, including the rapidity of the means of communication employed by
the offeror. An oral offer must be accepted immediately unless the circumstances indicate
otherwise.
(3) However, if, by virtue of the offer or as a result of practices which the parties have established
between themselves or of usage, the offeree may indicate assent by performing an act, such as one
9

relating to the dispatch of the goods or payment of the price, without notice to the offeror, the
acceptance is effective at the moment the act is performed, provided that the act is performed
within the period of time laid down in the preceding paragraph.
Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other
modifications is a rejection of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or
different terms which do not materially alter the terms of the offer constitutes an acceptance, unless
the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that
effect. If he does not so object, the terms of the contract are the terms of the offer with the
modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and
quantity of the goods, place and time of delivery, extent of one partys liability to the other or the
settlement of disputes are considered to alter the terms of the offer materially.
Article 20
(1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from
the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no
such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by
the offeror by telephone, telex or other means of instantaneous communication, begins to run from
the moment that the offer reaches the offeree.
(2) Official holidays or non-business days occurring during the period for acceptance are included in
calculating the period. However, if a notice of acceptance cannot be delivered at the address of the
offeror on the last day of the period because that day falls on an official holiday or a non-business
day at the place of business of the offeror, the period is extended until the first business day which
follows.
Article 21
(1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so
informs the offeree or dispatches a notice to that effect.
(2) If a letter or other writing containing a late acceptance shows that it has been sent in such
circumstances that if its transmission had been normal it would have reached the offeror in due
time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally
informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect.
Article 22
An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time
as the acceptance would have become effective.
Article 23
A contract is concluded at the moment when an acceptance of an offer becomes effective in
accordance with the provisions of this Convention.
Article 24
For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other
indication of intention ``reaches the addressee when it is made orally to him or delivered by any
other means to him personally, to his place of business or mailing address or, if he does not have a
place of business or mailing address, to his habitual residence.

10

MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH

UNITED STATES 7 DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS]
Milton I. Shadur, Senior United States District Judge:
Offers, Counteroffers and Acceptance
Magellan is an Illinois-based distributor of steel products. Salzgitter is a steel trader that is
headquartered in Dusseldorf, Germany and maintains an Illinois sales office. In January 1999
Magellans Robert Arthur (Arthur) and Salzgitters Thomas Riess (Riess) commenced negotiations
on a potential deal under which Salzgitter would begin to act as middleman in Magellans purchase
of steel bars - manufactured according to Magellans specifications - from a Ukrainian steel mill,
Dneprospetsstal of Ukraine (DSS).
By letter dated January 28, Magellan provided Salzgitter with written specifications for 5,585
metric tons of steel bars, with proposed pricing, and with an agreement to issue a letter of credit
(LC) to Salzgitter as Magellans method of payment. Salzgitter responded two weeks later (on
February 12 and 13) by proposing prices $5 to $20 per ton higher than those Magellan had specified.
On February 15 Magellan accepted Salzgitters price increases, agreed on 4,000 tons as the
quantity being purchased, and added $5 per ton over Salzgitters numbers to effect shipping from
Magellans preferred port (Ventspills, Latvia). Magellan memorialized those terms, as well as the
other material terms previously discussed by the parties, in two February 15 purchase orders.
Salzgitter then responded on February 17, apparently accepting Magellans memorialized terms
except for two amendments as to prices. Riess asked for Magellans acceptance of those two
price increases by return fax and promised to send its already-drawn-up order confirmations as soon
as they were countersigned by DSS. Arthur consented, signing and returning the approved price
amendments to Riess the same day.
On February 19 Salzgitter sent its pro forma order confirmations to Magellan. But the
general terms and conditions that were attached to those confirmations differed in some respects
from those that had been attached to Magellans purchase orders, mainly with respect to vessel
loading conditions, dispute resolution and choice of law.
Contemplating an ongoing business relationship, Magellan and Salzgitter continued to
negotiate in an effort to resolve the remaining conflicts between their respective forms. While those
fine-tuning negotiations were under way, Salzgitter began to press Magellan to open its LC for the
transaction in Salzgitters favor. On March 4 Magellan sent Salzgitter a draft LC for review. Salzgitter
wrote back on March 8 proposing minor amendments to the LC and stating that all other terms are
acceptable. Although Magellan preferred to wait until all of the minor details (the remaining
conflicting terms) were ironed out before issuing the LC, Salzgitter continued to press for its
immediate issuance.
On March 22 Salzgitter sent amended order confirmations to Magellan. Riess visited Arthur
four days later on March 26 and threatened to cancel the steel orders if Magellan did not open the
LC in Salzgitters favor that day. They then came to agreement as to the remaining contractual issues.
Accordingly, relying on Riesss assurances that all remaining details of the deal were settled, Arthur
had the $ 1.2 million LC issued later that same day.

Post-Acceptance Events
Three days later (on March 29) Arthur and Riess engaged in an extended game of fax tag initiated
by the latter. Essentially Salzgitter demanded that the LC be amended to permit the unconditional
11

substitution of FCRs for bills of lading even for partial orders and Magellan refused to amend
the LC, also pointing out the need to conform Salzgitters March 22 amended order confirmations to
the terms of the parties ultimate March 26 agreement. At the same time, Magellan requested minor
modifications in some of the steel specifications. Salzgitter replied that it was too late to modify the
specifications: DSS had already manufactured 60% of the order, and the rest was under production.
Perhaps unsurprisingly in light of what has been recited up to now, on the very next day
(March 30) Magellans and Salzgitters friendly fine-tuning went flat. Salzgitter screeched an
ultimatum to Magellan: Amend the LC by noon the following day or Salzgitter would no longer feel
obligated to perform and would sell the material elsewhere. On April 1 Magellan requested that
the LC be canceled because of what it considered to be Salzgitters breach. Salzgitter returned the LC
and has since been attempting to sell the manufactured steel to Magellans customers in the United
States.
Magellans Claims
Complaint Count I posits that pursuant to the Convention a valid contract existed between
Magellan and Salzgitter before Salzgitters March 30 ultimatum. Hence that attempted ukase is said
to have amounted to an anticipatory repudiation of that contract, entitling Magellan to relief for its
breach.
Count II seeks specific performance of the contract or replevin of the manufactured steel.
That relief is invoked under the Illinois version of the Uniform Commercial Code (UCC, specifically
810 ILCS 5/2-716) because Magellan is unable to cover its delivery commitments to its customers
without unreasonable delay (Complaint P42).
Count I: Breach of Contract
Choice of Law
As stated earlier, Magellan first claims entitlement to relief for breach of contract. Because the
transaction involves the sale and purchase of steel goods the parties acknowledge that the
governing law is either the Convention or the UCC. Under the facts alleged by Magellan, the parties
agreed that Convention law would apply to the transaction, and Salzgitter does not now dispute that
contention. That being the case, this opinion looks to Convention law.
Pleading Requirements
[T]he specification of the pleading requirements to state a claim for breach of contract under the
Convention truly poses a question of first impression. Despite that clean slate, even a brief glance at
the Conventions structure confirms what common sense (and the common law) dictate as the
universal elements of any such action: formation, performance, breach and damages. Hence under
the Convention, as under Illinois law (or the common law generally), the components essential to a
cause of action for breach of contract are (1) the existence of a valid and enforceable contract
containing both definite and certain terms, (2) performance by plaintiff, (3) breach by defendant and
(4) resultant injury to plaintiff. In those terms it is equally clear that Magellans allegations provide
adequate notice to Salzgitter that such an action is being asserted.
Formation of a contract under either UCC or the Convention requires an offer followed by an
acceptance (see Convention Pt. II). Although analysis of offer and acceptance typically involves
complicated factual issues of intent issues not appropriately addressed on a motion to dismiss
this Court need not engage in such mental gymnastics here. It is enough that Magellan has alleged
facts that a factfinder could call an offer on the one hand and an acceptance on the other.
12

Under Convention Art. 14(1) a proposal for concluding a contract addressed to one or more
specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the
offeror to be bound in case of acceptance. So, if the indications of the proposer are sufficiently
definite and justify the addressee in understanding that its acceptance will form a contract, the
proposal constitutes an offer (id. Art. 8(2)). For that purpose [a] proposal is sufficiently definite if it
indicates the goods and expressly or implicitly makes provision for determining the quantity and the
price (id. Art. 14(1)).
In this instance Magellan alleges that it sent purchase orders to Salzgitter on February 15
that contained the material terms upon which the parties had agreed. Those terms included
identification of the goods, quantity and price. Certainly an offer could be found consistently with
those facts.
But Convention Art. 19(1) goes on to state that [a] reply to an offer which purports to be an
acceptance but contains additions, limitations or other modifications is a rejection of the offer and
constitutes a counter-offer. That provision reflects the common laws mirror image rule that the
UCC has rejected (see Filanto, 789 F. Supp. at 1238). And Salzgitters February 17 response to the
purchase orders did propose price changes. Hence that response can be seen as a counteroffer that
justified Magellans belief that its acceptance of those new prices would form a contract.
Although that expectation was then frustrated by the later events in February and then in
March, which in contract terms equated to further offers and counteroffers, the requisite contractual
joinder could reasonably be viewed by a factfinder as having jelled on March 26. In that respect
Convention Art. 18(a) requires an indication of assent to an offer (or counteroffer) to constitute its
acceptance. Such an indication may occur through a statement made by or other conduct of the
offeree. And at the very least, a jury could find consistently with Magellans allegations that the
required indication of complete (mirrored) assent occurred when Magellan issued its LC on March
26. So much, then, for the first element of a contract: offer and acceptance.
Next, the second pleading requirement for a breach of contract claim performance by
plaintiff was not only specifically addressed by Magellan but can also be inferred from the facts
alleged in Complaint P43 and from Magellans prayer for specific performance. Magellans
performance obligation as the buyer is simple: payment of the price for the goods. Magellan issued
its LC in satisfaction of that obligation, later requesting the LCs cancellation only after Salzgitters
alleged breach. Moreover, Magellans request for specific performance implicitly confirms that it
remains ready and willing to pay the price if such relief were granted.
As for the third pleading element Salzgitters breach Complaint P38 alleges:
Salzgitters March 30 letter (Exhibit G) demanding that the bill of lading provision be removed from the
letter of credit and threatening to cancel the contract constitutes an anticipatory repudiation and
fundamental breach of the contract.

It would be difficult to imagine an allegation that more clearly fulfills the notice function of pleading.
Convention Art. 72 addresses the concept of anticipatory breach:
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a
fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the
other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he
will not perform his obligations.

Convention Art. 25 states in relevant part:

A breach of contract committed by one of the parties is fundamental if it results in such detriment to
the other party as substantially to deprive him of what he is entitled to expect under the contract....

13

That plain language reveals that under the Convention an anticipatory repudiation pleader need
simply allege (1) that the defendant intended to breach the contract before the contracts
performance date and (2) that such breach was fundamental. Here Magellan has pleaded that
Salzgitters March 29 letter indicated its pre-performance intention not to perform the contract,
coupled with Magellans allegation that the bill of lading requirement was an essential part of the
parties bargain. That being the case, Saltzgitters insistence upon an amendment of that
requirement would indeed be a fundamental breach.
Lastly, Magellan has easily jumped the fourth pleading hurdle resultant injury. Complaint
P40 alleges that the breach has caused damages to Magellan.
Count II: Specific Performance or Replevin
Convention Art. 46(1) provides that a buyer may require the seller to perform its obligations unless
the buyer has resorted to a remedy inconsistent with that requirement. As such, that provision
would appear to make specific performance routinely available under the Convention. But
Convention Art. 28 conditions the availability of specific performance:
If, in accordance with the provisions of this Convention, one party is entitled to require performance of
any obligation by the other party, a court is not bound to enter judgment for specific performance
unless the court would do so under its own law in respect of similar contracts of sale not governed by
this Convention.

Simply put, that looks to the availability of such relief under the UCC. And in pleading terms, any
complaint adequate to provide notice under the UCC is equally sufficient under the Convention.
Under UCC 2-716(1) a court may decree specific performance where the goods are unique
or in other proper circumstances. That provisions Official Commentary instructs that inability to
cover should be considered strong evidence of other proper circumstances. UCC 2-716 was
designed to liberalize the common law, which rarely allowed specific performance (see, e.g., 4A
Ronald A. Anderson, Uniform Commercial Code 2-716: 11 (3d ed. 1997)). Basically courts now
determine whether goods are replaceable as a practical matter--for example, whether it would be
difficult to obtain similar goods on the open market (see generally Andrea G. Nadel, Annotation,
Specific Performance of Sale of Goods Under UCC 2-716, 26 A.L.R. 4th 294 (1983)).
Given the centrality of the replaceability issue in determining the availability of specific relief
under the UCC, a pleader need allege only the difficulty of cover to state a claim under that section.
Magellan has done that.
Conclusion
It may perhaps be that when the facts are further fleshed out through discovery, Magellans claims
against Salzgitter will indeed succumb either for lack of proof or as the consequence of some legal
deficiency. But in the current Rule 12(b)(6) context, Salzgitters motion as to Counts I and II is denied,
and it is ordered to file its Answer to the Complaint on or before December 20, 1999.

BUNDESGERICHTSHOF, VIII ZR 304/00, GERMANY, 9 JANUARY 2002 (POWDERED MILK CASE)

A German seller and a Dutch buyer entered into several contracts for the sale of powdered milk. The
contracts were concluded by telephone and subsequently confirmed in writing by both parties. The
letters of confirmation sent by the buyer contained a standard term stating that, notwithstanding
14

any duty of the seller to pay back the purchase price, the liability of the seller for damages suffered
(or to be suffered) should be at all times limited to the invoiced amount for the delivered goods.
The sellers letters of confirmation contained a term according to which the sale was to be
governed exclusively pursuant to the sellers standard terms and contrary statutory conditions or
standard terms of the buyer were expressly excluded. Moreover, a warranty clause contained in the
sellers standard terms stated that the buyer should inspect the goods immediately upon delivery
and note any complaints on the delivery note; defects that were not noticeable at the time of
delivery could only be claimed before the printed expiration date.
The buyer resold the milk to an Algerian and a Dutch company. Upon delivery, and after a
sample inspection by the buyer which gave no negative results, the packaged powdered milk was
shipped to Algeria and to Aruba/Netherland Antilles. After processing, part of the milk delivered to
Algeria turned out to have a rancid taste. The Algerian customer lamented the non-conformity of the
goods and therefore the buyers customers met twice with the buyer and the seller, in order to
achieve an amicable solution. Thereupon, by letter dated August 24, 1998, the seller acknowledged
that a specified quantity of the milk did not meet the contractual requirements and that the buyer
had warranty claims as to that quantity; with reference to its standard terms, however, the seller
denied any liability as to further claims.
Meanwhile also the Dutch customer complained about the non-conformity of a certain
amount of milk and obtained damages from the buyer.
The buyer commenced an action for damages against the seller, alleging that the nonconformity of goods was caused by a defect that already existed at the time of the passing of risk,
but only became apparent after processing.
The First Instance Court dismissed the buyers complaint. The Court of Appeal
(Oberlandesgericht Dresden, 23.10.2000) partially granted the claim, ordering the seller to pay
damages according to articles 74, 75 CISG.
The Supreme Court agreed with the lower Court in finding that the partial conflict of the
parties standard terms (battle of the forms) could not lead to a failure of the entire contract, since
the parties, in performing the contract, had shown that such a conflict was not to be considered a
material modification of their agreement (Art. 19(1) and (3) CISG).
As to the battle of the forms, the Court furthermore confirmed that, in an application of the
knock out doctrine, generally accepted in scholarly opinions, conflicting standard terms only do not
become part of the contract; the evaluation of such a conflict must proceed, however, from a
systematic interpretation of all the rules involved. Thus, the liability of the seller for lack of
conformity was governed by CISG, seeing as both buyers and sellers standard terms were not
applicable to the contract as far as non-conformity was concerned.
The Court pointed out that in the case at hand, the result would not change even applying
the minority doctrine of the last shot, since it would be contrary to the principle of good faith (Art.
7(1) CISG) for the seller, whose standard terms were sent after the buyers, to assume that only
those terms of the buyers standard conditions more favorable to the seller would apply.
As far as the burden of proof is concerned, the Court confirmed the principle according to
which the burden of proof is a matter generally governed by CISG, either expressly (Art. 79(1) CISG)
or impliedly (Art. 2(a) CISG). In the case at hand, however, the admission of liability expressly made in
writing by the seller was to be considered a matter excluded by the scope of CISG (Art. 4 CISG), and
therefore the resulting burden of proof issues had to be solved according to the applicable domestic
law (i.e. German law).

15

PARTIES OBLIGATIONS

3.1

Parties Obligations at Common Law

PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402

DEVLIN J: read the following judgment: This case raises questions of interest and importance upon
the interpretation of the Hague Rules and their applicability to a f.o.b. seller. The plaintiffs sold a
piece of machinery, a fire tender, to the Government of India (which acted in this matter through a
department known for short as; I.S.D.) for delivery f.o.b. London. I.S.D. nominated the Jalazad, one of
the defendants vessels, as the ship to be loaded under the contract of sale, and through their
agents, Bahr Behrend & Co., made all the arrangements for the carriage of the goods. While the
tender was being lifted on to the vessel by the ships tackle, and before it was across the rail it was,
through the fault of the ship, dropped and damaged. Under the contract of sale the property had not
then passed to I.S.D. The damage to the tender cost 966 to repair and the plaintiffs sue for that
sum.
The contract of sale provided for delivery f.o.b. London, the price including dock and
harbour dues and port rates to be paid by the seller; and further expressly provided that freight was
to be engaged by the buyer, who was to give due notice to the seller when and on board what vessel
the goods were to be delivered. Payment was to be made twenty-one days after delivery and after
receipt of certain documents for which the contract called, such as invoice, inspection certificate,
etc., and of the dock companys or mates receipt. In the special circumstances of this case and
because of delay in shipment, payment was in fact made in advance, but on the terms that that
should not affect the sellers obligations as to delivery. As I have said, it was agreed that the property
did not pass till delivery over the ships rail.
It is worth noting that the problem which I have to consider does not arise as a matter of
course in every f.o.b. contract. The f.o.b. contract has become a flexible instrument. In what counsel
called the classic type as described, for example, in Wimble, Sons & Co. Ld. v. Rosenberg & Sons
[1913] 3 K.B. 743, the buyers duty is to nominate the ship, and the sellers 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
buyers 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 those 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 c.i.f. 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 mates 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 seller being a party to the
contract.
The contract of carriage in this case was made in the office of Bahr Behrend & Co., for they
are both agents for I.S.D. and freight brokers for the defendants. An instruction came to Bahr
Behrend from I.S.D. to arrange for the shipment of these goods among other cargo, and a note by
Bahr Behrend dated March 29, 1951, records that the shipment was booked per the Jalazed. The
ordinary practice is for I.S.D. to prepare a bill of lading (the defendants have a special form for
Government of India shipments) and to send it to Bahr Behrend. Bahr Behrend check the items on it
from a return made out by the cargo superintendent after shipment and then sign and issue the bill
16

of lading on behalf of the defendants generally some days after the ship has sailed, dependent on
the volume of the cargo to be dealt with.
It is the practice in the Port of London for all loading to be done by the port authority at the
ships expense. The whole charge, therefore, for loading from alongside is paid by the ship and
covered by the freight; in this case, it included the cost of lighterage from the dock to the ships side.
On April 7 Bahr Behrend, on behalf of I.S.D., notified the plaintiffs that space had been engaged, and
instructed them to dispatch the goods to arrive alongside the vessel.
The question at once arises: if, as the plaintiffs contend, there is no contractual relationship
between them and the defendants, how do they get these goods on board? If the ship sails off
without loading the goods the plaintiffs are in breach of their contract of sale. Have they no redress
against the ship? Mr. Megaw argues that they would have none, and that vis-a-vis the sellers the ship
in loading acts as a volunteer. This seems to me to be a position which none of the three parties
would have accepted for a moment.
Let me look at the situation first from the standpoint of the shipper, I.S.D. In the ordinary
case, such as I have been considering above, where the shipper takes out a bill of lading or an
insurance policy, he has at the time of the contract himself got the property in the goods; the
question whether he contracts for the benefit of subsequent owners depends on proof of his
intention at the time of contracting. But where, as in this case, he has not got the property at the
time of the contract, and does not intend to acquire it before the contract begins to operate, he
must act as agent. He cannot intend otherwise; the intention is inherent in the act; he must either
profess agency or confess himself a wrongdoer. For if the shipowner lifts the sellers goods from the
dock without the sellers authority he is guilty of conversion to which the shipper, by requiring him to
do it, makes himself a party.
Let me look at it now from the standpoint of the ship. If the shipowners were sued for
conversion they would surely have redress against the shipper. A person who requests a carrier to
handle goods must have the right to deal with them or it would not be safe to contract with him. A
shipowner cannot be supposed to inquire whether the goods he handles do or do not belong to the
shipper who entrusts them to his care; if the goods are not the shippers there must be implied a
warranty of authority by him that he has the right to contract with regard to them.
Then from the standpoint of the seller, if his goods are left behind, and it is said to him: You
made no contract with the ship; what else did you expect? he would answer, I think, that he
naturally supposed that all the necessary arrangements had been made by the shippers.
In brief, I think the inference irresistible that it was the intention of all three parties that the
seller should participate in the contract of affreightment so far as it affected him. If it were intended
that he should be a party to the whole of the contract his position would be that of an undisclosed
principal and the ordinary law of agency would apply. But that is obviously not intended; he could
not, for example, be sued for the freight. This is the sort of situation that is covered by the wider
principle; the third party takes those benefits of the contract which appertain to his interest therein,
but takes them, of course, subject to whatever qualifications with regard to them the contract
imposes. It is argued that it is not reasonable to suppose that the seller would submit to the terms of
a contract whose detail he does not know and which might not give him the sort of protection of
which he would approve. I do not think that as a matter of business this is so. Most people board a
bus or train without considering what protection they will get in the event of an accident. I see
nothing unreasonably imprudent in a seller assuming that the buyer, whose stake in the contract is
greater than his, would have obtained whatever terms are usual in the trade; if he were legally
minded enough to inquire what they were, the answer would be that by statutory requirement the
contract was governed by the Hague Rules.

17

BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA)

FARWELL L.J.: The first question in this case is whether a contract for hops c.i.f. to London, terms
net cash, but without the words against documents, means that the price is to be paid against
documents, or after the buyer has had the opportunity of inspecting the goods. Hamilton J. has held,
and I agree with him, that terms net cash adds nothing to the contract to pay: it means only no
credit and no deductions by way of discount or otherwise. The neat question, therefore, remains,
whether the fact that the contract is c.i.f. is by itself sufficient to import payment against
documents, or, in other words, whether a contract which does not contain those words is to be read
as a contract which does contain them.
Now, apart from rectification, with which we are not concerned in this case, there are three
ways only in which a provision not expressed in a written document can be added to it. The first is
where the words used are elliptical; the second is usage, including in that term the law merchant,
whereby, under certain limitations, terms may be added to or phrases may be explained and
construed in a written document; and the third is necessary implication as explained in The
Moorcock, and Hamlyn & Co. v. Wood & Co., where Lord Esher says: The Court has no right to imply
in a written contract any such stipulation, unless, on considering the terms of the contract in a
reasonable and business manner, an implication necessarily arises that the parties must have
intended that the suggested stipulation should exist. It is not enough to say that it would be a
reasonable thing to make such an implication. It must be a necessary implication in the sense that I
have mentioned. The words of the contract here, namely, The parties of the second part shall pay
for the said hops at the rate of ninety (90) shillings sterling per 112 lbs., c.i.f. to London, are
obviously elliptical so far as c.i.f. is concerned, and on construction mean that the 90s. is to include
cost insurance and freight, which are to be provided by the seller on behalf of the buyer, but they
express no time or term of payment: payment is dealt with in the next sentence - terms net cash and here is the natural and usual place to add against documents or the like, if the parties so
intend. But Hamilton J. himself says that net cash does not mean against documents, and I can
find nothing in the whole of the words read together, or in any of them read separately, from which
any such meaning can be extracted on any rules of construction known to the law. It is in my opinion
equally impossible to add any term by usage. Usage must be proved by evidence, or must have been
so often proved as to be part of the law merchant, and to be the subject of judicial knowledge (see
Gibson v. Small); but here no evidence was tendered, nor was it suggested, that there was any usage
or law merchant. It is common ground that in the majority of c.i.f. contracts the words cash or
bills or the like against documents are expressly inserted, and this very fact is almost conclusive
that there is no usage or law merchant, for usage implies a term outside the written document, and
is prima facie negatived by finding an express clause usually inserted in written documents of the
class in question. The clauses usually inserted in a particular form of written contract are quite
distinct from clauses not so inserted but added by usage or law merchant: the usage or law merchant
dispenses with the express insertion. The omission from a contract of a clause usually inserted in
contracts of that class is evidence of the intention of the parties that such clause shall not apply, not
that it shall: nor can the Court infer from the express insertion of a particular clause in most of the
contracts of a particular class any usage justifying the addition of such a clause to a contract of that
class in which it is not inserted. If Hamilton J. had ruled that there was any usage, so often proved
that he had judicial knowledge of its existence, to the effect that a c.i.f. contract always implied cash
against documents, whether so expressed or not, I should probably have deferred to his great
knowledge and experience in commercial cases, but he has not done so, nor has counsel suggested
that any such usage has ever been proved, and they could hardly be ignorant of its existence, if it had
any; in the absence of any such usage the judge cannot mero motu add to the law merchant, as to
which Foster J. says in Edie v. East India Dock Co., Much has been said about the custom of
merchants. But the custom of merchants, or law of merchants, is the law of the kingdom and is part
of the common law. People do not sufficiently distinguish between customs of different sorts. The
18

true distinction is between general customs, (which are part of the common law), and local customs
(which are not so). This custom of merchants is the general law of the kingdom, part of the common
law; and Wilmot J. says, The custom of merchants is part of the law of England; and Courts of law
must take notice of it, as such. There may indeed be some questions depending upon customs
amongst merchants, where, if there be a doubt about the custom, it may be fit and proper to take
the opinion of merchants thereupon; yet that is only where the law remains doubtful. And even
there, the custom must be proved by facts, not by opinion only; and it must also be subject to the
control of law. Indeed in the Court below the respondents counsel argued on the construction of
the words net cash, and did not suggest that c.i.f. could be construed as including payment
against documents. This reticence is important when the question is as to the existence of usage - a
matter that could hardly be unknown to the counsel of experience who argued this case.
There remains, therefore, only the third ground. At common law the delivery of goods by the
seller and acceptance and payment by the buyer are regarded as concurrent acts, the buyer being
entitled to a reasonable opportunity for inspection before he accepts and pays. It is thus expressed
by Rolfe B. in Startup v. Macdonald: Now, it may be observed, that in every contract by which a
party binds himself to deliver goods, or pay money, to another, he in fact engages to do an act which
he cannot completely perform without the concurrence of the party to whom the delivery or the
payment is to be made. Without acceptance on the part of him who is to receive, the act of him who
is deliver or to pay, can amount only to a tender. But the law considers a party who has entered into
a contract to deliver goods or pay money to another, as having, substantially, performed it, if he has
tendered the goods or money to the party to whom the delivery or payment was to be made,
provided only that the tender has been made under such circumstances that the party to whom it
has been made, has had a reasonable opportunity of examining the goods, or the money, tendered
in order to ascertain that the thing tendered really was what it purported to be. Indeed, without such
an opportunity an offer to deliver or pay does not amount to a tender. The general rule, therefore,
is payment against inspected goods; and this is simple enough where both parties and the goods are
together in the same place. But when goods are shipped from across seas, the contract becomes
complicated by the fact that the delivery, although not complete until acceptance, commences on a
c.i.f. contract on shipment, and the property passes, subject to certain qualifications not necessary
now to consider, when the goods are shipped; if the seller fails to ship, or ships goods not according
to contract, the breach by him is committed there and then: Parker v. Schuller; Crozier, Stephens &
Co. v. Auerbach. But the buyers acceptance and duty to pay is not on shipment. The c.i.f. contract
usually provides for payment against documents, a practice convenient for both parties, as the bill of
lading enables financial dealings on the credit of the goods to be carried out before the arrival of the
goods; but no one has ever suggested that on a c.i.f. contract, silent as to time of payment, the buyer
is bound to pay on shipment of the goods. The result must therefore be that the ordinary rule of law
is not displaced, namely, payment against examined goods. It is said that this cannot be so, because
under the contract in common form c.i.f. payment against documents the buyer has to unload and
warehouse the goods at his own expense; whereas the seller would have to bear such expense if he
has to afford the buyer an opportunity of inspection before payment can be required. But this is only
to state the different consequences flowing from two contracts expressed in different terms: there is
no such necessity for any implication as to justify the Court in altering the usual incidence of burdens
under a contract silent as to this particular burden; and actual physical necessity is not suggested,
and would indeed be disproved by the fact that in this very case such inspection before payment has
been given by the sellers in one case at any rate during the existence of this contract. I do not
suggest that the conduct of the parties under the contract is admissible as evidence of the
construction of the contract; I think that it is not (although it would be so in a suit to rectify on the
ground of common error); but it is admissible to shew that there is in fact no such impossibility as to
render the contract impossible of performance without the addition of the terms suggested.
In my opinion Lord Blackburns statement in Ireland v. Livingston throws no light at all on the
question before us, and I cannot follow the reasoning of Hamilton J. in this case . I will assume that
19

as a matter of usage the seller is bound to tender the bill of lading to the buyer when it arrives, and,
if the buyer accepts it, he must, of course, pay for the goods on such acceptance, because the
delivery of the bill of lading is a symbolical delivery of the goods, and, if the goods are accepted, the
right of antecedent (though not of subsequent) inspection before payment is thereby waived, just as
it would be in the case of acceptance of the goods themselves without inspection. But I fail to follow
the consequence said by the learned judge to ensue. The duty on A. to tender to B. a document
before he can require payment does not impose on B. a duty to accept such document as equivalent
to goods, if he has a right to inspect such goods before accepting and paying for them. B. has the
option of choosing between two alternative rights: he may accept symbolical delivery or actual
delivery, but in the absence of express contract it is at his option, not at the sellers. In the great
majority of cases, it suits both buyer and seller better to give and accept symbolical delivery by the
bill of lading, and the existence and exercise of this option explain why in cases where the c.i.f.
contract does not contain the words cash against documents, or the like, the contract is in fact
often so carried out. But this is no evidence of usage for the buyer to accept in all cases, or, in other
words, to waive the option. If the goods were lost at sea, the option would at once cease because
inspection would have been rendered impossible, and the buyer would be bound to pay against
documents.
Then it is said that Parker v. Schuller is an authority against the appellants. In my opinion,
that case has no bearing on the present. The question there related solely to the duty of the seller
and the place where the performance of the contract by him was to be carried out. We are here
concerned with the duty of the buyer. No one doubts that the sellers breach of a c.i.f. contract arises
on failure to ship, but no one suggests that the buyers duty to pay arises on such shipment; his duty
depends on the terms of the contract, and never came into question in Parker v. Schuller.
The basis of my judgment is that the buyer has a common law right (now embodied in the
Sale of Goods Act) to have inspected goods against payment, and this cannot be taken away from
him without some contract expressed or implied, and here I can find neither. In this particular, and
very ill-drawn, contract there are words, especially in the clause referring to refusal to pay for any
hops delivered and accepted hereunder, which bear out the conclusions at which I have arrived, but
I prefer to rest my judgment on the general grounds above stated. It is said that this decision will
upset mercantile practice, but I fail to see any difficulty in parties who desire it adding against
documents to their contracts - a course hitherto adopted in the majority of c.i.f. contracts.
In my opinion the appeal should be allowed and judgment entered for the plaintiffs.
[VAUGHAN WILLIAMS LJ concurred.]
KENNEDY L.J (dissenting): This is an appeal of the plaintiffs in the action against the judgment of
Hamilton J. sitting as a judge without a jury for the trial of commercial cases in the Kings Bench
Division. The action before him comprised a claim of the plaintiffs for damages for breaches of two
contracts, partly typewritten and partly printed, and a counter-claim of the defendants for breaches
of the same contracts.
So far as regards the claim of the plaintiffs, which Hamilton J. has dismissed, his judgment
was in my opinion right, and but for the contrary opinion of the other members of this Court, from
whom I have the misfortune to differ, I should have ventured to think the case a reasonably simple
one.
The material terms of the two contracts, with the conflicting contentions of the litigants
thereon, are carefully stated by Hamilton J. in the opening portion of his judgment, and it is needless
for me to repeat them here at length. It is sufficient, in order to make clear the reasoning of my
judgment, to summarize the statement of the learned judge. Each of the contracts in question is a
contract for the sale of foreign hops of specified quality, to be shipped by the defendants, the sellers,
from the Pacific Coast to Sunderland, and to be paid for by the plaintiffs, the purchasers, at the rate
of 90s. sterling per 112 lbs., c.i.f. to London, Liverpool, or Hull, terms net cash. No point arises, as the
20

learned judge states, upon the question of the calculation of freight being to London, Liverpool, or
Hull, while the shipment was to Sunderland. Possibly the explanation of this arrangement is that
Messrs. C. Vaux & Sons, Limited, the original purchasers, who assigned their interest under the
contracts to the plaintiffs, carried on business at Sunderland. Anyhow, the fact is, as it has been
treated throughout the argument, immaterial. The dispute between the parties is as to the
conditions under which, according to the true interpretation of these contracts, the price is to be
paid. The plaintiffs case is that the price was not to be paid until they had been given an opportunity
of inspecting the shipment, which could not be given until after its arrival in this country. The
defendants contend that the plaintiffs obligation was to pay for the hops, whether they arrived or
not, against tender of the shipping documents. I agree with Hamilton J., and indeed it was not
disputed on the argument before us, that the plaintiffs in the correspondence clearly expressed their
intention not to take delivery of the 1909 shipment (which is that to which this litigation is confined)
except upon the terms of payment for which they now contend; and, therefore, if they are wrong in
that contention, they relieved the defendants from the obligation to tender, and they have
themselves broken these contracts so far as regards this particular shipment. Before litigation began,
the defendants, for the sake of peace, offered, as a matter of grace, to make the plaintiffs the
reasonable and businesslike concession of attaching to the shipping documents certificates of quality
of the Merchants Exchange at San Francisco, or other competent authority. But this offer was
rejected by the plaintiffs, and the parties, respectively, are now standing upon their rights, as they
allege, under the documents which contain the contracts. The Court, therefore, has in the present
case to decide what are the true conditions of the right of the seller to payment under a c.i.f.
contract, if that commercial contract is to be performed strictly according to its tenor.
Hamilton J. has unhesitatingly decided in favour of the defendants. In his opinion it was
unnecessary to refer to authorities as to the meaning of the terms cost freight and insurance,
because those terms are now well settled and, as he hoped he might add, well understood. But he
has given a reasoned judgment to which I can discover no answer in the argument of the appellants
counsel, which was for all practical purposes the same as that which appears from the Law Reports
to have been put forward by them unsuccessfully in the Court below. But for the differing opinion of
Vaughan Williams L.J. and Farwell L.J., which, of course, raises in my mind a doubt of the correctness
of my own, I should have been content to adopt that judgment as it stands. But, in the
circumstances, and believing as I do that this appeal affects a large and important branch of import
business, it is, I think, right that I should deal with the case in my own way, although this will involve
a much longer judgment than I should otherwise have thought necessary or justifiable.
The plaintiffs that is the appellants argument, apart from a reference to certain
subordinate and subsidiary printed clauses to which I shall advert after dealing with the main
question, hangs upon considerations arising from (a) the absence, after the words net cash, of such
words as against documents, or in exchange for documents; (b) the provisions of s. 28 and s. 34
of the Sale of Goods Act, 1893, in respect of the buyers right to have delivery in exchange for the
price and to have an opportunity to examine goods tendered for acceptance.
In regard to the wording of the contract, I do not think that the comment that the terms
might have been more fully expressed helps one way or the other as to the interpretation of the
contract as it stands. All that can be said is that, the condition of payment not being expressly stated
except in so far as the words net cash negative payment by acceptance and the allowance of
deduction or discount, it must be settled by the interpretation of the document according to
established principles of mercantile law. If any implication is necessary, the law, as stated by Bowen
L.J. in his judgment in The Moorcock, desires to give such business efficacy to the transaction as must
have been intended at all events by both parties, who are business men. This is not a case, as it
seems to me, of a contract the terms of which present ambiguity or conflict. There is no contrariety
between cost freight and insurance, net cash and cost freight and insurance, net cash against
documents. Both the fuller and the shorter form are, I believe, in everyday use: examples of both
can be found within the covers of modern law reports (see, for example, Parker v. Schuller and
21

Sanders v. Maclean); and, although it is probable, I should think, and the present litigation
certainly vindicates its expediency that the fuller form is the more common, it has, so far as I am
aware, never before this case been suggested that a contract cost freight and insurance, net cash
or a contract cost freight and insurance, payment by acceptance may not imply against
documents in each case. The well-known passage in the opinion of Lord Blackburn (then Blackburn
J.) in Ireland v. Livingston, referred to by Hamilton J., in which a great master of the commercial law
stated the course of business in the performance of a cost freight and insurance contract as very
usual and well understood, plainly cannot be relied on for the respondents as an actual decision in
their favour; for the statement itself is obiter, and the particular contract in that case contained the
words payment by acceptance on receiving shipping documents. But Lord Blackburns opinion was
delivered in the House of Lords forty years ago, and, speaking for myself, I do not recollect hearing it
suggested until I listened to the argument of the plaintiffs counsel in this case that the value of that
opinion, as setting forth the relative rights and duties of seller and buyer in the ordinary course of
procedure under a c.i.f. contract, wholly depended upon the insertion of against (or in exchange
for) shipping documents after the statement of the mode of payment by cash or by acceptance, as
the case may be.
Let us, however, leave out of sight altogether for the present all question of usage or judicial
recognition of usage. The application of the principles and rules of the common law, now embodied
in the Sale of Goods Act, 1893, to the business transaction embodied in the c.i.f. contract appears to
me to be decisive of the issue between these parties. Let us see, step by step, how according to
those principles and rules the transaction specified in such a c.i.f. contract as that before us is and, I
think, must be carried out in order to fulfil its terms.
At the port of shipment in this case San Francisco the vendor ships the goods intended
for the purchaser under the contract. Under the Sale of Goods Act, 1893, s. 18, by such shipment the
goods are appropriated by the vendor to the fulfilment of the contract, and by virtue of s. 32 the
delivery of the goods to the carrier whether named by the purchaser or not for the purpose of
transmission to the purchaser is prima facie to be deemed to be a delivery of the goods to the
purchaser. Two further legal results arise out of the shipment. The goods are at the risk of the
purchaser, against which he has protected himself by the stipulation in his c.i.f. contract that the
vendor shall, at his own cost, provide him with a proper policy of marine insurance intended to
protect the buyers interest, and available for his use, if the goods should be lost in transit; and the
property in the goods has passed to the purchaser, either conditionally or unconditionally. It passes
conditionally where the bill of lading for the goods, for the purpose of better securing payment of
the price, is made out in favour of the vendor or his agent or representative: see the judgments of
Bramwell L.J. and Cotton L.J. in Mirabita v. Imperial Ottoman Bank. It passes unconditionally where
the bill of lading is made out in favour of the purchaser or his agent or representative, as consignee.
But the vendor, in the absence of special agreement, is not yet in a position to demand payment
from the purchaser; his delivery of the goods to the carrier is, according to the express terms of s. 32,
only prima facie deemed to be a delivery of the goods to the buyer; and under s. 28 of the Sale of
Goods Act, as under the common law (an exposition of which will be found in the judgments of the
members of the Exchequer Chamber in the old case of Startup v. Macdonald, a tender of delivery
entitling the vendor to payment of the price must, in the absence of contractual stipulation to the
contrary, be a tender of possession. How is such a tender to be made of goods afloat under a c.i.f.
contract? By tender of the bill of lading, accompanied in case the goods have been lost in transit by
the policy of insurance. The bill of lading in law and in fact represents the goods. Possession of the
bill of lading places the goods at the disposal of the purchaser. A cargo at sea, says Bowen L.J. in
Sanders v. Maclean, while in the hands of the carrier, is necessarily incapable of physical delivery.
During this period of transit and voyage, the bill of lading by the law merchant is universally
recognized as its symbol, and the indorsement and delivery of the bill of lading operates as a
symbolical delivery of the cargo. Property in the goods passes by such indorsement and delivery of
the bill of lading, whenever it is the intention of the parties that the property should pass, just as
22

under similar circumstances the property would pass by an actual delivery of the goods. And for the
purpose of passing such property in the goods and completing the title of the indorsee to full
possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to
some one rightfully claiming under it, remains in force as a symbol, and carries with it not only the
full ownership of the goods but also all rights created by the contract of carriage between the
shipper and the shipowner. It is a key which in the hands of a rightful owner is intended to unlock the
door of the warehouse, floating or fixed, in which the goods may chance to be. The meaning of
delivery under the Sale of Goods Act is defined by s. 62 to be voluntary transfer of possession
from one person to another. Such delivery, as the learned draftsman of the Act and its editor
remarks in his note to this section, may be either actual or constructive: see Chalmers Sale of Goods
Act, 1893, 7th ed. p. 140; and, as Bowen L.J. has pronounced, in the case of seaborne goods, the
delivery of the bill of lading operates as a symbolical delivery of goods. But then I understand it to be
objected on behalf of the plaintiffs: Granted that the purchaser might, if he pleased, take this
constructive delivery and pay against it the price of the goods; what is there in the cost freight and
insurance contract which compels him to do so? Why may he not insist on an option of waiting for a
tender of delivery of the goods themselves after having had an opportunity of examining them after
their arrival?
There are, I think, several sufficient answers to such a proposition. In the first place, an
option of a time of payment is not a term which can be inferred, where the contract itself is silent. So
far as I am aware, there is no authority for the inference of an option as to times of payment to be
found either in the law books or in the Sale of Goods Act. Secondly, if there is a duty on the vendor to
tender the bill of lading, there must, it seems to me, be a corresponding duty on the part of the
purchaser to pay when such tender is made. Very relevant on this point is the language of Brett L.J. in
his judgment in Sanders v. Maclean, which applies to this class of contract the same principle as was
expounded by Bowen L.J. in The Moorcock. He said: The stipulations which are inferred in
mercantile contracts are always that the party will do what is mercantilely reasonable; and, if it be
the duty implied in the c.i.f. contract, as held by Brett L.J. in that case, that the vendor shall make
every reasonable exertion to send forward and tender the bill of lading as soon as possible after he
has destined the cargo to the particular vendee, it is, I venture to think, mercantilely reasonable
that the purchaser should be held bound to make the agreed payment when delivery of the goods is
constructively tendered to him by the tender of the bill of lading, either drawn originally in his favour
or indorsed to him, and accompanied in case of loss by the policy of insurance. For thereunder, as
the bill of lading with its accompanying documents comes forward by mail, the purchaser obtains the
privilege and absolute power of profitably dealing with the goods days or weeks, or, perhaps, in the
case of shipments from a distant port, months, before the arrival of the goods themselves. This is,
indeed, the essential and peculiar advantage which the buyer of imported goods intends to gain
under the c.i.f. contract according to the construction which I put upon it.
But, in truth, the duty of the purchasers to pay against the shipping documents, under such a
contract as the present, does not need the application of that doctrine of the inference in mercantile
contracts that each party will do what is mercantilely reasonable, for which we have the great
authority of Lord Esher. The plaintiffs assertion of the right under a cost freight and insurance
contract to withhold payment until delivery of the goods themselves, and until after an opportunity
of examining them, cannot possibly be effectuated except in one of two ways. Landing and delivery
can rightfully be given by the shipowner only to the holder of the bill of lading. Therefore, if the
plaintiffs contention is right, one of two things must happen. Either the seller must surrender to the
purchaser the bill of lading, whereunder the delivery can be obtained, without receiving payment,
which, as the bill of lading carries with it an absolute power of disposition, is, in the absence of a
special agreement in the contract of sale, so unreasonable as to be absurd; or, alternatively, the
vendor must himself retain the bill of lading, himself land and take delivery of the goods, and himself
store the goods on quay (if the rules of the port permit), or warehouse the goods, for such time as
may elapse before the purchaser has an opportunity of examining them. But this involves a manifest
23

violation of the express terms of the contract 90s. per 112 lbs. cost freight and insurance. The
parties have in terms agreed that for the buyers benefit the price shall include freight and insurance,
and for his benefit nothing beyond freight and insurance. But, if the plaintiffs contention were to
prevail, the vendor must be saddled with the further payment of those charges at the port of
discharge which ex necessitate rei would be added to the freight and insurance premium which
alone he has by the terms of the contract undertaken to defray.
Finally, let me test the soundness of the plaintiffs contention that according to the true
meaning of this contract their obligation to pay arises only when delivery of the goods has been
tendered to them after they have had an opportunity of examination, in this way. Suppose the goods
to have been shipped, the bill of lading taken, and the insurance for the benefit of the buyer duly
effected by the seller, as expressly stipulated in the contract. Suppose the goods then during the
ocean transit to have been lost by the perils of the sea. The vendor tenders the bill of lading, with the
insurance policy and the other shipping documents (if any) to the purchaser, to whom from the
moment of shipment the property has passed, and at whose risk, covered by the insurance, the
goods were at the time of loss. Is it, I ask myself, arguable that the purchaser could be heard to say,
I will not pay because I cannot have delivery of and an examination of the goods? But it is just this
which is necessarily involved in the contention of these plaintiffs. The sellers answer, and I think
conclusive answer, is, You have the bill of lading and the policy of insurance. It is noticeable that in
the course of the argument in Tregelles v. Sewell Martin B. observes, The purchaser was to have a
policy of insurance, which is usually considered as equivalent to the goods, and earlier in the same
argument Wilde B. asked, If the meaning is to be delivered at Harburgh, what necessity is there for
insurance? The contract in that case was a contract in the fuller form, namely, against documents,
but it does not seem to me that that affects the value of those observations as to the relative rights
of the buyer and seller.
I have only to add as to this, the main question in the present case, a few words in regard to
ss. 28 and 34 of the Sale of Goods Act. As I have already said, my own view as to s. 28 is that the
section is satisfied by the readiness and willingness of the seller to give possession of the bill of
lading. I am, however, far from saying that the view which is suggested in the course of the judgment
of Hamilton J., namely, that when the parties have entered into a c.i.f. contract they have otherwise
agreed, is not one which could be supported, as I hold that a similar view is the true view also in
regard to s. 34, sub-s. 2. As to s. 34, sub-s. 1, there is no difficulty. No one suggests that the plaintiffs,
if they pay against documents, become thereby precluded from rejecting the goods if, on
examination after their arrival, they are found to be not goods in accordance with the contract, or
from recovering damages for breach of contract if they prefer that course.
So far I have tested the validity of the appellants contention that under a simple c.i.f.
contract the seller is entitled to payment only against delivery of the goods themselves and after
examination of the goods, altogether apart from authority, by applying, as I hope, established
principles and rules of law to a c.i.f. contract so as to give it in the language of Bowen L.J. such
efficacy as must have been intended by the parties to it as business men.
But, in truth, the judgment of the Court of Appeal (A. L. Smith M.R., Collins L.J., and Romer
L.J.) in the case of Parker v. Schuller cannot, in my judgment, be reconciled with this contention of
the present appellants. In Parker v. Schuller the case came before the Court of Appeal on an appeal
from the judge in chambers, who had affirmed an order giving the plaintiffs leave under Order XI., r.
1 (e), to issue a writ and serve the defendant to an action in contract, who was a foreigner out of the
jurisdiction, with notice of the writ. The validity of the judges order depended according to the
terms of Order XI., r. 1 (e), upon the existence of a breach, or alleged breach, within the jurisdiction.
The contract was in every essential point identical with the contract in the present case. It was a
simple c.i.f. contract, without mention of payment against documents, the goods sold being goods to
be shipped from Germany to Liverpool. The goods had not been shipped. The breach alleged by the
plaintiffs in the indorsement upon the writ of summons and in the affidavit in support of their
application was the non-delivery of the goods themselves to the buyers in Liverpool. The judge in
24

chambers (Farwell J.), who heard the application ex parte in the first instance, and Lawrance J., who
affirmed his order, had held that the non-delivery of the goods in Liverpool did, as the plaintiffs
contended, constitute a breach of the contract within the jurisdiction. The Court of Appeal reversed
their decision, holding that this non-delivery of the goods themselves upon which the plaintiffs relied
in their writ and the affidavit in support of their application did not constitute a breach of the c.i.f.
contract; and there is, I think, a noteworthy confirmation of the opinion of Hamilton J. that the law
on this point has long been treated as well settled in the fact that Mr. Horridge (now Horridge J.), the
counsel for the plaintiffs in Parker v. Schuller, expressly declined even to argue the point upon which
his clients had obtained their order from the judges appealed from, and upon which the plaintiffs,
the appellants in the present case, base their appeal to this Court, but endeavoured to uphold that
order upon the ground, not relied upon in the writ or in the affidavit, that under the c.i.f. contract
the seller is bound to deliver to the buyer the bill of lading and the policy of insurance with the other
shipping documents (if any), and that their unquestionable failure to do this constituted a breach
within the jurisdiction which would justify the grant to his clients of the order for service of notice of
the writ which they had obtained. According to the judgment of Hamilton J., and my own also, Mr.
Horridges argument as to the obligation of the seller under a c.i.f. contract not merely to ship the
goods at the foreign port, but to deliver the shipping documents to his buyer here, was well founded,
and the judgments of the Court of Appeal in Parker v. Schuller contain nothing in conflict with that
view. But all the members of the Court declined to deal with any defence of the order appealed
against which rested upon a breach other than that which was put forward in the plaintiffs writ of
summons and affidavit; and, being clearly of opinion that under a c.i.f. contract there was no
obligation on the seller to deliver the goods themselves in this country, they allowed the appeal. The
case is so important that I think it is my duty to quote one passage from the judgment of the Master
of the Rolls : Upon the appeal the alleged contract to deliver the goods at Liverpool was dropped,
the contract being c.i.f. Liverpool, and it was not argued that the contract was to deliver the goods
at Liverpool. That was abandoned. The plaintiff therefore was wrong in his application. It was not
contended that a c.i.f. contract was a contract to deliver goods in this country. Then, after referring
to Mr. Horridges argument that the contract did bind the seller to deliver the shipping documents,
the Master of the Rolls proceeded: It was enough in the present case to say that that was not the
cause of action indorsed on the writ of summons nor the cause of action alleged in the affidavit upon
which leave to issue the writ and to serve notice thereof out of the jurisdiction was granted. The
claim was for non-delivery of the goods. It was not until the case came into this Court that the
plaintiff set up another cause of action. That could not be allowed.
The case of the plaintiffs on the present appeal that the defendants can demand payment
only upon delivery of the goods logically depends upon the alleged obligation of the defendants to
deliver the goods themselves in this country, and we cannot, it appears to me, reverse the judgment
of Hamilton J. in this case without holding, as a necessary conclusion, that this Court decided wrongly
in Parker v. Schuller when it held, in regard to a simple c.i.f. contract, essentially identical with the
c.i.f. contract in the present case, that it created no such obligation on the part of the seller.
In regard to the subsidiary or supplemental clauses of the contracts in question, from which
the plaintiffs counsel sought, to some slight extent, to draw support for their interpretation of the
principal or governing provisions with which I have already dealt, I have really little or nothing to add
to that which my brother Hamilton has said in considering this part of the plaintiffs argument. These
clauses are printed clauses, not very clearly expressed, but apparently intended to meet certain
possible contingencies which we have not to consider in deciding the present issue. They do not
appear to me to throw any useful light upon the construction of the contracts in regard to the
conditions of payment. I may add, again referring to Tregelles v. Sewell, that the fact that there is a
reference to delivery of goods in a c.i.f. contract was held in that case not sufficient to alter the effect
of the c.i.f. terms. There the contract was in its fuller form payment upon delivery of bill of lading
and policy but this does not, I think, affect the principle if the contracts are to be performed
25

strictly according to their tenor. In my judgment, the judgment of Hamilton J. was right, and this
appeal, so far as relates to the plaintiffs claim, should be dismissed.
Appeal allowed by majority. Reversed by the House of Lords.

COMPTOIR DACHAT ET DE VENTE DU BOERENBOND BELGE S/A V LUIS DE RIDDER LIMITADA

(THE JULIA) [1949] AC 293 (HL)
LORD PORTER: My Lords, this is an appeal for a judgment of the Court of Appeal affirming by a
majority the judgment of Morris J. who upheld an award of an umpire stated in the form of a special
case under the Arbitration Acts, 1889 to 1934. The arbitration arose out of a contract for the sale of
rye by the respondents (the sellers) to the appellants (the buyers). The buyers, who were the
claimants in the arbitration, asked for the refund of the purchase price paid by them under the
contract on the ground that the consideration had wholly failed. The question for your Lordships
consideration is whether there was such total failure of consideration.
My Lords, the obligations imposed upon a seller under a c.i.f. contract are well known, and in
the ordinary case include the tender of a bill of lading covering the goods contracted to be sold and
no others, coupled with an insurance policy in the normal form and accompanied by an invoice which
shows the price and, as in this case, usually contains a deduction of the freight which the buyer pays
before delivery at the port of discharge. Against tender of these documents the purchaser must pay
the price. In such a case the property may pass either on shipment or on tender, the risk generally
passes on shipment or as from shipment, but possession does not pass until the documents which
represent the goods are handed over in exchange for the price. In the result the buyer after receipt
of the documents can claim against the ship for breach of the contract of carriage and against the
underwriter for any loss covered by the policy. The strict form of c.i.f. contract may, however, be
modified: a provision that a delivery order may be substituted for a bill of lading or a certificate of
insurance for a policy would not, I think, make the contract concluded upon something other than
c.i.f. terms, but in deciding whether it comes within that category or not all the permutations and
combinations of provision and circumstance must be taken into consideration. Not every contract
which is expressed to be a c.i.f. contract is such. Sometimes, as in The Parchim [1918] A. C. 157,
terms are introduced into contracts so described which conflict with c.i.f. provisions.
In the present case therefore it is not as if a usual form of delivery order had been given and
accepted or an insurance certificate covering the parcel was in the hands of Van Bree as agents for
the buyers, nor can a solution be found in the mere designation of the contract as c.i.f. This is not a
case in which the overriding provision is the term c.i.f. under which antagonistic terms can be
neglected on the ground that they are repugnant to the transaction, as was done by Rowlatt J. in Law
& Bonar Ld. v. British American Tobacco Co. Ld. The true effect of all its terms must be taken into
account, though, of course, the description c.i.f. must not be neglected. It is true, no doubt, to say
that some steps had been taken towards the performance of this contract, e.g., the goods had been
shipped, an invoice sent, the customary so-called delivery order had been transmitted and that
delivery order amongst its provisions contained a declaration by the sellers agents, Belgian Grain
and Produce Co. Ld. that they gave a share of the present delivery order of $4,973 in a certificate of
insurance. But the taking of steps towards performance is not necessarily a part performance of a
contract. The question is whether the purchaser has got what he is entitled to in return for the price.
Of course, if the buyers paid the sum claimed in order to obtain the delivery order and the share
purported to be given by it in the certificate of insurance, the contract would have been performed
in part at least, but I do not so construe the contract, even when illuminated by the practice adopted
by the parties. That practice seems to me rather to show that the payment was not made for the
documents but as an advance payment for a contract afterwards to be performed. With all due
respect to the learned judge and the Master of the Rolls, I can see no sufficient reason for supposing
26

either that the delivery order had some commercial value or that Van Bree undertook a personal
liability by their indorsement of the document. There was no evidence of commercial value and the
document itself was merely an instruction by one agent of the sellers to another. In my view, if the
Belgian Grain and Produce Co. Ld. were sued upon the document they would rightly reply that they
were acting only as agents and Van Bree could make the same defence. The document appears to
me to be no more than an indication that a promise already made by the sellers would be carried out
in due course, but in no way increases their obligations or adds to the security of the buyers.
In my opinion, the method by which the contract was customarily carried out supports this
view. No doubt the contract could have been so performed as to make it subject to the ordinary
principles which apply to a c.i.f. contract. The tender of a bill of lading or even of a delivery order
upon the ship, at any rate if attorned to by the master, and a policy or a certificate of insurance
delivered to or even held for them might well put it in that category. But the type of delivery order
tendered in the present case was a preliminary step only. A complicated procedure had to be
followed before the goods would be released. The buyers had to hand the sum due for freight to
their agents; those agents would then pay the freight and present the delivery order to the Belgian
Grain and Produce Co. Ld., who would sign a note on it acknowledging receipt of the freight: the
agents thereupon would hand the delivery order to Van Bree who would retain it and issue a laissez
suivre or release to themselves authorizing delivery to the agents. But before physical delivery of
the goods could take place Van Bree must have received a Captains laissez suivre authorizing
delivery to them. It was thus, as the umpire says, the effective document upon which Van Bree
obtained physical possession of the goods; it was issued to Van Bree and was never physically in the
buyers hands. Similarly, the insurance certificates, as the umpire also finds, were received by
Van Bree from the Belgian Grain and Produce Co. Ld., and would not have passed through the hands
of, or even have been seen by, the buyers. He further finds that Van Bree were at no time and in
no respect agents of the buyers and that the sellers did not, by delivering the certificates to Van
Bree, constructively deliver them to the buyers nor did Van Bree at any time hold the certificates
(whether countersigned by the Belgian Grain and Produce Co. Ld. or not) at the disposal of the
buyers. In these circumstances the fact that the sellers twice collected the insurance money for a
total loss and handed it to the buyers does not lead very far. It was a convenient method of settling
accounts between the parties and, despite the extra two per cent., is in substance no more than a
repayment of the money given for the goods.
My Lords, the object and the result of a c.i.f. contract is to enable sellers and buyers to deal
with cargoes or parcels afloat and to transfer them freely from hand to hand by giving constructive
possession of the goods which are being dealt with. Undoubtedly the practice of shipping and
insuring produce in bulk is to make the process more difficult, but a ships delivery order and a
certificate of insurance transferred to or held for a buyer still leaves it possible for some, though less
satisfactory, dealing with the goods whilst at sea to take place. The practice adopted between buyers
and sellers in the present case renders such dealing well nigh impossible. The buyer gets neither
property nor possession until the goods are delivered to him at Antwerp, and the certificate of
insurance, if it enures to his benefit at all, except on the journey from ship to warehouse, has never
been held for or delivered to him. Indeed, it is difficult to see how a parcel is at the buyers risk when
he has neither property nor possession except in such cases as Inglis v. Stock and Sterns Ld. v. Vickers
Ld., where the purchaser had an interest in an undivided part of a bulk parcel on board a ship, or
elsewhere, obtained by attornment of the bailee to him.
The vital question in the present case, as I see it, is whether the buyers paid for the
documents as representing the goods or for the delivery of the goods themselves. The time and
place of payment are elements to be considered but by no means conclusive of the question: such
considerations may, on the one hand, indicate a payment in advance or, on the other, they may
show a payment postponed until the arrival of the ship, though the property in the goods or the risk
have passed to the buyer whilst the goods are still at sea, as in Castle v. Playford. But the whole
circumstances have to be looked at and where, as, in my opinion, is the case here, no further security
27

beyond that contained in the original contract passed to the buyers as a result of payment, where
the property and possession both remained in the sellers until delivery in Antwerp, where the sellers
were to pay for deficiency in bill of lading weight, guaranteed condition on arrival and made
themselves responsible for all averages, the true view, I think, is that it is not a c.i.f. contract even in
a modified form but a contract to deliver at Antwerp. Nor do I think it matters that payment is said to
be not only on presentation but in exchange for documents. There are many ways of carrying out
the contract to which that expression would apply, but in truth whether the payment is described as
made on presentation of or in exchange for a document, the document was not a fulfilment or even
a partial fulfilment of the contract: it was but a step on the way. What the buyers wanted was
delivery of the goods in Antwerp. What the sellers wanted was payment of the price before that
date, and the delivery of the documents furnished the date for payment, but had no effect on the
property or possession of the goods or the buyers rights against the sellers. If this be the true view
there was plainly a frustration of the adventure - indeed the sellers admit so much in their pleadings
- and no part performance and the consideration had wholly failed. The buyers are accordingly
entitled to recover the money which they have paid. I would allow the appeal and pronounce for the
alternative award with costs in your Lordships House and in the courts below.
LORD SIMONDS: The argument before your Lordships ranged over a wide field, much of it being
directed to considering whether the contract between the parties was, or was to be regarded as, or
was of the type of, or partook of the nature of a c.i.f. contract. I prefer, without giving the contract a
label, to see what the parties respectively agreed to do and then to consider what is the legal effect
of failure of performance. My Lords, it appears to me plain that here there was a contract for the sale
of goods, viz., 500 tons of rye, and that that contract could be performed by either the physical or
the symbolical delivery of the goods in accordance with its terms. It is common ground that there
was not physical delivery. Was there then symbolical delivery? Certainly there was not. Again it is
common ground that the property in the goods did not pass to the buyers. There was not, and
indeed could not have been, any tender of a bill of lading, and I do not understand it to have been
contended that the handing over of the delivery order in this case amounted to symbolical delivery.
If it was so contended, the contention is in my opinion baseless. The contract, then, being for the sale
of goods and the goods, though paid for, not having been actually or symbolically delivered, how do
the sellers justify their contention that the consideration did not wholly fail? Departing, as it appears
to me, from the reasoning which found favour with the majority of the Court of Appeal, counsel for
the sellers urged, in the terms of the second of the formal reasons in their case, that at the time of
payment the respondents had performed all that they were required to do under the contract of
sale. My Lords, this seems to me an astonishing proposition. The contract entitled the respondents
as sellers to require payment on first presentation of and in exchange for first arriving copy/ies of
bill/s of lading .... and/or delivery order/s and policy/ies and/or certificate/s and/or letter/s of
insurance at Antwerp, etc., etc. Therefore, it was urged, the sellers had done all, and I emphasize
the word all, they were bound to do if and when they handed over a delivery order and certificates
of insurance. I do not pause to examine the factual basis of this contention, for it seems to me to be
wholly unsound in law. The fact that a seller at a certain stage in the carrying out of his contract is
entitled by its terms to demand payment does not mean that at that stage he has fully performed his
contract. Confusion, as I think, has arisen from the fact that, had the sellers been in a position and
elected to tender shipping documents by virtue of which the property in the goods passed to the
buyers, then the latter could not have contended that there had been failure of consideration. But
this result would have ensued not because a clause in the contract provided for payment against
documents, but because in law there cannot be failure of consideration if the property has passed. It
is in fact, as Asquith L.J. pointed out, apart of the machinery by which the contract is carried out that
payment should be made against, for instance, a delivery order and it is as little relevant to the
question whether there has been failure of consideration as would be a provision that payment
28

should be made, for example, on notification that the ship had left New York or had arrived at
Cherbourg.
What the buyers bought was 500 tons of rye, not an indorsement on a piece of paper
which brought them not a step nearer their rye until the ship arrived at Antwerp. I come, then, to the
conclusion that the sellers performed neither all nor, in any material sense, a part of what they were
required to do under the contract and that the buyers obtained no part of that which they had
contracted to buy. There was therefore total failure of consideration.
There is, however, one other matter to which I would briefly refer. The sellers, all else failing
them, urged that the risk in the goods had passed to the buyers, even if the property had not, and
that the insurance contract made by the sellers was available for the buyers. Assuming without
deciding that these propositions are well-founded, I am unable to see how they assist the sellers. If
the contract is, as I hold it is, a contract for the sale of rye to be performed by its physical or
symbolical delivery what relevance has it that the sellers say at a certain stage that the risk has
passed and that the insurance is available? It may well be that, if there is any validity in these
propositions, the buyers, recovering upon the insurance policies, would hold the proceeds for the
benefit of the sellers, but this does not seem to me to touch the question whether there has been a
total failure of consideration. It is, I think, probable that the insistence by the learned counsel for the
sellers on this aspect of the case was bound up with his reiterated plea that this was a c.i.f. contract.
As I have ventured to point out, it is immaterial what the contract may be called or to what category
of contract it is nearest akin, if it lacks that salient characteristic, which alone is relevant, namely,
that the property in the goods not only may but must pass by delivery of the documents against
which payment is made.
I would allow this appeal with costs here and below.
LORD MACDERMOTT: My Lords, whatever the intent of the present contract may be in other
respects, it is at least clear that it was an agreement for the sale of a specified quantity of rye at the
price of $4.025 per 100 kilos c.i.f. Antwerp. It is also clear that the goods were never separated from
bulk or appropriated to the contract and that, in fact, the buyers did not obtain physical delivery of
an ear of the grain they had ordered. What they did get, in addition to the invoice, which in itself is
not a material document for present purposes, was a delivery order, signed by the sellers Antwerp
agents, Belgian Grain and Produce Co. Ld., and addressed not to the ship but to F. Van Bree, S.A., a
firm of cargo superintendents who were employed on behalf of the sellers to handle the shipment
but were not at any time or in any respect the agents of the buyers. The contract permitted the
sellers to substitute a delivery order for a bill of lading in the documents to be presented and I shall
assume, having regard to the previous course of business between the parties, that the form of
delivery order tendered and accepted in this instance was that contemplated by the contract.
It is plain that in law the handing over of this order did not amount to symbolic delivery and
did not pass the property in the goods which remained in the sellers throughout. But it was
contended, none the less, that on the true construction of the contract the sellers performance was
as complete as if they had tendered the bill of lading and other documents due to be presented
under a normal c.i.f. contract and, accordingly, that the consideration had not failed at all. I cannot
accede to that contention. Whatever might have been the position had the sellers delivered a bill of
lading (and leaving out of account any point about policies or certificates of insurance), I am unable
to read the agreed terms as binding the buyers to treat the documents they got as a complete
fulfilment of the sellers obligations. It may be competent for a buyer to agree to accept performance
which stops short of delivery, actual or symbolic, but in my opinion that has not occurred here. No
doubt the contract contains much that is equivocal so far as its commercial classification is
concerned. Some stipulations point to it being an arrival contract; others, such as those relating to
insurance, suggest a c.i.f. contract. The terms employed, as well as the practice of the parties, afford
some indication that it was intended as a dual purpose document and that its mixed nature is the
result. But however this may be, I think its terms contemplate quite clearly delivery of the goods by
29

the sellers to the buyers; and if that is not symbolic it must be physical; and if physical it must be ex
ship. The sellers contention would leave delivery, so to speak, in the air, and cannot be said to echo
the intention of the parties. To my mind neither the provisions as to insurance nor the words in
exchange for suffice to outweigh this consideration. The former are not incompatible with a
promise to deliver, and the latter do not necessarily indicate the quid pro quo. A bus fare is given in
exchange for a ticket, but what it buys is the journey. I therefore conclude that the handing over of
the delivery order was not the performance of the contract but, at most, a step towards
performance.
The next point raised on this aspect of the matter was based on the somewhat vague
contention that the risk had passed to the buyers. Of course, if a buyer does not get what he has paid
for because of some risk which he has agreed to accept he cannot recover the price. But that is not
the case here, and the contention under discussion is not, as I understand it, concerned with more
than the risk of the goods being lost or damaged. As a matter of stipulation, a buyer who has got
neither delivery nor ownership may, no doubt, be made to bear a risk of this kind; but this will not in
itself give him something of that which he has bought. What the position would be if, pursuant to his
contract, the seller had taken due steps not only to insure against such risk but also to enable the
buyer to recover against the underwriters in the event of the loss thus covered is a question which
does not arise for determination here, as, even assuming that the risk passed, no insurance
documents were tendered. The buyers did not get them; Van Bree did, but, as to that, the umpire
finds .... the sellers did not, by delivering to F. Van Bree S.A. certificates of insurance in respect of
these goods, constructively deliver the said certificates to the buyers, nor did F. Van Bree S.A. at any
time hold the said certificates of insurance .... at the disposal of the buyers. That finding has not
been disputed and must be accepted.
On these grounds I am of opinion that the failure of consideration was not partial but total. I
would therefore allow the appeal with costs.
Lords Du Parcq and Normand concurred. Appeal allowed.

BERGER & CO INC V GILL & DUFFUS SA [1984] AC 382 (HL)

LORD DIPLOCK: My Lords, the subject matter of this appeal is a single contract dated 22 December
1976 for the sale of a consignment of 500 tonnes of Argentine bolita beans - 1974 crop as per
sample, c.i.f. Le Havre, on the terms of GAFTA 41 subject to certain variations, of which the most
material was a provision (the certification clause) that a certificate of quality at port of discharge
given by General Superintendence Co. Ltd., Paris (GSC) should be final.
At the outset of his judgment in the Court of Appeal Sir John Donaldson M.R. set out the
arbitral and litigious history of this case since 1 April 1977, when the appellants, Berger and Co. Inc.
(the sellers), appointed their arbitrator in a claim against the respondents, Gill and Duffus S.A.
(the buyers), in the dispute that had by then arisen between them and the sellers. By the time
judgment had been given by the Court of Appeal that history had extended over nearly six years and
had involved proceedings by way of saisie conservatoire in the Tribunal de Commerce at Le Havre,
hearings by arbitrators, who disagreed, followed by a hearing by an umpire, who made an award in
favour of the buyers, then an appeal to the Board of Appeal of GAFTA culminating in an award in the
form of a special case in April 1980 and in a supplemental award in April 1981, in compliance with a
remission ordered by the High Court (Mustill J.) at a hearing in January of that year. The hearing of
the special case in the High Court recommenced before a different judge (Lloyd J.) in July 1981
([1982] 1 Lloyds Rep. 101). He found partly in favour of the buyers and partly in favour of the sellers.
From his judgment an appeal to the Court of Appeal was brought. They found by a majority (Sir John
Donaldson M.R. and Slade L.J.) wholly in favour of the buyers. Robert Goff L.J. dissented and would
have found wholly in favour of the sellers. In face of this diversity of judicial opinion between judges
30

of great experience in commercial law, the Court of Appeal gave leave to appeal to your Lordships
House. So a claim for damages for an alleged breach of a contract for the sale of goods committed on
30 March 1977 will have taken more than 61/2 years in order to obtain final resolution of it. The
Master of the Rolls rightly described this delay, up to the time of hearing in the Court of Appeal, as
deplorable. Now, nearly 12 months later, I would substitute for deplorable, a disgrace to the
judicial system.
The delay and expense arise from the refusal of the buyers to comply and the failure of some
of the arbitration and judicial authorities to recognise the obligation, freely negotiated and included
in the contract between the parties in the interests of speed, certainty and economy, to accept as
final the certificate of the expert chosen by the parties to indicate whether the quality of the cargo
delivered by the sellers was equal to the quality of the sealed sample furnished by the sellers.
My Lords, I venture to think that by the time the case had reached the Court of Appeal it had
managed to acquire a deceptive appearance of complexity which an analysis of the legal nature of
the duties of the buyers and sellers under the contract of sale of 22 December 1976 should have
shown that it did not possess. Stripped down to its essentials that contract, apart from the
certification clause, was on ordinary c.i.f. terms.
The contract was set out in a confirmation note dated 22 December 1976 and signed on behalf
of the buyers and the sellers. The only provisions of this document which it is necessary to set out
are:
We herewith confirm to you the following transaction by our intermediary on the conditions of: GAFTA
41 London arbitration where not contradictory to the terms below. ...
Commodity: Argentine bolita beans - 1974 crop.
Quality: As per sample submitted to buyers and sealed by the General Superintendence Co. Ltd., Paris.
Quantity: 400 (four hundred) to 500 (five hundred) metric tons at sellers option to be declared latest
10/2/1977. ...
Destination: c.i.f. Le Havre/Antwerp at sellers option preferably Le Havre. ... Shipment:
February/March 1977.
Payment: Net cash against documents on first presentation through: Banque de Paris et des Pays-Bas,
Geneve. ...
Special conditions & remarks: Quality final at port of discharge as per certificate of General
Superintendence Co. Ltd., indicating that the quality of the lot is equal to the one of the sealed sample.
Charges for sealing of samples at sellers expense.

Under the quantity clause the sellers declared the full 500 tonnes on 3 February 1977, and this
quantity was shipped on the Salland from Limon in Costa Rica under a bill of lading dated 28
February. The vessel arrived at Le Havre on 21 March, but from some reason (which does not
appear) she left after discharging 9,661 bags containing only 445 tonnes of the consignment, and
over-carried the balance of 55 tonnes to Rotterdam where it was transhipped and brought back to Le
Havre in another vessel and was discharged there on 2 April 1977.
So much for what happened to the goods themselves. I turn next to what happened to the
shipping documents relating to the goods. These documents under ordinary c.i.f. terms
(incorporated without material alteration in GAFTA 41) comprise: invoice, full set on board bill of
lading and policy or certificate of insurance. It is not disputed that shipping documents which
satisfied this requirement and covered the whole contract quantity of 500 tonnes, were presented at
the buyers bank in Geneva on 22 March 1977 as provided for by the clause of the contract appearing
against the rubric payment. The buyers, however, rejected the documents and refused to pay
against presentation on the ground that they did not include
certificate of quality on discharge made out on behalf of all parties by GSC certifying that the goods are
of the same quality as the sample sealed by GSC Paris when the business was concluded.

31

My Lords, a certificate by GSC as to the quality of the goods at port of discharge under the
certification clause in the contract is not, and is indeed incapable of being, included among shipping
documents which a seller is required to tender to his buyer in return for payment of the price under
a contract of sale in ordinary c.i.f. terms. Although an argument to the contrary was apparently
persisted in by the buyers up to the Court of Appeal, its hopelessness has now been recognised and it
has not been advanced in the argument for the buyers in your Lordships House.
The sellers did not elect to treat as a wrongful repudiation of the contract the buyers
rejection of the documents as good tender under the contract and their consequent refusal to pay
the price upon presentation on 22 March. Instead the sellers set about getting from GSC a certificate
under the certification clause as to the quality of the 445 tonnes that had been discharged at Le
Havre and were all that were available for sampling there.
On 29 March 1977, GSC issued a certificate in the following terms:
Certificate of quality and inspection No. 15.944
In pursuance of an order given to us by: Berger and Co. to inspect: quality of 10,894 bags beans
bolitas at time of discharge by sampling. We hereby certify that we inspected the quality of a parcel
designated as: 9,661 bags beans bolitas, no marks, discharged ex m./s. Salland in Le Havre on 21 March
1977. According to the results of the analysis performed on the samples drawn by us on a 10% basis at
random, the parcel of beans discharged from m./s. Salland is equal to the samples previously sealed by
us and kept in our possession.
Paris, 29 March 1977 Societe Generale de Surveillance S.A.

The shipping documents were re-presented to the buyers on 30 March together with this certificate,
but were again rejected. This time the sellers did treat the buyers refusal to pay the price on
presentation of the documents as a wrongful repudiation of the contract and by telex of 1 April 1977
they elected to treat the contract as rescinded. This had the consequence in law that all primary
obligations of the parties under the contract which had not yet been performed were terminated.
This termination did not prejudice the right of the party so electing to claim damages from the party
in repudiatory breach for any loss sustained in consequence of the non-performance by the latter of
his primary obligations under the contract, future as well as past. Nor did the termination deprive
the party in repudiatory breach of the right to claim, or to set off, damages for any past nonperformance by the other party of that other partys own primary obligations, due to be performed
before the contract was rescinded. In the instant case these latter obligations included a primary
obligation, to be performed by the sellers at the time of shipment, and thus before the date of
termination of the contract, to ship goods that were in conformity with the contract, albeit that the
right of disposal of the goods was reserved by the sellers until payment by the buyers for the
shipping documents upon presentation.
My Lords, at all relevant times the Sale of Goods Act 1893 was still in force in its original
terms. The contract of sale was one by sample as well as by description. The goods Argentine bolita
beans - 1974 crop were two-year-old beans and as such were of a kind prone to contain some
admixture of impurities and of defective beans, the extent of which would be revealed by a sample
by reference to which the contract of sale was made, if such a sample were properly taken so as to
be representative of the bulk shipment.
Your Lordships in the instant case are thus not dealing with the converse of the example of
conduct that was the subject of Lord Blackburns well-known aphorism in Bowes v. Shand (1877) 2
App.Cas. 455, 480: if you contract to sell peas, you cannot oblige a party to take beans.
Parenthetically, I may add that in the case of a c.i.f. contract it is difficult to see how, without fraud
upon his part, the seller could ship beans but nevertheless be in a position to tender shipping
documents conforming to those called for by a c.i.f. contract to sell peas; and nothing that I say is
intended to cover cases of fraud.
32

In the instant case it has never been contended that the actual shipping documents tendered
by the sellers to the buyers on 22 March 1977 and re-tendered on 30 March did not relate to the
whole quantity of 500 tonnes or did not upon the face of them conform to the terms of the c.i.f.
contract of 22 December 1976. That being so it is, in my view, a legal characteristic of a c.i.f. contract
so well established in English law as to be beyond the realm of controversy that the refusal by the
buyer under such a contract to pay to the seller, or to a banker nominated in the contract if the
contract so provides, the purchase price upon presentation at the place stipulated in the contract, of
shipping documents which on their face conform to those called for by the contract, constitutes a
fundamental breach of contract, which the seller is entitled to elect to treat as rescinding the
contract and relieving him of any obligation to continue to perform any of his own primary
obligations under it; or, to use the terminology of the Sale of Goods Act 1893, to treat the contract
as repudiated. So far as concerns the instant case the relevant primary obligation of the sellers of
which they were relieved, was any further obligation to deliver to the buyers any of the goods that
were the subject matter of the contract.
That a refusal by the buyer to accept the tender of shipping documents which on the face of
them conform to the requirements of a c.i.f. contract and upon such acceptance to pay the contract
price amounts to a breach of condition (in the meaning given to that expression in the Sale of Goods
Act 1893) has been taken for granted so universally by English courts as not to have attracted any
subsequent positive exposition worthy of citation, ever since Lord Cairns put it thus in Shepherd v.
Harrison (1871) L.R. 5 H.L. 116, 132, a case where payment was to be by acceptance of a
documentary bill of exchange:
I hold it to be perfectly clear that when a cargo comes in this way, protected by a bill of lading and a bill
of exchange, it is the duty of those to whom the bill of lading and the bill of exchange are transmitted in
a letter, either to approbate or to reprobate entirely and completely, then and there.

Recognition of the principle so stated (to which I have myself supplied the emphasis) is implicit in all
judgments dealing with bankers confirmed credits as a mode of payment including the most recent
judgments of this House.
I have not overlooked a case decided in the High Court of Australia, Henry Dean & Sons
(Sydney) Ltd. v. ODay Pty. Ltd. (1927) 39 C.L.R. 330, to which deprecative reference is made in
Benjamins Sale of Goods, 2nd ed. (1981), para. 1717. The case turned largely on a question of
pleading which in New South Wales in 1927 followed the system that applied in England before the
Judicature Act. By a majority of three to two (Knox C.J., Higgins and Starke JJ., Isaacs and Powers JJ.
dissenting), it was held that when a buyer under a c.i.f. contract who was suing the seller for
damages for non-delivery of goods which corresponded to the contract description, was met by a
plea by the seller that by reason of the buyers previous non-acceptance of a documentary bill of
exchange accompanied by conforming documents, the buyer had failed to prove the essential
allegation in his pleading that he was ready and willing to perform the contract at the time when
tender of the actual goods that had been shipped under the bill of lading had been made. The two
judges in the High Court who formed the minority took the orthodox view that the buyers refusal to
accept the documentary bill on presentation made him unable to establish his readiness and
willingness to perform the contract. Of the majority, Knox C.J. and Higgins J. appear to have held that
a c.i.f. buyer is entitled to reject conforming shipping documents, if it should subsequently turn out
that the actual goods shipped under the conforming documents did not in fact conform to the
contract; a view which, if correct, would destroy the very roots of the system by which international
trade, particularly in commodities, is enabled to be financed. Starke J., although he concurred with
Knox C.J. and Higgins J. in the outcome of the action, did not adopt this ratio decidendi. He regarded
the case as a special one turning upon its particular facts; and I must confess that I have been unable
to discover in his judgment any clear statement of some legal principle that he was treating as
applicable to those facts.
33

There was thus no ratio decidendi that commanded the support of a majority of the High
Court of Australia. Maybe for this reason, so far as I have been able to ascertain, Henry Dean & Sons
(Sydney) Ltd. v. ODay Pty. Ltd., 39 C.L.R. 330 has never been regarded as meriting citation in any
later case. It has for more than half a century justifiably remained one of those submerged cases
which lawyers in general have tacitly accepted as being a total loss, until it was dredged up in the
course of the hearing of the instant case in your Lordships House to provide, in the judgments of
Knox C.J. and Higgins J., a tabula in naufragio for the buyers. In my opinion what was expressed to be
the ratio decidendi of those judgments is not the law of England.
In the instant case the sellers did elect to treat the contract as repudiated on 1 April 1977.
They then ceased to be under any contractual obligation to deliver to the buyers any Argentine
bolita beans - 1974 crop. The buyers on the other hand became liable to the sellers in damages for
breach of contract. Prima facie the measure of such damages would be the difference between the
contract price of the 500 tonnes of beans that were the subject matter of the contract and the price
obtainable on the market for the documents representing the goods at date of the acceptance of the
repudiation. Such prima facie measure might, however, fall to be reduced by any sum which the
buyers could establish they would have been entitled to set up in diminution of the contract price by
reason of a breach of warranty as to description or quality of the goods represented by the shipping
documents that had been actually shipped by the sellers if those goods had in fact been delivered to
them. In the events that happened the certification clause in the contract is in my opinion relevant
only to the measure of damages to which the sellers are entitled. It does not go to their liability even
if they could show that the damages should be nominal only.
The umpire, who had awarded the sellers damages on the basis of the prima facie measure I
have mentioned above together with warehousing costs and interest, gave no reason for his award.
The Board of Appeal in their award in the form of a special case set out the facts, including those
relating to the buyers refusal to pay the price on tender of the shipping documents and the sellers
election to treat the c.i.f. contract as thereby repudiated, in meticulous detail. The award, in
paragraph 52, stated the question of law for the court in the following terms, that became so familiar
before the case stated method of appeal to the High Court was abolished: the question of law for
the decision of the court is whether on the facts found and on the true construction of the contract
the buyers are liable to the sellers in damages.
This form of question left it open to counsel at the hearing in the High Court to advance
whatever arguments in law arising from the facts found that his ingenuity might suggest to him,
whether or not a similar argument had been addressed to the Board of Appeal. Accordingly I do not
find it necessary to refer to those parts of the award that record the submissions made to them by
the parties or to the boards own reasoning that led them to the conclusion that the buyers were
under no liability to the sellers in damages.
My Lords, the fact that the consignment of 500 tonnes was discharged at Le Havre in two
instalments of 445 tonnes and 55 tonnes respectively at an interval of 13 days between them owing
to over-carriage of the latter quantity to Rotterdam, coupled with the fact that the only certificate of
quality obtained from GSC related to the 445 tonnes first delivered, had the unfortunate result that
the case was conducted in the High Court before Lloyd J. as if, instead of there having been a single
contract for the sale of 500 tonnes of Argentine bolita beans c.i.f. Le Havre, there had been two
separate contracts, one for 445 tonnes and the other for 55 tonnes. In relation to the 445 tonnes the
fact that the rescission of the contract on 1 April 1977 necessarily included the remaining 55 tonnes
as well, appears to have been overlooked, and the matter was argued and dealt with by the learned
judge entirely on the question whether the GSC certificate was conclusive that the 445 tonnes with
which it dealt conformed to the contract. He held, on the authority of Alfred C. Toepfer v. Continental
Grain Co. [1974] 1 Lloyds Rep. 11 that it was and he restored the award of the umpire as respects
this part of the shipment.
It appears from the judgment of Lloyd J. that a belated allusion to the c.i.f. contract for the
55 tonnes having been rescinded, thus obviating the necessity for a GSC certificate for that tonnage,
34

was made by counsel for the sellers - but the judge, not being invited to do otherwise, dealt with this
part of the shipment as if it were the subject of a separate contract and appears to have regarded
that contract as requiring the sellers to provide the buyers with a GSC certificate of quality relating to
all goods delivered thereunder and the buyers as entitled to reject any goods for which such a
certificate was not supplied by the sellers.
My Lords, before turning to the fate of the instant case in the Court of Appeal, it is
convenient to deal with the conclusiveness of the GSC certificate of quality. Toepfer v. Continental
Grain Co. was a case of a c.i.f. sale of wheat by description alone, viz. No. 3 hard amber durum
wheat of U.S. origin. The contract contained no provision for a sample, but it incorporated a term:
Official certificates of inspection to be final as to quality.
The words used in a contract of sale that refer to the goods agreed to be sold (not being
specific goods as defined in section 62 of the Sale of Goods Act 1893) often include words that
describe a characteristic as to quality or condition that they possess which distinguishes them from
other goods of the same general kind. What Toepfer v. Continental Grain Co. decided was that where
the description of the goods agreed to be sold included a statement as to their quality and provided
that a certificate as to quality was to be final, the certificate was final as to the correspondence of
the goods with that part of the description of them in the contract that referred to their quality (in
casu No. 3 hard amber) notwithstanding that the certificate was proved to have been inaccurate.
The conclusion reached by the Court of Appeal in Toepfer v. Continental Grain Co. is, in my opinion,
plainly right. My own preferred analysis of the reason why it is consistent with section 13 of the Sale
of Goods Act 1893 is that while description itself is an ordinary English word, the Act contains no
definition of what it means when it speaks in that section of a contract for the sale of goods being a
sale by description. One must look to the contract as a whole to identify the kind of goods that the
seller was agreeing to sell and the buyer to buy. In Toepfers case, it was not No. 3 hard amber
durum wheat simpliciter but durum wheat of U.S. origin for which a certificate had been issued by a
U.S. Government official stating that its quality was that which is described in the trade as No. 3
hard amber.
Similarly, where, as in the instant case, the sale (to use the words of section 13) is by sample
as well as by description, characteristics of the goods which would be apparent on reasonable
examination of the sample are unlikely to have been intended by the parties to form part of the
description by which the goods were sold, even though such characteristics are mentioned in
references in the contract to the goods that are its subject matter.
My Lords, the c.i.f. contract in the instant case contains provisions opposite the rubrics
quality and special conditions & remarks respectively, which make the certificate of GSC
conclusive as to the conformity of the bulk shipment at port of discharge with the sample that had
been submitted to the buyers while the contract was in course of negotiation and had been sealed
by GSC. It must have been the intention of the parties that the conclusiveness of the certificate
would be limited to those characteristics of the contract goods that would be apparent on
reasonable examination of the sample; but there is no suggestion in the instant case of any
disconformity between the goods as delivered at Le Havre and the sealed sample, in respect of any
characteristic which reasonable examination of the sample would not have revealed. Since Lloyd J.,
and all three members of the Court of Appeal, accepted that such was in law the effect of these
provisions of the c.i.f. contract, I need say no more about them except to express my respectful
concurrence.
I turn now to analyse what it was that went wrong with the case in the Court of Appeal. Here
it was recognised that the c.i.f. contract was a single contract for a consignment of 500 tonnes. What
appears to have been wholly overlooked is that the sellers, on 1 April 1977, had in fact elected, as
they were entitled to do, to treat the buyers rejection of the shipping documents as a repudiatory
breach that had brought to an end their primary obligation under the contract to deliver any goods
at all to the buyers. No mention of this election on the sellers part is to be found in any of the
judgments. Robert Goff L.J., in his dissenting judgment, does say (p. 635), that on rejection of the
35

documents by the buyers the sellers became entitled to bring the contract [sc. for the 500 tonnes]
to an end, but there is nothing to indicate that his attention was directed to the fact that the sellers
had acted on that entitlement and had brought the contract to an end.
My Lords, it is trite law for which I do not find it necessary to refer to any other authority
than the judgment of Devlin J. in Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 Q.B. 459,
487-488, that when a buyer under a c.i.f. contract accepts shipping documents which transfer the
property in the goods to him, the property in the goods that he obtains is subject to the condition
subsequent that it will revest in the seller if upon examination of the goods themselves upon arrival
the buyer finds them to be not in accordance with the contract in some respect which would entitle
him to reject them, and he does in fact reject them. But this is because the c.i.f. contract remains on
foot; and being a contract for the sale of goods, the buyer has the right under section 34 of the Sale
of Goods Act 1893 to reject the goods themselves for non-conformity with the contract and retains
this right until he has had a reasonable opportunity of examining the goods after they have been
delivered.
My Lords, it is not necessary in the instant case to consider whether a similar right to reject
the goods upon delivery is retained by a buyer who, in breach of contract, has refused to accept the
shipping documents when duly presented in accordance with the provisions of the contract, and the
seller has not elected to treat such refusal as a repudiatory breach bringing all further primary
obligations on his part under the contract to an end. Delivery of the goods themselves, even for the
purpose of examination, to a buyer who is not the holder of the bill of lading would seem to require
some agreed amendment to the c.i.f. contract of sale; so one would not be concerned only with
rights of the buyer arising under the original c.i.f. contract. Under the original c.i.f. contract a right of
the buyer at his election to reject shipping documents and a right at his election to reject the goods
themselves upon delivery are separate and successive rights. The latter does not become exercisable
until the seller has unconditionally appropriated the goods to the contract. Under a c.i.f. contract this
does not happen until his reservation of the right of disposal of the goods by his withholding from
the buyer the shipping documents which represent them is terminated by his transferring the
shipping documents to the buyers. In so far as Robert Goff L.J. in a passage of his judgment appears
to accept the contrary as being a necessary corollary of the principle applied in the Kwei Tek Chao
case I think, with respect, that he was wrong.
Whatever legal problems might be presented by a situation resulting from a sellers failure to
treat the buyers rejection of conforming shipping documents as bringing the contract to an end, it
would, in my view, be contrary to the basic concepts of the law of contract that deal with the
different remedies for different categories of breach, if a seller of goods who had elected to treat the
buyers breach of a condition of the contract, or a fundamental breach of an innominate term, as
bringing to an end his own further primary obligations under the contract (or in the terminology of
the Sale of Goods Act 1893 to treat the contract as repudiated) continued to be under any legal
obligation to deliver to the buyer any goods, if the election so to treat the buyers breach were made
before the actual goods had been delivered to him. As already mentioned, if the seller sued the
buyer for damages for his failure to pay the price of the goods against tender of conforming shipping
documents, the buyer, if he could prove that the seller would not have been able to deliver goods
under those shipping documents that conformed with the contract of sale, would be able to displace
the prima facie measure of damages by an amount by which the value of the goods was reduced
below the contract price by that disconformity; but this goes to a quantum of damages alone.
My Lords, in the Court of Appeal, all 500 tonnes of beans were treated as if they had been
tendered by the sellers to the buyers on discharge at Le Havre and there rejected by the buyers. As
respects the 445 tonnes, both Sir John Donaldson M.R. and Slade L.J. accepted that the GSC
certificate was conclusive and that that quantity conformed with the contract, but as respects the 55
tonnes for which there was no such certificate, they accepted the finding of the Board of Appeal of
GAFTA (which related to the whole bulk of the 500 tonnes of beans shipped) that these 55 tonnes did
not conform to the contract. This, the Master of the Rolls reasoned, led to the conclusion that the
36

sellers had delivered to the buyers a quantity of goods conforming to the contract less by 55 tonnes
than the quantity they had contracted to sell, thus entitling the buyers to reject the whole 500
tonnes under section 30(1) of the Sale of Goods Act 1893, or alternatively under section 30(3). So, in
effect, these two members of the Court of Appeal treated the sellers obligation to deliver the
contract goods to the buyers at Le Havre and the buyers right to reject them for disconformity with
the contract after examination, as surviving the sellers justified determination of the c.i.f. contract
under which alone any obligation of the sellers to deliver goods to the buyers arose. For reasons
previously given I think that this must be erroneous in law.
Robert Goff L.J. does not, in his dissenting judgment, analyse the legal effects of the
rescission of the c.i.f. contract. He goes straight to the question of damages. He treats the case as
one in which the sellers are entitled to recover the price payable under the contract on tender of
shipping documents unless the buyers can prove that they would have been entitled to reject the
goods upon delivery at Le Havre. Since, even if there had been no rescission, the certification clause
made a GSC certificate conclusive as respects characteristics of the goods that would be apparent on
reasonable examination of the sealed sample, the buyers, in order to rely on section 30(1) or (3),
would have to prove that, on the balance of probabilities, GSC would not have issued a certificate
covering the balance of 55 tonnes that was not available at Le Havre for sampling when GSCs
certificate for the 445 tonnes was issued. There is no suggestion in the award of the Board of Appeal
of GAFTA that there was any difference in quality between the 445 tonnes and the 55 tonnes.
Indeed, the opinion stated in their award that the goods delivered did not conform to the contract, is
expressly said to apply to the whole bulk of 500 tonnes, so it is evident that the quality of the beans
shipped was a matter upon which expert opinion may differ. It is to avoid this kind of dispute that
parties incorporate conclusive certification clauses in contracts of sale of commodities.
Given the absence of any suggestion of difference in quality between the 55 tonnes and the
445 tons that GSC had certified as equal to the sealed sample by reference to which the c.i.f. contract
was made, the buyers lacked the finding of fact essential to their defence in part to the sellers claim
in damages, that on balance of probabilities GSC would not have issued a similar certificate in respect
of the 55 tonnes. It was for this reason that Robert Goff L.J. would have found wholly in favour of the
sellers and restored the award of the umpire.
For the reasons given in the rather more elaborate analysis of the legal nature of the
contracting parties rights which result from the facts found in the Board of Appeals award, I agree
with the result reached by Robert Goff L.J. I would allow the appeal, answer the question of law
posed in paragraph 52 of the special case in favour of the sellers in respect of the whole 500 tonnes
and uphold the alternative award of the Board of Appeal of GAFTA contained in paragraph 55 of the
special case. The buyers must pay the sellers costs in this House and in all courts below.
[Appeal allowed with costs. Decision of Court of Appeal reversed.
Decision of umpire restored.]

SCOTTISH & NEWCASTLE INTERNATIONAL LTD V OTHON GHALANOS LTD [2006] EWCA CIV 1750
Lord Justice Rix: The claimants, Scottish & Newcastle International Limited, sold cider to the
defendants, Othon Ghalanos Limited. The cider was loaded into containers in Hereford, and shipped
at Liverpool for Limassol in Cyprus. I shall refer to the parties as sellers and buyers respectively. In
this court the sellers are respondents, and the buyers are appellants. Their dispute at present is as to
where the sellers may found jurisdiction for their claim for the price of the cider. The sellers say that
they can found jurisdiction in England, on the ground that that was where the cider was delivered.
The buyers, who are a Cypriot company, and used to be the sellers exclusive distributors in Cyprus,
say that they must be sued in Cyprus. This issue has to be decided under the Judgments Regulation
(Regulation (EC) No 44/2001).
37

A person domiciled in a Member State may, in another Member State, be sued:

1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in
question shall be:
- in the case of sale of goods, the place in a Member State where, under the contract, the goods were delivered or
should have been delivered,
- in the case of the provision of services, the place in a Member State where, under the contract, the services
were provided or should have been provided,
(c) if subparagraph (b) does not apply then subparagraph (a) applies.

The contract of sale, which it is common ground was governed by English law, was for CFR (or cost
and freight) Limassol. The buyers allege that that amounted to, or that there was in any event a
specific term of overriding importance for, delivery in Limassol. That is disputed by the sellers, but it
is acknowledged that, were it so, then article 5.1(b), as well as article 2, would lead to jurisdiction in
Cyprus. The buyers also allege that, even if there was no specific agreement for delivery in Limassol,
the application of article 5.1(b) to the typical case of a C&F, CFR or CIF contract under English law
should lead to the conclusion that the place where the goods are delivered is at destination. They
conclude therefore, that, on either basis, there is no alternative jurisdiction in this case in England.
The judge, Andrew Smith J, rejected similar (albeit not identical) submissions, and confirmed
jurisdiction for the sellers claim in England. The buyers appeal with the permission of the judge.
The contract
There was one contract for eleven separate containers, separately shipped under eleven separate
bills of lading. As the judge explained, the background to the contract was the appointment in 1990
of the buyers, or of a subsidiary in the buyers group, as the exclusive importers and distributors of
Bulmers cider in Cyprus. HP Bulmers Limited was acquired by the Scottish & Newcastle Group, whose
headquarters are in Edinburgh. No formal contract was ever entered into between Bulmers and the
buyers, but matters proceeded informally for many years, although there is now litigation in Cyprus
concerning the sellers purported termination of the distributorship by letter dated 29 March 2004.
The sale contract with which we are concerned was entered into at about that time. The sellers
claim in these proceedings was brought on 12 December 2005. The buyers litigation in Cyprus was
subsequently commenced in February 2006. In effect, the buyers would prefer all aspects of their
disputes with the sellers to be conducted in Cyprus. If the judges solution in this claim is correct this
will possibly be another instance of the bifurcation of litigation caused by the jurisdiction rules
contained in the Brussels Convention or what has now become the Judgments Regulation.
The sale contract originated in the buyers letter to the sellers dated 3 March 2004. The
buyers there ordered the cider on terms specified in their letter, which included the following:
SHIPMENT
From Liverpool or Felixstowe per Zim Line vessel as per attached shipping schedule
DELIVERY
CFR Limassol.
PAYMENT
90 (ninety) days from the date of the arrival of the vessel.
PACKING
The containers should be stuffed to the maximum and sealed by you with an one way padlock and a high
security bolt seal before delivery to the carriers.
FREIGHT
Prepaid at the rate of Stg 275,00 liner terms all in plus BAF (Banker Adjustment Factor) per 20 container, as
agreed with the Cyprus agents of Zim line.
INSURANCE
Our care.
INVOICE

38

For each container separatelystatingFOB prices as stated below, total FOB value, freight, container number
and container high security bolt seal number. All copies should be signed.
BILL OF LADING
For each container separately, should state Notify Othon Galanos Ltd and a high security bolt seal number.
Original and copy non negotiable, each in three copies.
DOCUMENTS
For each container separately, should be issued in the name of Othon Ghalanos Lts and forwarded to us,
immediately upon shipment by registered and express mail.

On 21 April 2004 the sellers responded, raising some queries. The acknowledgment of order forms
which they issued at that time showed their then (ultimately mistaken) understanding that the
proposed contract was to be on FOB terms. These forms stated at their foot the standard printed
term as follows:
This order shall be governed by Scottish and Newcastle International Limiteds standard Terms and Conditions, or
in the event we have a contractual agreement with you, the terms of said agreement. For the avoidance of doubt,
English law shall apply, and delivery will be in accordance with INCOterms 2000.

The buyers answered by their letter dated 3 May 2004, explaining

Our prices are FOB U.K. port, but as per our agreement you prepay the freight on our behalf, thus making the
delivery terms CFR. The delivery terms CFR should be stated on the invoice. The amount of the freight prepaid
should also be stated on the invoice, separately

In the circumstances, the contract contemplated by the parties differed very little from a form of FOB
contract, although it was expressed to be CFR. Clearly, there was to be no opportunity for the sellers
to buy the goods afloat. Even the carriage was arranged by the buyers, albeit the freight was to be
prepaid on our behalf. See, in general, the discussion of forms of FOB contract in Benjamins Sale of
Goods, 7th ed, 2006, at paras 20-001ff.
Proforma invoices dated 18 June 2004 were issued. Two of them still mistakenly referred to
Terms of delivery as Free on board; the other nine correctly said Cost and freight Limassol. All
of them gave Limassol both as Port/airport of discharge and as Place of delivery.
In the event, the containers were despatched by three vessels: 6 containers left Liverpool on
the Britain Star on 26 June 2004, 3 more on the City of Glasgow on 6 July, and the final 2 on the
Westmed II on 16 July. The eleven invoices, issued on 18, 23 and 29 June and 6 July 2004, were in the
following form: Country of destination was named as Cyprus; Terms of delivery and payment
stated Cost and freight Limassol. PAYMENT DUE 90 DAYS FROM DATE OF ARRIVAL; Port/airport of
loading stated LIVERPOOL; Port/airport of discharge stated Limassol; and Place of delivery
was given as LIMASSOL. The goods were specified as were their prices, to which was added a
separate freight charge, and a total was then calculated.
The bills of lading were not in evidence before the court. The buyers order had stipulated
that the bills were to be non-negotiable, and the judge found that the buyers were probably named
in them as consignees, and that title to the goods was not transferred by the bills indorsement and
delivery. On appeal, those findings were not seriously disputed, save that it was, in my judgment
forlornly, submitted that the expression Original and copy non negotiable meant that at any rate
the originals of the bills were negotiable, viz to order. The bills, I find, were not taken by the sellers to
their order, but straight consigned to the buyers, to whom credit was extended for 90 days after the
arrival of the vessels at Limassol. In other words, there was no attempt by the sellers to delay the
passing of title until transfer of the bills against payment. It follows, in my judgment, that risk and
title passed on shipment (see further below): something that Mr Richard Lord QC, counsel on behalf
of the buyers, did not really attempt to dispute.

39

The submissions
The judge did not state precisely what he considered to be the terms of the contract. On the basis of
the submissions advanced to him below, that would not seem to have mattered: for it was not
submitted, as it was to us by Mr Lord who did not appear below, that both the original letters
DELIVERY CFR Limassol and the invoices Place of delivery LIMASSOL meant that it was an
express term of the contract that the place of delivery was Limassol. Before the judge, the parties
appear to have treated the contract as a typical C&F contract. Thus he recorded the parties
submissions in these terms:
7. The [sellers] case that the English court has jurisdiction is putFirst they say that the goods were delivered
within the meaning of article 5 in Liverpool where the goods were shipped
8. The [buyers] dispute the jurisdiction of the English court, arguing that the goods were delivered for the
purposes of article 5 elsewhere than England. They put forward two alternative candidates for the place where
the goods were delivered: first where the documents were tendered under the CFR contract, and secondly in
Limassol upon the arrival of the vessel, and therefore of the goods.

Before us, however, Mr Lord adopted a significantly different stance, at any rate as to his primary
case. He submitted, first, that the contract expressly provided for delivery in Limassol; and secondly,
that even if that were not so and the contract was a typical C&F or CFR contract with no express term
as to delivery save as might be derived from the provision for CFR Limassol, the purposes of article
5.1(b) were best met by superseding the intricacies of the English law as to delivery under
international C&F or CIF sales by a simple and certain rule to the effect that goods under such
contracts were delivered where they arrived at their contractual destination.
On behalf of the sellers, however, Mr Michael Bools submitted that the contract was a classic
C&F contract under which the sellers performed all their obligations at latest on shipment, when
delivery occurred; that the invoices reference to Limassol as the Place of delivery was an
erroneous box entry merely reflecting the fact that there was no further destination beyond arrival
of the ship in Limassol; and that the purpose of article 5.1 was best met by recognising England as
the place where all obligations connected with delivery took place.
International sale of goods under English law
Before turning to Mr Lords primary submission, that this was effectively an ex ship contract for
delivery in Limassol, it is necessary first to say something about the general rules under English law
relating to delivery under international sales, especially those on C&F and CIF terms.
The Sale of Goods Act 1979 contemplates that where, pursuant to the contract, a seller ships
goods for transmission to a buyer, the delivery to the carrier is prima facie delivery to the buyer; and
that risk, title and possession of the goods are transferred on shipment.
Thus under sections 17 and 18 relating to the passing of property, the general rule is that it
passes when intended to pass, that for the purpose of ascertaining the parties intention regard shall
be had not only to the terms of the contract but also to the conduct of the parties and the
circumstances of the case, and that the prima facie rule, in the absence of a different intention, is
that property passes when unascertained goods are unconditionally appropriated to the contract,
such as by delivery of them to a carrier. Thus Rule 5 under section 18 states:
(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that
description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with
the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the
buyer; and the assent may be express or implied, and may be given either before or after the appropriation is
made.

40

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or
custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not
reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.

Section 19 then deals with the exceptional case (although of course a frequent case in international
sales) where a right of disposal is reserved, eg by a seller taking a bill of lading to order. That,
however, neither occurred nor was supposed to occur in this case, where the bills of lading were
contracted to be non-negotiable, the buyers were promised 90 days credit from arrival of the vessel,
and the cider was unconditionally appropriated to the contract at earliest when the containers were
stuffed in Hereford and at latest when those containers were shipped at Liverpool.
Section 20 of the Act then provides that risk will normally pass with property, and that that
will occur whether delivery has been made or not. Mr Lord relies on the fact that delivery may
post-date the transfer of both risk and title.
As for delivery itself, that is defined in section 61 as meaning voluntary transfer of
possession from one person to another. The concept is dealt with under Part IV of the Act, which is
headed Performance of the Contract. Section 27 says that it is the duty of the seller to deliver the
goods, and of the buyer to accept and pay for them. Section 28 provides that, unless otherwise
agreed, these duties are concurrent conditions. Section 29, headed Rules about delivery states that
the default rule is that delivery is to take place at the sellers place of business, and that otherwise it
is a matter for agreement. Section 30 (delivery of wrong quantity) and section 31 (instalment
deliveries) do not concern us. It is section 32, headed Delivery to carrier, which deals expressly
with the concept in our context, of an international sale of goods involving carriage by sea, providing:
(1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer,
delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the
buyer is deemed to be delivery of the goods to the buyer.
(2) Unless otherwise authorised by the buyer, the seller must make a contract with the carrier on behalf of the
buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case;
and if the seller omits to do so, and the goods are lost or damaged in the course of transit, the buyer may decline
to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit,
under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him
to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea
transit.

A new subsection (4), dealing with consumer contracts, was inserted by the Sale and Supply of Goods
to Consumers Regulations 2002, as follows:
(4) In a case where the buyer deals as consumer or, in Scotland, where there is a consumer contract in which the
buyer is a consumer, subsections (1) to (3) above must be ignored, but if in ignorance of a contract of sale the
seller is authorised or required to send the goods to the buyer, delivery of the goods to the carrier is not delivery
of the goods to the buyer.

It may be noted, therefore, that in this respect the law merchant that had developed and then been
codified in Chalmers Sale of Goods Act is now specifically disapplied from consumer sales. This
perhaps reflects a feeling that a consumer would not expect the goods to be at his risk until physical
delivery had been effected: see Benjamin at para 5-098. If so, it highlights the difference between
what one might call a laypersons view of delivery as being something essentially physical, and a
merchants or lawyers view of it as being more conceptual. It should be noted that the Judgments
Regulation has its own special provisions for consumers in its section 4.
Thus prima facie delivery under the present contract was effected on shipment, together
with the transfer of title and risk: unless, as Mr Lord submits, the references to CFR Limassol and/or
to Limassol as the place of delivery displace that rule and turn the contract into one for ex ship
delivery in Limassol.
41

For these purposes, Mr Lord submits that a CFR, C&F or CIF sale is a documentary sale under which
different aspects of delivery can and do take place at different times and places. In this connection
he refers to passages in Benjamin such as the following:
19-072. Three stages of delivery. In a c.i.f. contract, there are three stages of delivery: a provisional delivery
on shipment; a symbolical delivery on tender of documents; and a complete delivery of the cargo when the
goods are handed over to the buyer at the destination. The duties of the seller so far discussed relate to the first
two of these stages; if the seller performs those duties he is not normally in breach merely because the third
stage is not reached. This follows from the nature of a c.i.f. contract and from the rules as to risk as they apply to
such a contract. Having shipped proper goods and tendered proper documents, the seller is not normally
concerned with what happens to the goods in transit: the buyers remedies (if any) in respect of the failure of the
goods to arrive are against the carrier or the underwriter, not against the seller

Benjamin reverts to the three stages of delivery in the context of considering the buyers opportunity
of examining the goods at destination, at para 19-157, thus:
Although some dicta can be cited in favour of the view that one or another of these stages is the time of
delivery, the best view is that, for the present purpose, there is no single time of delivery. The buyers opportunity
of examining the documents arises at the second stage, when the documents are tendered; and his opportunity
of examining the goods arises at the third stage of complete delivery unless the contract expressly provides that
he must examine the goods at the port of shipment. The buyer is allowed a reasonable time after discharge for
examining the goods and then a further reasonable time for deciding whether he intends to reject

Mr Lord also submitted that since goods sold C&F or CIF can be bought by a seller afloat, it may be
impossible to talk of any delivery at the time of shipment; and that, where a seller takes a bill of
lading to order in order to reserve to himself a right of disposal and to prevent the passing of title
save on payment against tender of documents, the critical delivery may be the tender of documents.
He did not go so far as to submit, however, that a C&F or CIF sale is a sale of documents rather than
a sale of goods (see the discussion in Benjamin at para 19-008). However, his overall submission was
that the uncertainties of the concept of delivery under an international documentary sale under
English law were such as both to justify an express provision for delivery only at destination and in
any event to lead to the conclusion that, for the purposes of article 5.1(b), the necessity for clarity
and certainty was in favour of a rule that the third or so-called complete delivery stage should be
regarded as the placewhere the goods were delivered or should have been delivered. He
describes such a rule as one of English law, not as an autonomous meaning required by article 5.1(b)
irrespective of English law.
In this connection, he relied, as an example of the complications of English law, on the
following analysis in Fawcett, Harris and Bridge on International Sale of Goods in the Conflict of Laws
at para 3.185:
The essential feature of a CIF contract is that shipping documents are transferred to the buyer, as a result of
which a contractual relationship is established between the buyer, on the one hand, and the insurer and carrier
on the other hand. Payment of the price of the goods becomes due when these documents are tendered. Under a
CIF contract, the seller never delivers the goods to the buyer or even to the buyers agent. Since the documents
stand in for the goods, the place where the goods were delivered or should have been delivered must refer to the
place where the documents were transferred or should have been transferred. This is so even though a
documentary sale is a sale of goods and not of documents. There are a number of variants of the CIF contract,
such as the C&F (or CFR) contract and, more rarely, the CIF and C contract, the CIF and E contract, and the CIF and
C and I contract. All of these involve different obligations from the normal CIF contract, but in none of them is the
parties agreement as to delivery any different and the position under Article 5(1)(b) will be the same as that for a
CIF contract.

Unlike in the court below, where the buyers primary submission was, in accordance with that
passage, that the article 5.1(b) place of delivery was in Cyprus where the documents were received
by the buyers, Mr Lord, as I understand his submission, refers to that passage, not as providing the
42

answer in this case, nor indeed in any case, but as exemplifying the difficulties to which English law
might lead in the absence of either an overriding term agreed between the parties as to the place of
delivery, or at least a standard and certain English law view as to the place of delivery under a
documentary sale.
I therefore turn to consider the two strands of Mr Lords submissions in this case.
An express term for delivery in Limassol?
As stated above, the judge did not have to determine the question of where exactly the terms of the
contract were to be found, or whether the invoice reference to Limassol as the place of delivery was
a term of the contract.
In my judgment, the terms of the contract are best found in the exchange of letters between
the parties and there is nothing there to suggest that this was a contract for delivery in Limassol, in
other words an ex ship contract. It was not so submitted before the judge. The invoices are not
themselves documents of contract. The formal acknowledgments of contract are contractual
documents, even though the errors in them had to be subsequently superseded. Nevertheless, I see
no reason why the incorporation of Incoterms found in those acknowledgments should not be
regarded as a surviving term of the contract. It may be observed that the definition of CFR or Cost
and Freight in Incoterms (a set of terms published by the ICC) is
The seller delivers the goods when they pass the ships rail in the port of shipment and must pay the costs and
freight necessary to bring the goods to the named port of destination. The buyer bears all additional costs and
risks after the goods have been delivered (over the ships rail at the port of shipment).

Mr Bools on this appeal did not rely on Incoterms, and so I make this observation merely in passing
and not as leading to my decision on the construction of this contract. In any event, a specific
agreement for delivery in Limassol may be thought of as overriding such a general provision.
However, this definition would seem to indicate that delivery at the place of shipment under a
documentary sale is an internationally well-known concept.
Turning to the letters between the parties, I note that the critical term, which comes through
into the final invoices, is for DELIVERY CFR Limassol. In the invoices this is expressed as Terms of
deliveryCost and freight Limassol. In my judgment that means in context, in accordance with the
well-known rules discussed above, that possession will prima facie be transferred to the buyers on
shipment on terms that the sellers will procure for the buyers a contract of carriage to carry the
goods to Limassol. There is no question here of the goods being bought afloat. Nor is there any
question of title being retained until payment, or transfer of the documents. Thus risk, title and
possession were all intended to pass on shipment, at latest.
The question then arises as to whether the additional reference in the invoices (and also in
the proforma invoices issued shortly prior to the final invoices) for Place of delivery LIMASSOL
turned this contract into an ex ship contract for delivery in Limassol. In my judgment, however, it did
not. I accept Mr Bools submission that this is an error, a merely administrative filling in of an extra
box on the standard invoice form. That box was designed to cater for the case where the agreed final
destination might be subsequent to the port of discharge. Its filling in here simply reflected the fact
that the ultimate agreed destination of the cider under the contract went no further than the port of
discharge. It did not fundamentally change the agreed contractual basis of the sale. Although it
would be theoretically possible to have title and risk pass before delivery, that would in the
circumstances be a most odd contract to make. It would, as Mr Lord accepted, mean that if delivery
never took place because the goods were lost at sea, the sellers could not be liable for that loss, and
would be entitled to the price despite non-delivery (and despite the fact that prima facie the price is
the quid pro quo for delivery). In the meantime, the bills of lading, consigned to the buyers, had on
shipment been posted to the buyers, a requirement of the contract reflecting the fact that the sellers
43

had ceded possession and control over the goods to the buyers. In such a case, what does it mean for
delivery to be effected only at Limassol? It makes no sense.
Thus Mr Lord did not seek to support his primary submission by reference to the argument,
advanced to the judge below, that Limassol had been impliedly agreed as the place of delivery
because of the contractual term that payment would be 90 days from arrival. As the judge remarked,
that went only to the time of payment and did not alter the effect of the CFR term. Similarly, Mr Lord
did not submit that reference to payment being due 90 days after arrival meant that in the
absence of safe arrival the price was not due. Mr Lord accepted that risk and title had passed on
shipment, and that the buyers had agreed to look to their contract of carriage and to their insurance
in the case of loss. In such circumstances, if the goods had been lost, payment would in my opinion
have been due 90 days after the vessel arrived (or ought to have arrived, if it too was lost). The
payment term was not 90 days after delivery in Limassol but after arrival of the vessel (as stated
in the buyers original letter), or from date of arrival (as expressed on the invoices).
The only authority cited by Mr Lord to exemplify the situation he contended for was
Galbraith & Grant Ltd v. Block [1924] 2 KB 155. That was the sale of a case of champagne by wine
merchants to a licensee. It was a term of the contract that the champagne should be delivered to the
licensees premises. The case was lost because it was signed for at those premises by a rogue. Lush
and Greer JJ, on appeal from the county court, held that good delivery had been effected when it
was made to a person at the buyers premises apparently authorised to receive the goods. It seems
to me, however, that this case is of no assistance to Mr Lord. That was the most straightforward of
contracts, where unascertained goods are to be delivered directly to the buyer, at his premises, by
the seller. It was not an international sale. It was not a documentary sale. The agreed place of
delivery was at the buyers premises. Although a carrier was involved, he was the sellers agent. It
was just as though a department store had delivered an item which had been bought on the
telephone for delivery at the customers home, using its own delivery service.
Mr Lord sought to support his submission by observing that the sellers claim form itself
refers to the invoices as being the foundation of their claim. However, it was natural for a
straightforward claim for the price to be particularised by reference to an invoice. Mr Lord also
referred to a witness statement made on behalf of the sellers, which referred to such order and
contract being evidenced by the invoices. However, it was not said that the contract was contained
in the invoices, and the self-same witness statement relied on all the contractual documents,
including the acknowledgment of order forms and their reference to Incoterms.
In my judgment, therefore, the buyers primary submission, that it was an express term of
the contract that delivery was to be effected at Limassol and not before, fails.
Destination as a characteristic place of delivery for the purposes of article 5.1(b)?
The sellers alternative submission was that the agreed destination should be adopted as a matter of
English law as a characteristic place of delivery for the purposes of article 5.1(b). In effect the place of
complete delivery should be adopted as the placewherethe goods were delivered or should
have been delivered. Mr Lord did not describe this as an autonomous meaning to be imposed on all
sales under all national systems of law. He accepted that the answer had to be found under English
law. In that I think he is correct. First, article 5.1(b) stresses that the solution has to be found on a
contract by contract basis (where, under the contract, the goods were delivered). That
necessarily involves a consideration of the proper law. Secondly, it may be said that the whole of
article 5.1(b) is an autonomous meaning itself, because it states the conventional rule for the place
of performance of the obligation in question for the case of sale of goods. Thirdly, in Industrie
Tessili Italiana Como v. Dunlop AG [1976] ECR 1473, the European Court of Justice, speaking of the
original article 5 of the Brussels Convention, concluded that the place of performance of the
obligation in question must be determined by reference to the substantive (national) law applicable
under the conflict of laws rules of the forum court (see at paras 14/15).
44

Mr Lord supported his submission by reference to the purpose of the Judgments Regulation. In this
connection he referred to paragraph 11 of its preamble, which states:
(11) The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally
based on the defendants domicile and jurisdiction must always be available on this ground save in a few welldefined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different
linking factor.

On this basis, Mr Lord submitted that article 5.1(b) must be applied so as to provide a certain and
easily predictable answer to the relevant jurisdictional question. He also emphasised that article 2,
providing jurisdiction in the defendants domicile, remained the primary rule. There was therefore no
need to give a special jurisdiction such as was to be found in article 5.1 any wider latitude than was
necessary, since the country of domicile was a place where the defendant could always be sued, and
it was well recognised that for these reasons such special jurisdictions should be interpreted
restrictively: see Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 AC 153 at 167B, citing the
European Court of Justice in Kalfelis v. Bankhaus Schrder Mnchmeyer Hengst and Co (Case 189/87)
[1988] ECR 556 at paras 19/20. Unless some such approach was adopted, Mr Lord said, the
intricacies and difficulties of the English law would render article 5.1(b) effectively futile.
In my judgment, however, this submission overstates the difficulties. The ramifications of
documentary sales have become well known. In their essence they can be succinctly expressed, for
instance, in this passage of Benjamin (at para 19-010):
In general. The duties of a c.i.f. seller are, first to ship (or procure a shipment of) goods in accordance with the
contract and, where necessary, to appropriate such goods to the contract; secondly to procure or prepare the
proper shipping documents; and thirdly to tender these documents to the buyer, or as the buyer directs. He is not
under any duty to ensure the actual physical delivery of the goods at the c.i.f. destination; though he is under a
duty not to take active steps to prevent such delivery.

Talk of the three stages of delivery is an attempt to highlight different aspects of the contract: but,
save where delivery and the transfer of title are delayed either by the need to purchase goods afloat
or the reservation implicit in the retention of the documents, which is not this case, everything
occurs at latest at shipment. The third stage, albeit called complete delivery, essentially reflects
only the facts that the seller might (in theory) wrongly attempt to divert the goods at the last
moment and that the buyer might still have an opportunity to reject the goods following inspection
at the port of arrival. In every other respect, however, and, most significantly, in the sense that
arrival of the goods at destination is no part of the sellers duty (as Benjamin observes in the passage
just cited), actual physical delivery of the goods at destination is no part of the sellers obligations in
performance of his contract. If, therefore, any stage of delivery is to be selected for the purposes of
article 5.1(b), it seems to be least likely that it is the third stage.
In the court below, counsel then representing the buyers did not submit that the place
where the goods are unloaded from the vessel would normally be the place where the goods are
delivered under a cif or c&f contract (which is Mr Lords alternative submission): see Andrew Smith J
at para 21, where he continued:
He was right not to do so: the only connection between the destination of the goods and the contract is that the
seller is obliged to arrange for a contract for the carriage of the goods to the agreed destination or to acquire
goods that are to be carried there.

In a typical case (albeit not this case), where the bill of lading is taken to the sellers order and he
intends to retain title until he is paid on tender of the shipping documents, there is, I see, an
argument that the place where the goods are delivered might be said to be not the place of
shipment but the place where the documents are tendered: as Fawcett, Harris and Bridge have
argued (see above at para 27). As to that argument, however, the judge below said this:
45

While acknowledging the respect to be paid to a work of such authorship, I am unable to accept that the
Regulation confers jurisdiction upon the courts of the place where the documents are transferred. This is not to
question the analysis of the nature of cif and c&f contracts. However, this view does not seem to me to recognise
the purpose of article 5 and in particular its purpose in relation to sale of goods contracts. There is simply no
reason to suppose that the place where the documents are transferred will typically be connected with the
dispute between the parties or the action. This can readily be illustrated by considering how documents are
transferred under letter of credit arrangements. Moreover, this interpretation of the Regulation does not even
have the virtue of clinging to the literal wording of the article, which refers to the transfer of the goods: the fact
that possession of the goods is transferred symbolically by the delivery of documents affects when they are
transferred or taken to be transferred, but not where they are at that time: in reality, the goods might well be at
sea when the documents are tendered.

The judge later (at para 23) reserved his view as to where goods are delivered in a case where the
seller buys them afloat.
I am inclined to agree with the judge about the case where the transfer of the shipping
documents completes at any rate the symbolic delivery of the goods. What article 5.1(b) looks to is
where the goods are delivered, not where the documents are tendered, however much, in Bowen
LJs famous phrase the bill of lading is a key which in the hands of a rightful owner is intended to
unlock the door of the warehouse, floating or fixed, in which the goods may chance to be (Sanders
v. Maclean (1883) 11 QBD 327 at 341). Where then are the goods delivered in the typical case of
goods shipped by a seller under a bill of lading taken to the sellers order? Wherever the goods
happen to be at the time of transfer of the documents? If so, that might be at sea in which case
article 5.1(b) would provide a merely illusory alternative place of jurisdiction. Or it might be at
destination, if the sea voyage is short and/or there is delay in transferring the documents. And often
the buyer might anticipate the bill of lading and even obtain actual physical delivery at destination on
the provision to the carrier of a letter of indemnity: in such a case, is article 5.1(b) delivery delayed
until the shipping documents are finally tendered and paid for?
These questions are not easily answered, and do not have to be answered in this case. I
would venture the opinion, but no more, that the solution may be to look to what has been
described as the provisional delivery which takes place at shipment. After all, in the case of
documentary sales what the parties are primarily concerned with is not actual physical delivery at
destination something which may never take place even though the seller has fulfilled all his
obligations and the buyer is still obliged to pay the price but a legal concept of delivery. Moreover,
albeit in such a case title may not be transferred at shipment, risk is, and, subject to transferring the
documents, which the seller is in any event bound to do against receipt of the price, the goods are
delivered, under the contract, to the carrier for carriage to the buyer.
Such a solution would, but I speculate, reflect a broad international consensus on the effect
of documentary sales (see for instance the Incoterms definition cited above).
In this context it is also important to consider what article 5.1(b) is concerned with: and that
is the significance of the place of performance of contractual obligations as a connecting factor with
a particular jurisdiction. As paragraph (12) of the preamble to the Judgments Regulation states:
(12) In addition to the defendants domicile, there should be alternative grounds of jurisdiction based on a close
link between the court and the action or in order to facilitate the sound administration of justice.

In his Jenard Report on the original Brussels Convention (OJ 1979 No C 59 at p22), Mr Jenard
commented on articles 5 and 6 as follows:
Adoption of the special rules of jurisdiction is also justified by the fact that there must be a close connecting
factor between the dispute and the court with jurisdiction to resolve it.

The same point was made by the ECJ itself in Tessilli (at paras 12/13):
46

Article 5 however provides for a number of cases of special jurisdiction at the option of the plaintiff. This freedom
of choice was introduced in view of the existence in certain well-defined cases of a particularly close relationship
between a dispute and the court which may be most conveniently called upon to take cognizance of the matter.

In Shenavai v. Kreischer Case 266/85 [1987] ECT 239 the ECJ said this (256, at para 18):
On the other hand, no such uncertainty exists for most contracts if regard is had solely to the contractual
obligation whose performance is sought in the judicial proceedings. The place in which that obligation is to be
performed usually constitutes the closest connecting factor between the dispute and the court having jurisdiction
over it, and it is this connecting factor which explains why, in contractual matters, it is the court of the place of
performance of the obligation which has jurisdiction.

See also Custom Made Commercial Ltd v. Stawa Metallbau GmbH [1994] ECR I-2913, 2955, at para
12.
The concept of the obligation in question under the Brussels Convention has given rise to
difficulties: see, for instance, in this jurisdiction Royal & Sun Alliance Insurance plc v. MK Digital FZE
(Cyprus) Ltd [2006] EWCA Civ 629, [2006] 2 All ER (Comm) 145 at paras 92/100. There has been
oscillation between identifying a characteristic obligation of a contract as being the obligation in
question, and, as the ECJ finally determined, outside the special case of contracts of employment,
the contractual right on which the plaintiffs action is based (Custom Made at para 23). In effect,
the Jurisdiction Regulation by its article 5.1(b) (and 5.1(c) in relation to contracts for the provision of
services) has reverted to defining a characteristic obligation as being the definitive obligation in
question. In Briggs & Rees, Civil Jurisdiction and Judgments, 4th ed, 2005, at para 2.123 the learned
editors give a characteristically vibrant account of the historical forces at work in this narrative. They
express the view that the original article 5.1 has been eviscerated (Apart from the sale of goods and
the supply of services, and remembering that contracts of individual employment have been
removed to the new Section 6 of Chapter II, what other contracts are there?). They continue (at
p147):
But sub-paragraph (b) operates within the context of the law which developed under the original Article 5(1) of
the Brussels Convention. It is, after all, only the identification of the obligation in question which is re-defined for
the purposes of Article 5(1) of the Judgments Regulation.

I agree: and that is among the reasons why I would reject Mr Lords alternative submission that the
place of delivery is the place of physical delivery to the buyer at destination even in cases where the
seller has already performed all his obligations by shipment. Sub-article (b) remains an example of
the selection of the place of performance of the obligation in question as constituting that close
connecting factor which justifies an alternative jurisdiction in that place. Therefore, the
placewhere, under the contract, the goods were delivered or should have been delivered ought
to reflect a matter of obligatory performance under the contract. In a CIF or C&F contract, the seller
has no obligation to deliver to destination, only to procure the shipment of goods for carriage to
destination.
The importance of that connecting factor may perhaps be tested by reference to a number
of typical situations where contract of sale of goods could lead to litigation. Thus, where the claim is
a simple one for the price, it is natural to think that the place of delivery is closely connected with
that obligation (although of course, by agreement, the price might be payable either in advance or,
on credit, after delivery). There seems no logic, however, to sue for the price at the place of
destination, where that is not the same as the place of contractual delivery. Moreover, since a buyer
is typically quite likely to be found at the country of destination, an article 5.1(b) which focuses on
the place of destination as the place of delivery would hardly seem to offer an alternative jurisdiction
to that of domicile. Where, moreover, there is a dispute about the price because of a dispute about
the quality of the goods, it will be their quality prima facie at the point of shipment that will typically
be in issue, not their quality at the place of destination. Similarly, where it is the buyer who sues,
47

typically he does so on the ground of non-delivery or mis-delivery or delivery of defective goods.

There again, it makes sense to look to the place where the contractual obligations of the seller
mandate such delivery, rather than at destination where that is different. That remains the case,
even though it may turn out in individual situations, or even typically, that goods which are defective
on arrival at destination are surveyed there. What, however, remains critical in a typical
documentary sale is the quality of the goods which were shipped. Inspections on shipment are also
frequently carried out in international trade.
Thus, although a general rule may not fulfil its function in every case, an interpretation of
article 5.1(b) as referring to the place where delivery is due under the contract, rather than to the
place of the goods destination where that differs, would far better fulfil the general purpose of
article 5.1 of putting forward an alternative place of jurisdiction (to that of domicile) which reflects
the place where the typical contractual obligation of delivery is performed. It is that obligation which
is deemed to be the obligation in question. A place of destination which differs, as it typically does
in documentary sales, from the contractual place of delivery where the sellers obligations are
generally performed does not meet the purpose of a jurisdictional rule which is seeking a close
connecting link between place of performance of the obligation in question and forum.
Conclusion
For these reasons, I would dismiss this appeal. Although the submissions have to some extent
changed, my reasons are, I think, very largely the same as those of the judge.

PROFINDO PTE LTD V ABANI TRADING PTE LTD [2013] SGHC 10

Judith Prakash J:
Introduction
1
This is an appeal against the decision of the district judge (the DJ) in Profindo Pte Ltd v
Abani Trading Pte Ltd [2012] SGDC 176 (the GD). The primary issue on appeal is how demurrage is
to be calculated as between a seller and a buyer in a cost and freight (CFR) sale contract ie,
whether or not the calculation of laytime against the buyer is to be suspended when the vessel
carrying the goods is forced to leave its berth halfway through the unloading process.
Facts
Background
2
The parties are both trading companies incorporated in Singapore. On 19 May 2009, the
appellant, Profindo Pte Ltd, agreed to sell 2,750 metric tons of cement to the respondent, Abani
Trading Pte Ltd. The cargo was to be loaded in China and delivered to a port in Madagascar. The
terms of the sale are contained in a proforma invoice (the Agreement).
3
The relevant clauses of the Agreement are as follows:
1. Product: Ordinary Portland Cement 42.5 R Conforming to China Standard GB 175-2007
2. Quantity: 2750 MT (+/- 5% at [the appellants] option)
3. Unit Price: USD 101/MT CFR
4. Total Price: USD 277,750.00 CFR

48

15. Discharge rate: 1000MT per WWD SHEXC UU

16. Demurrage/Dispatch: USD 5500 per day or prorate/no dispatch
17. Port DA: Port DA at disport of maximum USD5000 is under [the appellants] account. If [Port DA] exceeds
USD5000, [the respondent is] to top up the difference and pay [the appellant]

Under the Agreement, it was the appellants responsibility to procure a ship to carry the cargo.
4
Pursuant to cl 15 of the Agreement, the parties agreed that on arrival of the carrying vessel
at the discharge port, the respondent would discharge the goods within the allowable laytime of 2.75
days (calculated on the basis that 2,750 metric tons of cargo would be discharged at the rate of 1,000
metric tons per day). Clauses 3 and 4 of the Agreement also made it clear that the parties contracted
on a CFR (ie, cost and freight) basis. It is not disputed by the parties that a CFR contract is but a
variation of a cost, insurance and freight (CIF) sale contract, and that the differences between
the two types of contract are not material for the purposes of this appeal.
5
The appellant chartered the MV Athens and having loaded the cargo, the vessel arrived at
the discharge port of Diego Suarez, Madagascar on 28 June 2009. The vessel berthed on 29 June
2009 at 0700 hours and the respondent commenced discharge at 0805 hours the same day.
Discharge continued on 30 June 2009. However, on 1 July 2009, the port authorities unexpectedly
required the vessel to leave the berth and move to the anchorage to give priority to a tanker. As a
result, no discharge took place on 1 July 2009 and 2 July 2009. On 2 July 2009 at about 3pm, Mr
Jeremy Wong (Mr Wong) of the appellant called Mr Jayes Damodar (Mr Damodar), director of
the respondent, to inform the latter that the vessel had been anchored outside the port since 1 July
2009. Mr Wong offered Mr Damodar the option of allowing limited discharge to take place on 2 July
2009 as the vessel could return to berth that day.
6
However, as it was too late in the day for significant discharge to occur, Mr Damodar
instructed Mr Wong to wait until the next day (ie, 3 July 2009) to berth the vessel. Mr Wong followed
up with an email dated 2 July 2009 stating:
As spoken, we will advise vessel to berth tomorrow instead of today as per your decision. Kindly note that time is
to count whether vessel is berthed or not, and once demurrage, always in demurrage.

In his reply email on the same day, Mr Damodar simply replied:

Let the [vessel] discharge then for 2 hours, if it does not make any difference.

7
Despite Mr Damodars email, the vessel only returned to berth on 3 July 2009 and the
respondent completed the discharge of the goods on the same day.
The parties claims
8
Subsequently, the owners of the vessel (the shipowners) imposed demurrage on the
appellant who managed to negotiate a reduced charge of US$8,200 but wanted the respondent to
pay the amount. The appellant alleged that pursuant to cll 2 and 15 of the Agreement, the
respondent was responsible for the delay since laytime continued to run whether the vessel was
berthed or not. The respondent disagreed, contending that laytime was suspended when the vessel
left the berth and that it was not responsible for demurrage because it had completed the discharge
within the allowable laytime of 2.75 days when the vessel was berthed.
9
The appellant eventually paid the shipowners. However, the appellant alleged that it was
blacklisted by the shipowners for late payment of the demurrage. As a result, the appellant allegedly
suffered a loss of earnings of US$57,500 because it was unable to charter any vessel from the
shipowners to fulfil its agreement with another customer for cement to be shipped. The appellant
claimed this sum of loss of earnings from the respondent.
49

10
The appellant also claimed reimbursement of disbursements payable at the port, ie the Port
DA charges, of US$4,965.03. As the vessel was at the port for a longer time, the Port DA charges
amounted to US$9,965.03. According to cl 17 of the Agreement, the respondent had agreed to pay
the appellant for any excess above US$5,000 in respect of Port DA charges. However, the respondent
refused to pay - alleging that the delay in discharge, for which it was not responsible, caused an
unnecessary rise in these charges.
11
The respondent also filed a counterclaim against the appellant on two separate grounds
relating to the cement delivered. First, the respondent claimed that the cement supplied was not of
satisfactory quality. As a result, the respondent had had to compensate a subsequent buyer of the
cement by paying it a sum of US$10,000. The respondent therefore sought to recover this sum from
the appellant.
12
Second, the respondent claimed that there was a shortfall of four metric tons of cement as
the total amount discharged from the vessel was 2,746 metric tons instead of the 2,750 metric tons
as agreed in cl 2 of the Agreement. Relying on cl 3 of the Agreement, the respondent sought to
recover US$404 (ie, US$101 x 4) from the appellant on the basis that it should not have to pay for the
shortfall in the cement.
Decision below
13

The DJ held as follows:

(a)
Laytime was suspended when the vessel was not berthed so the respondent was not
liable for the appellants claim for demurrage. The DJ came to her decision on the
basis that that there was no express or implied term between the parties that the
respondent would be liable for demurrage whether or not the vessel was berthed
(see the GD at [16]).
(b)
Even if laytime was not suspended, the appellant had not proven its claim for loss of
earnings of US$57,500 because this was a loss which the appellant could not have
reasonably foreseen. It was also a loss which the appellant could have taken
reasonable steps to avoid. The claim for loss of earnings was thus not allowed.
(c)
The appellant had supplied four metric tons less cement than the contractually
agreed amount and the respondent was therefore entitled to its counterclaim of
US$404.
(d)
The respondent was liable to the appellant for any Port DA charge in excess of
US$5,000, and therefore had to pay US$4,965.03 to the appellant.
(e)
The respondent had not made out its case that the goods supplied were not of a
satisfactory quality. Its counterclaim for US$10,000 was thus dismissed.
14
Finally, the DJ fixed costs of $10,000 in favour of the respondent on the basis that the
majority of court time was spent on the issues relating to demurrage and loss of earnings, which the
appellant did not succeed on.
15
The appellant appealed against the findings in paras 13(a), (b) and (c). It also appealed
against the costs award.
Issues
16

The issues which arise for my consideration in this appeal are as follows:
(a)
Did the DJ err in holding that the respondent was not liable for the appellants claim
for demurrage because laytime was suspended when the vessel was not berthed
(Issue 1)?
(b)
Did the DJ err in holding that even if laytime was not suspended, the respondent
could not be responsible for the loss of earnings amounting to US$57,500 allegedly
suffered by the appellant (Issue 2)?
50

(c)
(d)

Did the DJ err in holding that the appellant was liable for the respondents
counterclaim for shortfall of cement (Issue 3)?
Did the DJ err in fixing costs at $10,000 to be paid by the appellant to the respondent
(Issue 4)?

My decision
Issue 1
17
In determining the issue of whether laytime was suspended in favour of the respondent, the
DJ appeared to have shifted the burden of persuasion on to the appellant to show that laytime was
not suspended when the vessel was not berthed. This could very well have been the result of the
appellants choice of arguments before the DJ on this issue the appellant first argued that there
was a separate agreement based on the email correspondence between Mr Damodar and Mr Wong
that laytime would continue to run whether or not the vessel was berthed; and then it argued that
there was an implied term in the CFR contract that the respondent would pay demurrage in such a
case. As a matter of principle, however, the burden of persuasion should have been borne by the
respondent. The Agreement merely stipulates, based on cll 2 and 15, that the respondent had a
laytime of 2.75 days to discharge the goods (see above at [3] and [4]). Given that the respondent
took more than 2.75 days to do so, it is the respondent who bore the burden of showing that the
Agreement allowed for the suspension of laytime when the vessel had to leave the berth part way
through discharge, notwithstanding the lack of an express provision to that effect in the Agreement.
18
In their submissions before me, both parties were unable to identify any case authority
which specifically addresses the issue of whether laytime - as between a seller and a buyer who are
parties to a CFR (or CIF) sale contract - is to be suspended when the vessel is forced to leave the
berth and suspend discharging operations before completion through no fault of either the seller or
the buyer. The authorities dealing with the allocation of risk arising from obstructions occurring
within the prescribed laytime relate mostly to contracts of carriage between charterers and
shipowners, as opposed to sale contracts between sellers and buyers (see Stephen Girvin, Carriage of
Goods by Sea, 2d Ed (Oxford University Press, 2011) at para 32.46; Triton Navigation Limited v Vitol
SA [2003] EWCA Civ 1715).
19
In its written submissions, the respondent referred to the following extract from Benjamins
Sale of Goods, 8th ed (Sweet & Maxwell, 2010) (Benjamins) at para 19-089:
[I]n Etablissements Soules et Cie v Intertradex SA a c.i.f contract specified the rate at which the goods were to be
discharged and went on to provide for demurrage at a specified daily rate, without making any reference to the
charterparty. It was held that, on the true construction of this provision, demurrage began to run against the
buyer under the contract of sale only from the time when the vessel berthed, even though it might have begun
to run against the seller as charterer under the charterparty from the earlier time of the vessels arrival at the
port of discharge.

Based on this extract, the respondent submitted that since the vessel was not berthed on 1 and 2
July 2009, no discharge could occur on those dates and laytime must be suspended on these two
days.
20
I am of the view, however, that neither the extract from Benjamins nor the case cited Etablissements Soules et Cie v Intertradex SA [1991] 1 Lloyds Rep 379 (Intertradex) - actually
supports the respondents position. The issue which the English Court of Appeal had to decide in
Intertradex was whether laytime had commenced as between a buyer and seller to a CIF contract
even before the vessel could berth. The seller argued that time should start counting from the
moment the vessel had arrived in the port and notice of readiness was tendered, while the buyer
contended that time could not start to count until the vessel had berthed. Although the CIF contract
51

in Intertradex did not expressly state whether laytime would commence before the vessel was
berthed, Lord Justice Neil held (at 388) that:
The natural meaning to be placed on any stipulation as to the time of discharge between seller and buyer is that
the time should run from the moment the seller places the goods at the disposal of the buyer. It is true that prima
facie a c.i.f. contract is concerned with documents rather than with goods, but where there is a special provision
as to discharge which imposes an obligation on the buyer which is enforceable by the seller it seems to me to
follow that, in a port where discharge is at a berth, the time when that obligation takes effect is when the vessel
reaches the berth at which the buyers goods are to be discharged.

21
In my view, this case does not assist the respondent because the holding of Lord Justice Neil
is specific to the issue of when laytime can be said to commence or take effect. It is a separate
question altogether as to whether laytime can be interrupted or suspended after it has already
commenced. No authority has been cited by the respondent to show that, in the absence of clearly
stipulated excepted perils in a contract, laytime can be suspended in favour of a buyer in a CIF/CFR
contract when the vessel is made to leave the berth halfway through the discharge. In fact, Lord
Justice Neils comment that the time should run from the moment the seller places the goods at the
disposal of the buyer (emphasis added) can even be construed as assisting the appellant since the
goods in the present case had in fact been placed at the disposal of the respondent before the
disruption occurred.
22
The appellant, on the other hand, submitted that I should give effect to the principle that
once demurrage has become payable no excepted peril can have effect on the duty to pay
demurrage, citing Lord Chorley and O C Giles, Shipping Law, 6th Ed (Pitman Publishing, 1970)
(Chorley) as authority. The authority cited is not very helpful because the learned authors were
referring to the specific (and, for the purposes of the present issue, irrelevant) situation of whether
demurrage is payable if an excepted peril arises after laytime has expired. The learned authors
explained that demurrage would still be payable in such a situation because if the [buyer] had
performed his obligation in time the perils would not have had any effect on the loading (Chorley at
p 153). In the present case, however, laytime had not expired when the disruption occurred, and
thus the justification provided for imposing demurrage after laytime has expired is not apposite.
23
It is, however, worth remembering that the concept of demurrage as enunciated in
demurrage clauses is based on the premise that the contract gives the cargo owner a specific period
the laytime within which to unload his cargo and if discharge is not completed within the laytime,
demurrage runs immediately from the expiry of the laytime and ends only when discharge ends.
24
In this particular case it is helpful to consider the matter in light of the duties of a seller in a
CIF/CFR sale contract. In Benjamins at para 19-010, the learned author explained that the duties of a
CIF seller are:
first to ship (or procure a shipment of) goods in accordance with the contract and, where necessary, to
appropriate such goods to the contract; secondly to procure or prepare the proper shipping documents, and
thirdly to tender these documents to the buyer, or as the buyer directs. He is not under any duty to ensure the
actual physical delivery of the goods at the c.i.f. destination, though he is under a duty not to take active steps to
prevent such delivery.
[emphasis added]

25
In my view, if the CIF/CFR seller (ie, the appellant) is not even under any duty to ensure the
actual physical delivery of the goods at the port of discharge, it would be quite remarkable to hold
that the risk of delay in unloading the goods at the port of discharge after laytime has commenced
has to be borne by him. This is especially so when there is a demurrage clause in the contract since
the raison dtre of the same must be to transfer the risk of delay in the discharge of goods to the
buyer. It is more logical and more in line with commercial realities to hold that such risks, unless they
have been expressly allocated to the seller by a specific term in the contract, are to be borne by the
CIF/CFR buyer. Since the Agreement did not specify who the risk should fall on if the discharge of
52

goods was to be interrupted after laytime had commenced, I hold that laytime continued to run
during the period when the respondent could not have discharged the goods (ie, 1 and 2 July 2009)
because the vessel had shifted away from the berth.
26
As a matter of contractual construction, I have also mentioned that the burden lies on the
respondent to convince the Court that a suspension of laytime can be read into the Agreement (see
above at [17]). This is because nowhere in the Agreement is the obligation of the respondent to pay
demurrage so qualified. I note that this was the very basis upon which the DJ had decided that the
respondent should be liable for the excess Port DA charges (see above at [13(d)]). At [28] of the GD,
the DJ reasoned:
The agreement between the parties simply states that [the respondent] was to pay any excess Port DA above USD
5,000 without further qualification. [The respondent] sought to imply a term that their liability for Port DA is
limited to a reasonable sum and that they would not be liable for Port DA when discharge was delayed due to the
unexpected departure of the vessel from berth. However, [the respondent] did not elaborate on why such
qualifications should be implied into the contract. Consequently, I rejected their argument that they are not liable
for the Port DA because the vessel was not berthed on 1 and 2 July 2009 and allowed [the appellants] claim for
Port DA of USD 4,965.03.
[emphasis added]

27
There is no reason why the DJs accurate analysis of the issue on excess Port DA charges
should not apply to the issue of demurrage as well. Like the clause stipulating that the respondent
was to pay any excess Port DA charges above US$5,000 (ie, cl 17), the laytime clauses in the
Agreement (ie, cll 2 and 15) were also framed without further qualification. The respondent was
effectively urging the Court to imply into the laytime clauses a qualification stating that laytime will
be suspended if the vessel is forced to leave the berth; but it has similarly not elaborate[d] on why
such qualifications should be implied into the [Agreement]. As a matter of principle, if the
respondent is to be liable for the excess Port DA charges notwithstanding the fact that the vessel
was not berthed on 1 and 2 July 2009, it must also be liable for demurrage even if laytime was only
exceeded because the vessel was forced to leave the berth on 1 and 2 July 2009.
28
I should also point out that at the material time (ie, 2 July 2009), Mr Damodar did not raise
any objection when Mr Wong wrote to him that time is to count whether vessel is berthed or not
(see above at [6]). I would have thought that if, as the respondent now argues, it is clear and
undisputed that demurrage only begins to run against a CIF/CFR buyer when the vessel is berthed
and ready for discharge, Mr Damodar would have strongly objected to Mr Wongs email in his reply
instead of merely stating: [l]et the [vessel] discharge then for 2 hours . A few days later, on 7 July
2009, Ms Vonny Fu Li Fang (of the appellant) emailed Mr Damodar requesting demurrage payable
of US$10,637. Instead of categorically denying any liability to pay demurrage, Mr Damodar replied
on the same day merely to request for a copy of [the charterparty with the shipowners], and
detailed laytime calculation [from the shipowners].
29
While the DJ held that agreement to pay demurrage cannot be inferred from Mr Damodars
conduct (see the GD at [11]), this holding was made in the context of the appellant having to prove
that there was a separate agreement between the parties that laytime would continue to run
whether or not the vessel was berthed. However, as stated, in my judgment no such burden lay on
the appellant. It was the respondents burden to show why the laytime clauses in the Agreement
should be qualified in its favour. In this different context, Mr Damodars conduct in not
categorically denying liability to pay demurrage at the earliest opportunities suggests that the
respondents submission that laytime is suspended when the vessel is not berthed was likely an
afterthought, rather than a reflection of a clear and undisputed legal or commercial understanding
that existed between the parties.
30
For the above reasons, I allow the appellants appeal in respect of its claim against the
respondent for demurrage of US$8,200. Although the appellant had initially claimed the full sum of
US$10,637 (ie, US$5,500 multiplied by 1.934 days) as the demurrage due, counsel for the appellant
53

stated during oral submissions before me on 1 November 2012 that the appellant was willing to
reduce its claim for demurrage to US$8,200 (ie, the sum which the shipowners had agreed to accept
after negotiations with the appellant). In fact, on 25 August 2009, the appellant had invoiced the
respondent only for the discounted demurrage sum of US$8,200.
31
For purposes of completeness, I should point out that had the appellant consistently claimed
the full sum of US$10,637 in the present case, it might very well have succeeded notwithstanding its
own reduced obligation to pay the shipowners US$8,200. This is because, as a matter of law, it could
have been argued in the appellants favour that the demurrage clause in the CFR sale contract
between the parties was a free-standing provision of an independent contract unconnected with the
contractual arrangements between the appellant and the shipowners (see Fal Oil Co Ltd & Anor v
Petronas Trading Corp Sdn Bhd [2004] EWCA Civ 822; Charles Debattista, Laytime and demurrage
clauses in contracts of sale links and connections [2003] LMCLQ 508). As this issue was not
properly ventilated before either the DJ or myself, and since the appellant had clearly manifested its
willingness to reduce its claim for demurrage, I will only allow the appellants reduced claim for
demurrage of US$8,200.
Issue 2
32
While the appellants reduced claim for demurrage against the respondent should be
allowed, its claim for loss of earnings allegedly as a result of being blacklisted by the shipowners
stands on a different footing. I agree with the DJ that the appellant has failed to satisfy the legal
requirements of remoteness and mitigation in relation to this alleged loss (see above at [13(b)]).
33
When there is a breach of contract, the damages to be awarded must either be those: a)
which arose naturally, according to the usual course of things from such breach of contract itself; or
b) as may reasonably be supposed to have been in the contemplation of both parties, at the time
they made the contract, as the probable result of the breach of it (see Hadley v Baxendale (1854) 9
Exch 341 at 354). In its written case, the appellant attempted to show that the respondent knew or
ought reasonably have known that blacklisting would take place if demurrage was not paid in time to
the shipowners. However, none of the evidence relied on by the appellant substantiated its claim.
The email correspondence between the appellant and the respondent shortly after the goods were
discharged merely showed, at best, that the respondent was aware that the appellant was under
some pressure by the shipowners to make payment for demurrage. As the respondent rightly
submitted, this is a far cry from it having been actually informed that any late payment would
jeopardize the appellants alleged oral agreement with the same shipowners to charter a second
vessel. The appellants further allegations that the respondent was informed over the phone and that
blacklisting by shipowners was well known in the trade were also unsubstantiated by any objective
evidence.
34
Crucially, the appellant also failed to address the DJs legitimate concern that this alleged loss
of earnings was one which the appellant could have easily mitigated. It is a basic principle in the law
of contract that a claimant cannot recover damages for reasonably avoidable loss (see The Asia Star
[2010] 2 SLR 1154). No argument or evidence was advanced before me to explain why the appellant
could not have paid off the shipowners first to avoid the alleged, greater loss of US$57,500 before
claiming for demurrage against the respondent later. The appellant was therefore rightly described
by the respondent as authors of their own misfortune with regards to the alleged loss of earnings.
35
In the result, I affirm the DJs decision on the issue of the alleged loss of earnings and dismiss
the appellants appeal in respect of the same.
Issue 3
36
In finding that the appellant supplied four metric tons less cement than the contractually
agreed amount and then holding that the respondent was entitled to its counterclaim of US$404, the
54

DJ reasoned that the appellant could not charge for 2,750 metric tons of cement when it had only
discharged 2,746 metric tons of the same (see the GD at [29]).
37
In my view, the DJs reasoning rests on the presupposition that the seller in a CIF/CFR sale
contract is responsible for the amount of goods discharged from the carrying vessel, such that the
risk of a shortfall in goods at the point of discharge falls on the seller. With respect, I find this
presupposition contrary to the authorities on the relationship between a seller and buyer of a
CIF/CFR sale contract.
38
In Filippo Lorenzon, CIF and FOB Contracts, 5th Ed (Thomson Reuters, 2012) at para 2-010,
the learned author stated that unless otherwise agreed in the [CIF sale] contract, risk passes from
seller to buyer across the ships rail at the port of loading (emphasis added).
Similarly, in Benjamins at para 19-073, it is mentioned (in the context of a CIF contract) that:
Having shipped proper goods and tendered proper documents, the seller is not normally concerned with what
happens to the goods in transit: the buyers remedies (if any) in respect of the failure of the goods to arrive are
against the carrier or the underwriter, not against the seller.

39
In short, the authorities suggest that the appellants delivery obligation was discharged at
the port of loading, rather than at the port of discharge. It is common knowledge that in the context
of the carriage of goods by sea, the bill of lading typically serves as a receipt of the quantity or weight
of goods shipped. In the present case, the bill of lading which was signed by the agent of the master
of the vessel at the port of loading records the weight of the goods shipped as follows:
GROSS WEIGHT: 2754.81 MTS
NET WEIGHT: 2750 MTS

40
Given that the documentary evidence clearly suggests that at least 2,750 metric tons of
cement were in fact loaded and shipped at the port of loading, the burden fell on the respondent to
show that notwithstanding the representation on the bill of lading, the appellant had in fact shipped
less than 2,750 metric tons of cement. The respondent did not discharge this burden. It was not able
to prove its case of short delivery since what it relied on was short discharge at Diego Suarez rather
than evidence showing a shortfall in cargo delivered to the vessel. If the four metric tons of cement
were lost in transit on the MV Athens or during the discharge process, the respondents proper
recourse would be to claim for short delivery against the shipowners (as carriers) instead.
41
For that reason, I reverse the DJs holding that the respondent was entitled to its
counterclaim of US$404. The appellant is not liable for the missing cement as it has fulfilled its
delivery obligation towards the respondent by loading 2,750 metric tons of cement on to the MV
Athens.
Issue 4
42
As the appellant has succeeded on Issue 1 and Issue 3, the DJs costs order below (ie,
$10,000 in favour of the respondent) will have to be set aside. Even if the appeal had not succeeded
however, it is my judgment that the imposition of $10,000 of costs in favour of the respondent was
incorrect given that, before the DJ, both parties were generally unsuccessful on the bulk of their
claims. The respondent, for example, succeeded only in its counterclaim for the shortfall of cement
(amounting to US$404) but lost on its much more substantial counterclaim of US$10,000 for the
alleged unsatisfactory quality of cement (see above at [13(e)]).
43
I note that the DJ took into account the fact that the majority of time was spent on the issues
relating to demurrage and loss of earnings, on which the appellant failed before her. However, the
amount of time spent per se on a particular issue should not, in my view, be the sole determinant of
the amount of costs a party should receive. The DJ should have considered whether the time spent
55

on those issues was due to the appellants witnesses being unreasonably evasive, or the crossexamination by the respondents counsel being unnecessarily protracted. In any case, even if the
former was true, this would still not have justified the respondent being awarded S$10,000 in costs
given that the respondent had: a) failed in its defence against the appellants claim for the excess
Port DA charges; and b) failed in its counter-claim for the alleged unsatisfactory quality of cement.
Some costs at least should have been awarded to the appellant on the basis that the costs generally
follow the event and the victor is only deprived of costs if it has raised issues unreasonably or unduly
prolonged the proceedings.
44
Given my holding that the DJ should have decided Issue 1 and Issue 3 in favour of the
appellant, I set aside the DJs costs order and award the costs of the trial fixed at $10,000 (on the
basis that the appellant succeeded in two out of its three claims and successfully resisted the
counterclaims) plus reasonable disbursements in favour of the appellant. As the appellant has largely
succeeded in this appeal (save for Issue 2), I fix the costs of the appeal at $5,000 plus reasonable
disbursements and award them to the appellant as well.
Conclusion
45
For the foregoing reasons, I allow the appellants appeal save for its claim for the alleged loss
of earnings. There shall be judgment for the appellant for the sum of US$8,200 in addition to the
US$4,965.03 awarded by the DJ together with costs as provided in [44] above.

3.2

Parties Obligations under the CISG

PART III. SALE OF GOODS

CHAPTER II. OBLIGATIONS OF THE SELLER

Article 30
The seller must deliver the goods, hand over any documents relating to them and transfer the
property in the goods, as required by the contract and this Convention.
SECTION I. DELIVERY OF THE GOODS AND HANDING OVER OF DOCUMENTS
Article 31
If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver
consists:
(a) if the contract of sale involves carriage of the goods in handing the goods over to the first
carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or
unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the
time of the conclusion of the contract the parties knew that the goods were at, or were to be
manufactured or produced at, a particular place in placing the goods at the buyers disposal at
that place;
(c) in other cases in placing the goods at the buyers disposal at the place where the seller had his
place of business at the time of the conclusion of the contract.

56

Article 32
(1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier
and if the goods are not clearly identified to the contract by markings on the goods, by shipping
documents or otherwise, the seller must give the buyer notice of the consignment specifying the
goods.
(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are
necessary for carriage to the place fixed by means of transportation appropriate in the circumstances
and according to the usual terms for such transportation.
(3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at
the buyers request, provide him with all available information necessary to enable him to effect
such insurance.
Article 33
The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that
date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period
unless circumstances indicate that the buyer is to choose a date; or
(c) in any other case, within a reasonable time after the conclusion of the contract.
Article 34
If the seller is bound to hand over documents relating to the goods, he must hand them over at the
time and place and in the form required by the contract. If the seller has handed over documents
before that time, he may, up to that time, cure any lack of conformity in the documents, if the
exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable
expense. However, the buyer retains any right to claim damages as provided for in this Convention.
SECTION II. CONFORMITY OF THE GOODS AND THIRD PARTY CLAIMS
Article 35
(1) The seller must deliver goods which are of the quantity, quality and description required by the
contract and which are contained or packaged in the manner required by the contract.
(2) Except where the parties have agreed otherwise, the goods do not conform with the contract
unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made
known to the seller at the time of the conclusion of the contract, except where the circumstances
show that the buyer did not rely, or that it was unreasonable for him to rely, on the sellers skill and
judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;
(d) are contained or packaged in the manner usual for such goods or, where there is no such manner,
in a manner adequate to preserve and protect the goods.
(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of
conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not
have been unaware of such lack of conformity.
Article 36
(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity
which exists at the time when the risk passes to the buyer, even though the lack of conformity
becomes apparent only after that time.
57

(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the
preceding paragraph and which is due to a breach of any of his obligations, including a breach of any
guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some
particular purpose or will retain specified qualities or characteristics.
Article 37
If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any
missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in
replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods
delivered, provided that the exercise of this right does not cause the buyer unreasonable
inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as
provided for in this Convention.
Article 38
(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is
practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods
have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable
opportunity for examination by him and at the time of the conclusion of the contract the seller knew
or ought to have known of the possibility of such redirection or redispatch, examination may be
deferred until after the goods have arrived at the new destination.
Article 39
(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to
the seller specifying the nature of the lack of conformity within a reasonable time after he has
discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not
give the seller notice thereof at the latest within a period of two years from the date on which the
goods were actually handed over to the buyer, unless this time-limit is inconsistent with a
contractual period of guarantee.
Article 40
The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity
relates to facts of which he knew or could not have been unaware and which he did not disclose to
the buyer.
Article 41
The seller must deliver goods which are free from any right or claim of a third party, unless the buyer
agreed to take the goods subject to that right or claim. However, if such right or claim is based on
industrial property or other intellectual property, the sellers obligation is governed by article 42.
Article 42
(1) The seller must deliver goods which are free from any right or claim of a third party based on
industrial property or other intellectual property, of which at the time of the conclusion of the
contract the seller knew or could not have been unaware, provided that the right or claim is based
on industrial property or other intellectual property:
(a) under the law of the State where the goods will be resold or otherwise used, if it was
contemplated by the parties at the time of the conclusion of the contract that the goods would be
resold or otherwise used in that State; or
58

(b) in any other case, under the law of the State where the buyer has his place of business.
(2) The obligation of the seller under the preceding paragraph does not extend to cases where:
(a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of
the right or claim; or
(b) the right or claim results from the sellers compliance with technical drawings, designs, formulae
or other such specifications furnished by the buyer.
Article 43
(1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give
notice to the seller specifying the nature of the right or claim of the third party within a reasonable
time after he has become aware or ought to have become aware of the right or claim.
(2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the
right or claim of the third party and the nature of it.
Article 44
Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the
buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit,
if he has a reasonable excuse for his failure to give the required notice.
.
CHAPTER III. OBLIGATIONS OF THE BUYER
Article 53
The buyer must pay the price for the goods and take delivery of them as required by the contract and
this Convention.
SECTION I. PAYMENT OF THE PRICE

Article 54
The buyers obligation to pay the price includes taking such steps and complying with such
formalities as may be required under the contract or any laws and regulations to enable payment to
be made.
Article 55
Where a contract has been validly concluded but does not expressly or implicitly fix or make
provision for determining the price, the parties are considered, in the absence of any indication to
the contrary, to have impliedly made reference to the price generally charged at the time of the
conclusion of the contract for such goods sold under comparable circumstances in the trade
concerned.
Article 56
If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by
the net weight.
Article 57
(1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the
seller:
(a) at the sellers place of business; or
59

(b) if the payment is to be made against the handing over of the goods or of documents, at the place
where the handing over takes place.
(2) The seller must bear any increase in the expenses incidental to payment which is caused by a
change in his place of business subsequent to the conclusion of the contract.
Article 58
(1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the
seller places either the goods or documents controlling their disposition at the buyers disposal in
accordance with the contract and this Convention. The seller may make such payment a condition for
handing over the goods or documents.
(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms
whereby the goods, or documents controlling their disposition, will not be handed over to the buyer
except against payment of the price.
(3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods,
unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his
having such an opportunity.
Article 59
The buyer must pay the price on the date fixed by or determinable from the contract and this
Convention without the need for any request or compliance with any formality on the part of the
seller.
SECTION II. TAKING DELIVERY
Article 60
The buyers obligation to take delivery consists:
(a) in doing all the acts which could reasonably be expected of him in order to enable the seller to
make delivery; and
(b) in taking over the goods.

BUNDESGERICHTSHOF, VIII ZR 159/94, GERMANY, 8 MARCH 1995 (NZ MUSSEL CASE)

Facts
Defendant [buyer], who runs a fish import business in D., bought 1,750 kilograms (kg) New Zealand
mussels for U.S. $3.70 per kg from Plaintiff [seller], who resides in Switzerland. [Seller] delivered the
goods, as agreed, in January 1992 to a storage facility belonging to [buyer] and located at Company
F. in G.G., and invoiced [buyer] on January 15, 1992 in the amount of U.S. $6,475 payable within 14
days.
At the end of January 1992, Company F. informed [buyer] that the federal veterinary agency of G.G.
had taken samples of the goods for examination purposes. After the veterinary agency confirmed at
the end of January/beginning of February 1992, upon [buyers] request, that an increased cadmium
content was discovered in the mussels and that further examinations by the responsible veterinary
examination agency of Southern Hesse were necessary, [buyer] informed [seller] of these facts by
facsimile dated February 7, 1992. According to the report by the veterinary examination agency of
Southern Hesse, which was received by [buyer] on February 26, 1992 and forwarded to [seller] by
[buyer], cadmium contents of between 0.5 and 1.0 milligram per kg (mg/kg) were ascertained in four
of the examined bags of mussels; these contents did not yet exceed twice the amount of the 1990
60

standard of the federal public health agency, but further examinations by the importer were found
necessary. An examination commissioned by [seller] and conducted by the federal agency for
veterinary matters in Liebefeld-Bern determined a cadmium content of 0.875 mg/kg.
By facsimile dated March 3, 1992, [buyer]) announced to [seller] that she was going to send the
mussels back at [sellers] expense since the veterinary agency had declared them not harmless due
to their high cadmium content; simultaneously, she complained that the goods were no longer in
their original packaging as required and that, furthermore, the packaging was unsuitable for frozen
food. Thereafter, [seller] informed [buyer] by telephone that she would not accept the goods.
Consequently, [buyer] did not return the goods. According to a report of the chemical examination
laboratory of Dr. B. dated March 31, 1992, which had been commissioned by [buyer] for further
examination, three samples revealed 1 mg of cadmium per kg; a doubling of the federal public health
agency standards could not be tolerated, and at least 20 additional samples of the entire delivery
had to be examined.
[Buyer] requested that [seller] cover, among other things, the future expenses of the examination;
[seller] did not reply.
In the complaint, [seller] demands payment of the purchase price of U.S. $6,475 plus interest. She
claimed that the mussels were suitable for consumption because their cadmium content did not
exceed the permitted limit; furthermore, [buyer] had not given timely notice of the defects. [Buyer],
on the other hand, declared the contract avoided due to a fundamental breach of contract because
the mussels were defective and had been complained of by the responsible authorities. Thus, the
mussels were not permitted to be delivered out of the storage facility. And by now, the expiration
date of 12/92, affixed to the merchandise by [seller], had come and gone anyway.
The Trial Court (here the Landgericht) obtained an expert opinion from the federal public health
agency. With respect to the question whether the mussels were suitable for consumption having the
reported cadmium content, the federal public health agency elaborates that the ZEBS (central
registration and evaluation office of the federal public health agency for environmental chemicals)
standards are guidelines indicating an unwanted concentration of harmful substances in food for
purposes of preventative consumer health protection. Occasionally exceeding the individual
standard which are not toxicologically explainable, usually does not lead to harmful effects on ones
health, even if the measured concentration reaches twice the amount of the standard. If twice the
amount of the standard is exceeded, the responsible state control authorities usually declare that,
analogous to the procedure legally required for enforcement of the meat hygiene regulations
(FleischhygieneVerordnung), the relevant food can no longer be considered suitable for consumption
according to the foodstuffs and consumer goods law (Lebensmittel- und Bedarfsgegenstndegesetz
or LMBG) 17(1)(Nr.1).
The Trial Court ruled against [buyer] in accordance with [sellers] petition. On appeal, buyer claimed,
as a precaution and with offer of proof, that the cadmium content of the mussels was even higher
than 1 mg/kg. The Court of Appeals (Oberlandesgericht) dismissed [buyers] appeal. In the appeal to
this Court, [buyer] continues to move for a dismissal, whereas [seller] pleads for a dismissal of the
appeal.
Opinion
The appeal is unsuccessful.

61

I. The Court of Appeals has explained:

The U.N. Convention on Contracts for the International Sale of Goods dated April 11, 1980 (CISG)
applies to the legal relationship between the parties. According to CISG Art. 53, [seller] is entitled to
the purchase price. [Buyer] can only declare the contract avoided pursuant to CISG Art. 49(1)(a) in
case of a fundamental breach of contract by seller. It is true that a delivery of goods that do not
conform with the contract can be a fundamental breach of contract within the meaning of CISG Art.
25; in case of a lack of express agreement, CISG Art. 35(2) governs the question whether the goods
conform with the contract. The question whether only goods of average quality are suitable for
ordinary use (CISG Art. 35(2)(a)) or whether it is sufficient that the goods are marketable may be
left open. The delivered mussels are not of inferior quality even if their cadmium content exceeds
the examination results known so far. The reason for this is that the standard for cadmium content in
fish, in contrast to the standard for meat, does not have a legally binding character but only an
administratively guiding character. Even if the standard is exceeded by more than 100%, one cannot
assume that the food is no longer suitable for consumption, because mussels, contrary to basic food,
are usually not consumed in large quantities within a short period of time and, therefore, even
peaks of contamination are not harmful to ones health. That is why it is no longer relevant
whether the public law provisions of those countries, to which an export was possible at the time of
conclusion of the contract, have no influence on the conformity of the goods with the contract
according to CISG Art. 35(2)(a).
The fact that the standard was exceeded is similarly not relevant to the elements of CISG Art.
35(2)(b) (fitness for a particular purpose). There is no evidence that the parties implicitly agreed to
comply with the ZEBS-standards. Even if [seller] knew that [buyer] wanted to market the goods in
Germany, one cannot make such an assumption, especially since the standards do not have legal
character.
The demand to declare the contract avoided is also not legally founded based on [buyers] allegation
that the goods were not packaged properly. [Buyers] pleadings in this respect are not substantiated
and can, therefore, not be accepted. In any event, the statement to declare the contract avoided is
statute-barred by CISG Art. 49(2). This is so because on March 3, 1992, Defendant (buyer) gave
notice for the first time that the packaging of the goods delivered in the beginning of January did not
conform with the contract; therefore, she did not give notice within a reasonably short time.
II. These elaborations hold up against a legal re-examination with respect to the result.
1. The application of the CISG provisions to the contract between the parties is expressly no
longer questioned and is also correct (CISG Art. 1(1)(a)). The prerequisite to [buyers] right to declare
the contract avoided pursuant to CISG Art. 49(1)(a) due to the cadmium contamination of the
delivered mussels is, therefore, a fundamental breach of contract by [seller] within the meaning of
CISG Art. 25. This is the case when the purchaser essentially does not receive what he could have
expected under the contract, and can be caused by a delivery of goods that do not conform with the
contract (see, e.g., Schlechtriem in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UNKaufrecht (Commentary on the Uniform U.N. Law of Sales) Art. 25 6 20 (2d ed.) (with further
citations)). Not even non-conformity with the contract within the meaning of CISG Art. 35 can,
however, be determined.
a) In this respect, an agreement between the parties is primarily relevant (CISG Art. 35(1)). The
Court of Appeals did not even find an implied agreement as to the consideration of the ZEBSstandards. [Buyer] did not argue against this finding, and it is not legally objectionable. The mere fact
that the mussels should be delivered to the storage facility in G.G. does not necessarily constitute an
62

agreement regarding the resalability of the goods, especially in Germany, and it definitely does not
constitute an agreement regarding the compliance with certain public law provisions on which the
resalability may depend.
b) Where the parties have not agreed on anything, the goods do not conform with the contract if
they are unsuitable for the ordinary use or for a specific purpose expressly or impliedly made known
to the seller (CISG Art. 35(2)(a) and (b)). The cadmium contamination of the mussels, that has been
reported or, above that, alleged by [buyer], does not allow us to assume that the goods, under this
rule, do not conform with the contract.
aa) In the examination of whether the goods were suitable for ordinary use, the Court of
Appeals rightly left open the question -- controversial in the legal literature -- whether this requires
generic goods of average quality or whether merely marketable goods are sufficient (see, e.g.,
Schwenzer in von Caemmerer/Schlechtriem, supra, Art. 35 6 15 (with further citations)). Even if on
appeal, goods of average quality were found to be required, [buyer] has still not argued that the
delivered mussels contain a higher cadmium contamination than New Zealand mussels of average
quality. It is true that, according to the report from the examination laboratory of Dr. B., submitted
by [buyer] to the trial court, and the contents of which is thereby alleged, there are also other
imported New Zealand mussels on the market . . . that do not show a comparable cadmium
contamination. It does not follow, however, that average New Zealand mussels on the market
contain a smaller amount of cadmium than the mussels delivered to [buyer].
The appeal wrongly requests that [seller] submit a statement that New Zealand mussels usually have
such a high cadmium contamination. After taking delivery without giving notice of the lack of
conformity, the buyer must allege and prove that the goods do not conform with the contract and
the seller does not have to allege and prove that they do conform with the contract (see, e.g.,
Herber/Czerwenka, Internationales Kaufrecht (International Law of Sales) Art. 35 6 9 (1991); Piltz,
Internationales Kaufrecht (International Law of Sales) 5 6 21 (1993); Schwenzer, supra, 6 49 (with
further citations)). Contrary to [buyers] contention at trial, she accepted the mussels by physically
taking delivery (CISG Art. 60(b)) at the place of destination in G.G., and she did not give notice of the
lack of conformity of the goods at that time.
bb) Admittedly, from the point of view of salability and, therefore, resalability of the mussels
and contrary to the Court of Appeals opinion, even if twice the amount of the ZEBS-standard is
exceeded, as [buyer] alleged, this would not change anything regarding the suitability of the mussels
for consumption pursuant to LMBG 17(1)(1), and, considering the report from the federal public
health agency and the documented administrative practice of the state health agencies, there would
be reservations, if the public law provisions of the Federal Republic of Germany were relevant. This,
however, is not the case. According to the absolutely prevailing opinion in the legal literature, which
this Court follows, the compliance with specialized public law provisions of the buyers country or the
country of use cannot be expected (Schwenzer, supra, Art. 35 6 16 et seq.; Stumpf in von
Caemmerer/Schlechtriem, supra, Art. 35 6 26 et seq. (1st ed.); Staudinger/Magnus, BGB (German
civil code), CISG Art. 35 6 22 (13th ed.); Herber/Czerwenka, supra, Art. 35 66 4, 5; Piltz, supra, 5 66
35, 41; Enderlein in Enderlein/Maskow/Stargardt, Konvention der Vereinten Nationen ber Vertrge
ber den internationalen Warenkauf, Kommentar (The U.N. Convention on Contracts for the
International Sale of Goods, Commentary) Art. 35 6 4 (1985); the same in
Enderlein/Maskow/Strohbach, Internationales Kaufrecht (International Law of Sales) Art. 35 6 8
(1991); Bianca in Bianca/Bonell, Commentary on the international sales law Art. 35 6 2.5.1, p. 274 et
seq., 6 3.2, p. 282 et seq. (1987); Audit, La vente internationale de marchandises (The International
Sale of Goods) 6 98, p. 96 (1990); Heuz, La vente internationale de marchandises (The International
Sale of Goods) 6 290 (1993); Neumayer/Ming, Convention de Vienne sur les contrats de vente
63

internationale de marchandises (The Vienna Convention on Contracts for the International Sale of
Goods), Art. 35 6 7 (1993); probably also Hutter, Die Haftung des Verkufers fr Nichtlieferung bzw.
Lieferung vertragswidriger Ware nach dem Wiener UNCITRAL-bereinkommen ber internationale
Warenkaufvertrge vom 11. April 1980 (The Liability of the Seller for Non-delivery or Delivery of
Goods Not Conforming with the Contract pursuant to the Vienna UNCITRAL-Convention on the
International Sale of Goods dated April 11, 1980) at 46 et seq. (doctoral thesis 1988); Otto, MDR
1992, 533, 534; probably different Schlechtriem in International Sales 6.03, 6.21 (Galston/Smit
1984); not clear Soergel/Lderitz, BGB (German civil code), CISG Art. 35 6 11 (12th ed.); inconsistent
Heilmann, Mngelgewhrleistung im UN-Kaufrecht (Guaranty with Respect to Non-Conformity with a
Contract pursuant to the U.N. Law of Sales), compare p. 184 with p. 185 (1994); concerning the legal
situation pursuant to the EKG, compare, e.g., Dlle/Stumpf, Kommentar zum Einheitlichen Kaufrecht
(Commentary on the Uniform Law of Sales) Art. 33 6 18 (1976) (with further citations) with
Mertens/Rehbinder, Internationales Kaufrecht (International Law of Sales), Art. 33 6 16, 19).
Some uncertainties, noticeable in the discussions in the legal literature and probably partly caused by
the not very precise distinction between subsections (a) and (b) of CISG Art. 35(2), do not require
clarification in the evaluation of whether this question must be integrated into the examination of
the ordinary use of the goods or the examination of the fitness for a particular purpose. There is,
therefore, no need to finally decide whether, within the scope of CISG Art. 35(2)(a), as most argue,
the standards of the sellers country always have to be taken into account (see, e.g., Bianca, supra, 6
2.5.1; Piltz, supra, 6 41; Enderlein in Enderlein/Maskow/Strohbach, supra; Aue,
Mngelgewhrleistung im UN-Kaufrecht unter besonderer Bercksichtigung stillschweigender
Zusicherungen (Guaranty with Respect to Non-conformity with a Contract pursuant to the U.N. Law
of Sales under Special Consideration of Implied Promises), at 75 (doctoral thesis 1989); probably
different Schlechtriem, supra; Hutter, supra, at 40), so that it is not important for the purposes of
subsection (a) whether the use of the goods conflicts with public law provisions of the import
country (see, e.g., Herber/Czerwenka, supra, 6 4). In any event, certain standards in the buyers
country can only be taken into account if they exist in the sellers country as well (see, e.g., Stumpf in
von Caemmerer/Schlechtriem, supra, 6 26; Schwenzer, supra, 6 16; Bianca, supra, 6 3.2) or if, and
this should possibly be examined within the scope of CISG Art. 35(2)(b), the buyer has pointed them
out to the seller (see, e.g., Schwenzer, supra, 66 16, 17; Enderlein, supra) and, thereby, relied on and
was allowed to rely on the sellers expertise or, maybe, if the relevant provisions in the anticipated
export country are known or should be known to the seller due to the particular circumstances of the
case (see, e.g., Piltz, supra, 6 35; Bianca, supra). None of these possibilities can be assumed in this
case:
aaa) [Buyer], who bears the burden of proof, did not allege that there are any Swiss public
law provisions concerning the contamination of mussels with toxic metals. The appeal similarly does
not mention anything in this respect.
bbb) The agreement regarding the place of delivery and place of destination is in itself, even
if it could be viewed as an indication by [buyer] of the anticipated marketing in Germany, neither
under subsection (a) nor under subsection (b) of CISG 35(2) sufficient to judge whether the mussels
conform with the contract pursuant to certain cadmium standards used in Germany (compare, e.g.,
Stumpf, supra, 6 27; Schwenzer, supra, 6 17; Piltz, Enderlein and Bianca, each supra). Decisive is that
a foreign seller can simply not be required to know the not easily determinable public law provisions
and/or administrative practices of the country to which he exports, and that the purchaser,
therefore, cannot rationally rely upon such knowledge of the seller, but rather, the buyer can be
expected to have such expert knowledge of the conditions in his own country or in the place of
destination, as determined by him, and, therefore, he can be expected to inform the seller
accordingly. This applies even more in a case like this, where, as the reply to the appeal rightly points
64

out, there are no statutes regulating the permissible cadmium contamination and where, instead,
the public health agencies apply the provisions, that are only valid as to the meat trade (compare No.
3 of Exh. 6 to the regulation for meat hygiene dated Oct. 30, 1986, BGBl. I 1678, as modified by the
regulation dated Nov. 7, 1991, BGBl. I 2066)), analogously and, seemingly, not uniformly in all the
German Lnder (federal states) (compare the announcements of the federal public health agency in
Bundesgesundhbl. 1990, 224 et seq.; 1991, 226, 227; 1993, 210, 211) to the exceeding of standards in
the fish and mussels trade and where the legal bases for measures of the administrative authorities
do not seem completely certain (compare, in a different context, e.g., BVerwGE 77, 102, specifically
122).
ccc) This Court need not decide whether the situation changes if the seller knows the public
law provisions in the country of destination or if the purchaser can assume that the seller knows
these provisions because, for instance, he has a branch in that country (see, e.g., Neumayer/Ming,
supra), because he has already had a business connection with the buyer for some time (see, e.g.,
Schwenzer, supra, 6 17), because he often exports into the buyers country (see, e.g., Hutter, supra,
at 47) or because he has promoted his products in that country (see, e.g., Otto MDR 1992, 533, 534).
[Buyer] did not allege any such facts.
ddd) Finally, the appeal argues unsuccessfully that the mussels could not be sold due to the
official seizure and were, therefore, not tradable. There is no need to go into great detail with
respect to the question whether [buyer] has even alleged a seizure of the goods and whether she
could have reasonably and with a chance of success attacked such a measure. In any event, a seizure
would have been based on German public law provisions which, as set forth above, cannot be
applied in order to determine whether the goods conformed with the contract (supra, specifically
II(1)(b)(bb)(bbb)).
2. The Court of Appeals also correctly denied the [buyers] right to declare the contract avoided
because of the improper packaging of the goods. The question whether [buyers] allegations were
sufficient for a conclusive statement of a fundamental breach of contract (CISG Art. 25) or of any lack
of conformity with the contract at all (CISG Art. 35(2)(e) [sic]) may remain unanswered. In any event,
Defendant (buyer) lost her rights that might have resulted from these allegations due to
untimeliness. This does not, however, result from the untimeliness of the declaration to avoid the
contract pursuant to CISG Art. 49(2)(b)(i), but from the untimeliness of the notice of the lack of
conformity required by CISG Art. 39(1), which must be considered first (compare Huber in von
Caemmerer/Schlechtriem, supra, Art. 49 66 45 et seq. (2d ed.)).
In that respect, it does not make any difference whether the mussels were delivered in the
beginning of January 1992, as the Court of Appeals assumed, or not until January 16, 1992, as the
appeal alleges pointing to the Betreff (Re.) section of [buyers] facsimile dated February 7, 1992.
The first notice of the lack of conformity of the packaging in the facsimile dated March 3, 1992 was
untimely even if the latter date of delivery was decisive. [Buyer] had to examine the goods or had to
have them examined within as short a period after they arrive at the place of destination as
practicable under the circumstances (CISG Art. 38(2) in connection with subsection (1)). At least
during the working week from January 20 to 24, 1992, [buyer] could have easily done this, whether
by herself at the storage facility not far from her place of business or by a person employed by
company F. and designated by [buyer]. The allegedly improper packaging could have easily been
ascertained in an external examination. The time limit for the notice of the lack of conformity, which
starts at that moment (CISG Art. 39(1)), as well as the time limit to declare the contract avoided
pursuant to CISG Art. 49(2) (compare judgment by this Court dated Feb. 15, 1995, VIII ZR 18/94 at
II(3)(b), intended for publication) should not be calculated too long in the interest of clarifying the
legal relationship of the parties as quickly as possible. Even if this Court were to apply a very
65

generous rough average of about one month, taking into account different national legal traditions
(see Schwenzer, supra, Art. 39 6 17 (with further citations); stricter, e.g., Herber/Czerwenka, supra,
Art. 39 6 9; Piltz, supra, 5 6 59; Reinhard, UN-Kaufrecht (U.N. law of sales) Art. 39 6 5 (1991)), the
time limit for the notice of the lack of conformity with the contract had expired before March 3,
1992.
The appeals reference to an examination of the mussels already carried out by the public health
agency as well as [buyers] earlier notice of the increased cadmium content do not affect the
assumption that the notice of lack of conformity was untimely. If the goods do not conform with the
contract in various aspects, it is necessary to state all defects individually and describe them (see,
e.g., Schwenzer, supra, Art. 39 6 10; Herber/Czerwenka, supra, Art. 39 6 8). The buyer cannot claim
those defects, of which he gave untimely notice.
Judgments of the Lower Courts: OLG Frankfurt, April 20, 1994, Index No. 13 U 51/93; LG Darmstadt,
December 22, 1992, Index No. 14 O 165/92.
BGBl. = Bundesgesetzblatt [Federal Law Gazette]; Bundesgesundhbl. = Bundesgesundheitsblatt
[Federal Health Gazette]; BVerwGE = Bundesverwaltungsgerichtsentscheidungen [Official Reporter of
cases decided by Germanys highest Federal Administrative Law Court]; EKG = Einheitliches Gesetz
ber den internationalen Kauf beweglicher Sachen [ULIS: 1964 Hague Convention, Uniform Law on
the International Sale of Goods]; LG = Landgericht [District (trial) Court]; MDR = Monatsschrift fr
Deutsches Recht [monthly law journal]; OLG = Oberlandesgericht [Regional Court of Appeals].

SMALLMON V TRANSPORT SALES LTD [2011] NZCA 340

An international sale of trucks
[1]
The appellants, Mr and Mrs Smallmon, operate a road transport, water and earthmoving
business in Queensland, Australia. The Smallmons decided to purchase four trucks for use in their
business from a New Zealand company, the first respondent, Transport Sales Ltd (TSL). The owner of
TSL is the second respondent, Mr Grant Miller.
[2]
The four trucks were Volvo model FM12 and were originally assembled in Australia to comply
with the Australian Design Rules (ADRs). At the time of assembly, the compliance plate (certifying
that the vehicle was manufactured to comply with the ADRs) was not attached to each truck, as the
vehicles were intended for export to New Zealand and required some minor modifications for that
market. The trucks were brought to New Zealand and operated (in the case of the four that were the
subject of sale) by the dairy company Fonterra. At the time of sale they were owned by a leasing
company called Esanda. TSLs role was as sales agent of the used trucks on behalf of the owner. TSL
had previously sold used Volvo trucks to businesses in Australia and the trucks had been successfully
imported into Australia and used by the purchasers. By means of an advertisement in an Australian
trade magazine, TSL was seeking to continue the sales of these used trucks.
[3]
The four trucks were purchased in New Zealand by the Smallmons and shipped to
Queensland. After the trucks arrived, the Smallmons experienced a series of problems with the
Queensland regulatory authorities. Despite the trucks being roadworthy, the Smallmons were not
able to have the trucks registered by Queensland Transport because they did not have a compliance
plate attached and because the Smallmons had not obtained an authority to import from the
National Transport Department. Eventually, these regulatory authorities agreed to issue exemption
permits allowing the Smallmons to use the trucks on a limited basis.
[4]
The contract between TSL and the Smallmons did not contain an express term as to the
registerability of the trucks in Queensland. At trial, a key issue was whether, and in what
66

circumstances, a seller of goods can be liable for breach of an implied term as to fitness for purpose
when the alleged lack of fitness arises not from the physical features of the goods, but as a result of
the alleged non-compliance with regulatory requirements in the buyers country.
[5]
In the High Court, French J held that this issue was determined by the application of the
provisions of the United Nations Convention on Contracts for the International Sale of Goods (the
Convention), notably art 35.1 This article sets out the primary requirement that a seller in an
international transaction deliver to the buyer goods which are of the quantity, quality and description
required by the contract. Relevant to this case, art 35(2) establishes that the goods do not conform
with the contract (except where the parties have agreed otherwise) unless the goods are fit for the
purposes for which goods of the same description would ordinarily be used or fit for any particular
purpose expressly or impliedly made known to the seller.
[6]
The Judge found that the Smallmons had failed to establish that TSL was liable for breach of
an implied term as to fitness for purpose.2 The seller was not responsible for compliance with the
regulatory requirements of the importing country and there was no basis for finding that TSL knew or
ought to have known about the applicable regulatory requirements for trucks in Queensland.3
[7]
The Smallmons appeal against this aspect of the decision. At the hearing, their counsel,
Mr Dale, abandoned the challenge to the Judges findings that there was no basis for any claim under
the Fair Trading Act 1986 or s 6 of the Contractual Remedies Act 1979.
Some further factual background
Regulatory requirements in Queensland
[8]
The essential facts are not in dispute.4 Before a truck can be driven on the road in
Queensland it must be registered. In order to be registered, a truck must have what are called its
roadworthies. This is a colloquial term for a test undertaken to check whether or not a vehicle
complies with the ADRs, which are essentially national standards, broadly similar to a warrant of
fitness in New Zealand. A further requirement is that a truck manufactured after a certain date must
be fitted with a compliance plate, a metal tag attached to the vehicle at the time of manufacture for
trucks being sold in Australia. If the owner wishes to make modifications to the truck, it is
permissible to do so as long as the owner obtains a modification plate.
Formation of the contract
[9]
The Smallmons have been in the road transport business in Queensland for about 20 years.
In April 2006, Mr Smallmon saw a full page advertisement for the sale of trucks in an Australian trade
magazine. It had been placed by TSL, then trading as Transport Sales Canterbury Limited. The
advertisement showed a photograph of a Volvo truck and gave Mr Millers contact details in New
Zealand. It stated:
Late model 8x4 cab & chassis available. Some on Spring some on Airbag. Most have Alloys
and Med km. Prices available ex New Zealand or Landed at Brisbane, Melbourne or Sydney.
These trucks are good buying!!!!!!!
Dealer inquiry welcome.
Phone Grant and discuss your requirements.

[10]
The advertisement came to Mr Smallmons attention at a time when the business was looking
to upgrade its existing fleet of trucks. Mr Smallmon was aware of another transport operator in
Allora, Queensland who had imported two trucks from New Zealand and who had told him they were
a good deal. Mr Smallmon thought the other operators trucks looked pretty good and warranted
further enquiries of Mr Miller. There followed two phone conversations with Mr Miller, during the
1

2
3
4

The Convention was adopted into the domestic law of New Zealand by the Sale of Goods (United Nations Convention)
Act 1994.
Smallmon v Transport Sales Ltd HC Christchurch CIV-2009-409-363, 30 July 2010.
At [94][100].
Mr Dale acknowledged at the hearing that apart from one area to be addressed below, there was no real challenge to
the factual findings of French J. The central issue is the application of the law in art 35 of the Convention to the facts.

67

course of which Mr Miller confirmed that his company had sold the trucks to the Allora operator, and
that he had some Volvo FM12 trucks for sale. The photograph in the advertisement was one of the
Allora trucks.
[11]
The Smallmons then decided to travel to New Zealand to meet with Mr Miller in August 2006.
Before they left Queensland the Smallmons received a telephone call out of the blue from a Mr Kevin
Walsh who had been asked by Mr Miller to contact them. Mr Walsh was an ADR compliance
engineer. He said he had heard that they were looking at some trucks for sale in New Zealand. He
told them that for compliance purposes it was important to look for three things when inspecting the
trucks the exhaust, the seatbelts and a stamp on the fuel tank. Mr Walsh intimated that, if the
Smallmons decided to buy the trucks, they could call him, once they returned to Queensland, and he
would be happy to attend to the ADRs on their behalf. Mr Walsh did not advise the Smallmons to
check whether compliance plates were fitted to the trucks. The Judge found that the most likely
explanation for him saying nothing about compliance plates was that he would have known the
plates would be missing but would not have considered it a matter of concern.5
[12]
The Smallmons duly travelled to Auckland and met Mr Miller at a truck yard where they saw
between 20 and 30 trucks on the yard. The Smallmons inspected the trucks in order to see whether
they would comply with the ADRs and in particular whether the trucks complied with the three
things mentioned by Mr Walsh. During the course of their inspection, the Smallmons noted black
plates screwed on the inside door of the trucks. They assumed these were the compliance plates
because they were in the same place where in their experience compliance plates are normally
located. As part of the Smallmons business involved the cartage of water, the inspection confirmed
that they would in due course need to make some modifications to the trucks so that they could
carry water. This would necessitate obtaining modification plates for the trucks in Queensland.
[13]
In the High Court, the Judge made factual findings that were described as common ground.6
As these findings were not challenged on appeal, we set them out in full:

Mr Miller was aware the Smallmons were purchasing the trucks to use in their
business, which he knew was based in Queensland and which he knew involved
water cartage and landscaping. The Smallmons did not tell him their work
sometimes took them into New South Wales.

The Smallmons told him the reason they wanted to replace their existing fleet
was because of the age of the vehicles and the large distances they had travelled.

They told him they would have to sell their existing trucks to be able to pay for
the new ones.

Mr Miller told them the trucks had been assembled in Australia and exported
fully made up to New Zealand and were returned Australian goods.

Mr Miller stated he had exported trucks to Australia before and had never
encountered any problems.

Mr Miller never gave them any advice on Australian registration requirements

and the Smallmons never asked him.

There was never any discussion of any kind as to what was required in
Queensland before the vehicles could be registered.

Mr Miller told them he could put them in touch with Australian contractors who
had brought in the other trucks he had sold to Australians. One was a customs
broker, a Mr Tucker, and the other was Mr Walsh who did the ADRs. It is unclear
whether Mr Miller actually named the two contractors or just said he would
arrange for them to contact the Smallmons.

At no stage did Mr Miller draw to the Smallmons attention that the trucks did
not have compliance plates.
5
6

At [18].
At [23].

68

Mr Miller never advised the Smallmons they should check out the rules relating
to importation and registration.
[14]
With respect to the critical question of compliance plates, the Judge found that the parties
were somewhat at cross-purposes.7 So far as Mr Miller was concerned, he was generally aware of
the need for compliance plates, but was not aware that it was a pre-requisite for registration in
Australia. He also knew the trucks he was selling did not have compliance plates and believed the
Smallmons must have appreciated that because that was the reason they needed to engage the
services of Mr Walsh. The Smallmons thought (erroneously) that the trucks did have compliance
plates attached and that Mr Walshs function was to do the modification plates and the
roadworthies.
[15]
At the end of the meeting in Auckland, the Smallmons orally agreed to purchase four trucks
for the sum of NZ$72,000 per truck. A deposit of ten per cent was payable immediately, with the
balance payable before the trucks left New Zealand. Mr Miller agreed that TSL would arrange and
pay for the trucks to be cleaned and to be shipped to Brisbane. The parties did not enter into a
written contract. Soon after the Smallmons paid the ten per cent deposit. On 31 August 2006 they
received an invoice from TSL for the balance of NZ$259,220.00 and that amount was paid on 18
September 2006.
Findings on regulation compliance
[16]
Because of their centrality to the issues in dispute, we also deal with the Judges findings on
the question of responsibility for compliance with the regulatory requirements in Queensland.
[17]
The Judge referred to the Smallmons contention in parts of their evidence that, as well as
paying for cleaning and shipping, Grant and his guys were to arrange for the roadworthies and
everything else up to the point when the Smallmons would take the trucks to be registered.8 The
reference to his guys was to Mr Walsh who had already telephoned the Smallmons and to a
Mr Tucker, a customs broker to whom we will refer later. Despite this claim, the Smallmons accepted
at the hearing that Mr Walsh and Mr Tucker were in fact their agents and not Mr Millers agents.9
These two were his guys only in the sense that Mr Miller had recommended them and put them in
touch with the Smallmons. Importantly, the Judge noted that in cross-examination, the Smallmons
had agreed it was their responsibility to attend to roadworthies and registration once the trucks
arrived in Brisbane.10 Mr Miller testified that he was not aware of what formalities would be
required to get the trucks registered in Queensland11 and had not made any enquiries about the
Australian requirements because under the contract he did not have anything to do with that side of
things.
Events leading to delivery
[18]
In September 2006, the Smallmons were contacted by Mr Tucker, the person Mr Miller had
recommended they should engage to take care of the arrangements for importing trucks into
Queensland. Mr Tucker explained to the Smallmons the various matters that needed to be
undertaken including arranging for the trucks to have a quarantine inspection. He outlined the cost
of the services to be provided by his company. There is no dispute that these were paid by the
Smallmons direct. Also during September 2006, the Smallmons spoke again with Mr Walsh, the ADR
compliance engineer. They discussed the modifications that they wanted to make to the trucks for
water haulage purposes once they arrived in Brisbane.
[19]
The four trucks left New Zealand on 29 September 2006 and arrived in Brisbane on 2 October
2006. Upon arrival, the trucks were held in quarantine by the Australian authorities because they
were considered to be too dirty. There were delays in securing the release of the trucks, but by 19
October 2006 all four trucks had finally been released from quarantine. The Smallmons then
7
8
9
10
11

At [24].
At [27].
At [29].
At [30].
Accepted by trial counsel for the Smallmons: see acknowledgement recorded by the Judge at [31].

69

arranged for the modifications to be carried out. It was then a matter for Mr Walsh to obtain
modification plates and the roadworthies, which he did.
Attempt to secure registration
[20]
On 20 October 2006, Mrs Smallmon attempted to register the first of the trucks at
Queensland Transport. She was unable to do so because the truck did not have a compliance plate
attached. Moreover, she had no authority from the National Transport Department to import the
truck. This turn of events surprised the Smallmons as they had understood that they would not need
anything other than the modification plates and the roadworthies.
[21]
Subsequently, the Smallmons sought help from Mr Tucker and others (including a lawyer) in
an attempt to persuade the Queensland authorities to register the trucks. They were unsuccessful.
Eventually, following assistance from the Smallmons Member of Parliament, Queensland Transport
and the National Transport Department agreed to issue the Smallmons with an exemption permit for
each of the four trucks. But the exemption permits only allow the Smallmons to use the trucks on a
restricted basis. The permits are due to expire on 21 September 2011, although it seems likely that
they will be renewed for a further five-year period. The permits are not transferrable, meaning that
the trucks cannot be sold. Further, the permits restrict the use of the trucks to Queensland, with the
result that they cannot cross the State border into New South Wales, where the Smallmons have
about five per cent of their business.
[22]
One of the issues in the High Court was why the Smallmons had not been able to register the
trucks in Queensland and whether the Australian authorities were correct to decline registration.12
The evidence was that another operator who purchased similar trucks from TSL only one month
earlier had no difficulty whatsoever in obtaining registration in Queensland, despite not being fitted
compliance plates and the owner having no authority to import. The same evidence was given by
Mr Tucker who had imported similar trucks on many occasions. On this aspect of the case the Judge
found:
[49] The evidence established that Volvo trucks of the type purchased by the Smallmons
were originally assembled in Australia. According to Mr Tuckers uncontradicted testimony, all
the trucks were manufactured to ADR requirements and compliance plates made for the
trucks but never attached. This was because the trucks were intended for export to the New
Zealand market and required some minor modifications for that market. Mr Tucker testified
that he had seen a box containing all the ADR compliance plates for the Volvo trucks that had
been exported to New Zealand and the Pacific. He was confident the compliance plates for the
Smallmons trucks would be amongst them. The problem was that Volvo for reasons of its own
would not release any of the plates.
[50] In the past, other Australian purchasers of imported Volvo trucks have obtained
registration by providing the authorities with what is called a ratings letter from Volvo
confirming the build spec and a letter of compliance from a compliance engineer. The letter
of compliance from the engineer certifies that the vehicle complies with all relevant ADRs
applicable as at the date of manufacture.
[51] Through Mr Walsh, the Smallmons had obtained a ratings letter from Volvo and a letter
of compliance. However, in their case that was held not to be sufficient. There was evidence
that, since their case, another importer of Volvo trucks has been told that any vehicles he
wants to bring into Australia in the future must have a fitted Australian compliance plate and
that he must apply for vehicle import approval prior to shipping.

[23]
Mr Tucker had not advised the Smallmons that they needed an authority to import the trucks
to Australia. Moreover, Mr Walsh did not alert the Smallmons about the importance of having fitted
compliance plates. The Judge postulated that for whatever reason the Australian authorities must
have either changed their previous enforcement policy or are now wrongly applying the relevant
regulations.13

12
13

At [48].
At [54].

70

[24]
The evidence in the High Court resulted in the following findings that were not challenged on
appeal:
[55] There is no doubt the four trucks do in fact comply with Australian Design Rules and
comply with all relevant ADRs applicable as at the date of manufacture. The deficiency lies in
the absence of the compliance plates and the absence of an authority to import. Of those two
deficiencies, it is the absence of a fitted compliance plate that seems to be the major
stumbling block. It is a defect that can never be remedied unless perhaps Volvo released the
plates. The trucks cannot be re-made.
[56] While, as I have said, Mr Miller knew the trucks did not have a compliance plate, I
accept he would not have appreciated the significance of that, given the fact he had sold other
vehicles also without compliance plates and those purchasers had never experienced any
difficulty.

High Court judgment

[25]
The Judge was required to determine the Smallmons claim that there had been a breach by
TSL of art 35(2) of the Convention on the basis that the trucks were not fit for purposes for which
they would ordinarily be used or a particular purpose made known to the seller at the time of
contracting. The Judge held that there was no express warranty in the contract between TSL and the
Smallmons relating to registrability of the trucks in Queensland.14 Thus the standards set out in art
35(2), including the requirement that goods be fit for the purposes for which they are ordinarily used,
were implied terms that formed part of the contract.15 The Judge reasoned that trucks are ordinarily
used for the cartage of goods on the road. The trucks purchased by the Smallmons were
mechanically capable of being driven on the road. The Smallmons contention was that because the
trucks were not registerable at the point of sale, and could never be fully registered, they could not
be driven and were therefore not fit for the ordinary purpose.16
[26]
The Judge considered a number of overseas decisions and academic articles. In particular,
she referred to the leading cases, including the New Zealand mussels case in the Bundesgerichtshof
(German Supreme Court),17 the Italian cheese case (Court of Appeal, Grenoble, France),18 and
Medical Marketing v Internazionale Medico Scientifica (Federal District Court, Louisiana, United
States).19 The Judge concluded that the following principles emerged from the authorities:20
i)

14
15
16
17

18

19

20

As a general rule, the seller is not responsible for compliance with the regulatory
provisions or standards of the importing country even if he or she knows the
destination of the goods unless:
a.
The same regulations exist in the sellers country.
b.
The buyer drew the sellers attention to the regulatory provisions and relied on
the sellers expertise.
c.
The seller knew or should have known of the requirements because of special
circumstances.
Special circumstances may include:
i.
The fact the seller has maintained a branch in the importing country.
ii.
The existence of a long-standing connection between the parties.
iii.
The fact the seller has often exported into the buyers country.
iv.
The fact the seller has promoted its products in the buyers country.

At [78].
At [79][80].
At [81].
New Zealand Mussels Case (8 March 1995) VIII ZR 159/94, Bundesgerichtshof, Germany. A translated version of this
case can be found online at the CISG Database: www.cisg.law.pace.edu.
M Caiato Roger v La Socit franaise de factoring international factor France S.F.F. (SA) (13 September 1995)
93/4126, Cour dappel, Grenoble, France. A translated version is available at the CISG Database.
Medical Marketing International Inc v Internazionale Medico Scientifica s.r.l. (17 May 1999) Civil Action No. 99-0380
Section K (1), District Court for the Eastern District of Louisiana, United States. This too can be found at the CISG
Database.
At [83].

71

[27]
In terms of interpretation of the Convention, the Judge held that under art 7 recourse to
domestic law is prohibited.21 This conclusion was not challenged by the Smallmons on appeal.
[28]
In the High Court it was common ground that the registration requirements in Queensland
are different to those prevailing in New Zealand. It was also common ground that at no stage did the
Smallmons ever raise the issue of registration requirements with Mr Miller. Further, there was no
evidence that Mr Miller knew what the registration requirements were in Queensland.22 Accordingly,
for the Smallmons to establish a breach of art 35(2)(a), it could only be on the grounds that Mr Miller
and TSL ought to have known about such requirements because of special circumstances.
[29]
On this issue the Judge held:
[94] What is alleged to amount to special circumstances are the facts that Transport Sales
advertised in Australia and that Transport Sales had exported trucks previously into Australia.
The evidence established that prior to the Smallmon transaction, Transport Sales had exported
seven Volvo trucks into Australia.
[95] As the authorities make clear, these are circumstances capable of amounting to special
circumstances.
[96] However, in my view, they are outweighed by two other considerations. The first is the
terms of the advertisement which stated landed at Brisbane. The second is that Mr Miller
expressly recommended Australian contractors who would be able to assist the Smallmons
with importation and ADR compliance. He was thereby delineating the parties respective
responsibilities, as well as delineating his own field of expertise and knowledge, and in my
view in those circumstances it would be wrong to say that Mr Miller or Transport Sales ought
to have known.

[30]
The Judge also held that the same considerations apply under art 35(2)(b) dealing with any
particular purpose made known expressly or impliedly to the seller at the time of contract, except
where the circumstances show that the buyer did not rely, or it was unreasonable for him to rely, on
the sellers skill and judgment. Here, the Smallmons had made known to Mr Miller that they wanted
to use the trucks in Australia so that use in Australia could be said to be a particular purpose.23
[31]
The Judge concluded on this point:
[99] the circumstances show it was unreasonable for the Smallmons to rely on Transport
Sales skill and judgment. The Smallmons were experienced transport operators. They were
in a much better position to know the registration requirements of their own country than
Mr Miller. The fact the trucks did not have compliance plates was not hidden from them, but
was there to be seen. As experienced transport operators, they could be expected to be able
to identify a compliance plate. Further, Mr Miller recommended they engage specialist
contractors, which they did. Significantly, Mrs Smallmon agreed with the proposition that the
purpose of inspecting the vehicles was to see if they complied with ADRs and that at that
stage they were acting on advice from Mr Walsh.
[100] In those circumstances, any reliance placed on Mr Millers expertise or knowledge or
that of his company about the regulatory requirements in Australia would not in my view be
reasonable.

[32]
As a result the Judge concluded that the Smallmons had failed to establish a breach of art
35(2) of the Convention on the part of Mr Miller or TSL.
The issues on appeal
[33]
The central issue is the application of art 35 of the Convention to the sale of the four trucks
by TSL to the Smallmons. There was no express provision in the contract that the trucks would in fact
be registrable in Queensland. Hence there was no question of breach of art 35(1).24 So the first
21
22
23
24

At [86].
At [92].
At [98].
Article 35(1) provides that:
(1)
The seller must deliver goods which are of the quantity, quality and description required by the contract and
which are contained or packaged in the manner required by the contract.

72

question is: was there an implied term of the contract that the trucks met the requirements for
registration in the buyers home state, when the seller was located in a different country? The
second question is: which of the parties had responsibility for obtaining registration of the four
trucks in Queensland?
[34]
These questions involve the application of the provisions of art 35(2) of the Convention to the
facts of the case as outlined above. Accordingly, we will first consider the principles arising from art
35(2) as derived from the international jurisprudence in the form of cases and articles. We will then
provide our evaluation of the facts in the light of those principles.
Applicable legal principles
Convention articles
[35]
There are three relevant articles: arts 7, 8 and 35(2). Article 7 provides:
(1)
In the interpretation of this Convention, regard is to be had to its international
character and to the need to promote uniformity in its application and the observance of good
faith in international trade.
(2)
Questions concerning matters governed by this Convention which are not expressly
settled in it are to be settled in conformity with the general principles on which it is based or,
in the absence of such principles, in conformity with the law applicable by virtue of the rules
of private international law.

[36]
Because the intent and conduct of the parties to the contract is in issue, art 8 is also relevant.
Article 8 states:
(1)
For the purposes of this Convention statements made by and other conduct of a party
are to be interpreted according to his intent where the other party knew or could not have
been unaware what that intent was.
(2)
If the preceding paragraph is not applicable, statements made by and other conduct of
a party are to be interpreted according to the understanding that a reasonable person of the
same kind as the other party would have had in the same circumstances.
(3)
In determining the intent of a party or the understanding a reasonable person would
have had, due consideration is to be given to all relevant circumstances of the case including
the negotiations, any practices which the parties have established between themselves,
usages and any subsequent conduct of the parties.

[37]

The key articles are arts 35(2) and 35(3), which provide:
(2)
Except where the parties have agreed otherwise, the goods do not conform with the
contract unless they:
(a)
are fit for the purposes for which goods of the same description would
ordinarily be used;
(b)
are fit for any particular purpose expressly or impliedly made known to the
seller at the time of the conclusion of the contract, except where the
circumstances show that the buyer did not rely, or that it was unreasonable for
him to rely, on the sellers skill and judgement;
(c)
possess the qualities of goods which the seller has held out to the buyer as a
sample or model;
(d)
are contained or packaged in the manner usual for such goods or, where there is
no such manner, in a manner adequate to preserve and protect the goods.
(3)
The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for
any lack of conformity of the goods if at the time of the conclusion of the contract the buyer
knew or could not have been unaware of such lack of conformity.

Interpreting the Convention

[38]
New Zealand acceded to the Convention, which opened for signature on 11 April 1980 and
entered into force on 1 January 1988, on 22 September 1994. As noted, the Convention was enacted
for New Zealand by the Sale of Goods (United Nations Convention) Act 1994.25 The aim of the
25

The Act came into force in 1995, pursuant to the Sale of Goods (United Nations Convention) Act Commencement
Order 1995.

73

Convention was to seek to achieve the harmonisation and unification of trade law regarding
international sales of goods.26
[39]
Counsel for the Smallmons properly acknowledged that resort to authorities dealing with
domestic law is not permissible. This follows from the requirement in art 7, dealing with the
interpretation of the Convention, to have regard to its international character and to the need to
promote uniformity in its application and the observance of good faith in international trade. Thus
the Convention is to be given an autonomous interpretation requiring the Convention to be
interpreted exclusively on its own terms and applying Convention-related decisions in overseas
jurisdictions.
[40]
As urged by the late Professor Peter Schlechtriem, recourse to domestic law must be
avoided:27
In reading and understanding the provisions, concepts and words of the Convention, recourse
to the understanding of these words and the like in domestic systems, in particular the
domestic legal system of the reader, must be avoided. This seems to be self-evident, but
experience shows that practitioners and scholars tend to understand words and concepts of
the Convention according to their familiar domestic law.

[41]
We therefore propose to consider only the international authorities and articles in
interpreting art 35(2).28
Principles to be distilled from art 35(2)
[42]
We have already referred at [26] above to the distillation of the applicable principles by
French J. Counsel for the Smallmons accepted at the hearing that this was an accurate summary. We
consider that this concession was properly made. We need only offer some brief elaboration, making
specific reference to the leading international decisions. The international jurisprudence concerning
art 35(2) has established that, generally, the seller is not responsible for compliance with the
regulatory provisions or standards of the importing country. The seminal case is the New Zealand
mussels case,29 where the Supreme Court of Germany stated that a buyer cannot expect compliance
with the specialised public law provisions of the buyers own country.30 More recently, case law
emanating from the Oberster Gerichtshof (the Supreme Court of Austria) confirms that a seller
cannot be expected to know all of the rules of the buyers country or the country of usage, and that
the standards of the sellers country specify the standard of ordinary usage.31 Just because the seller
knows generally of the buyers country or the country where the goods are destined, that does not
place upon the buyer an obligation to comply with the regulations of that country.32
[43]
The German Supreme Court did, however, identify certain situations where the requirements
of the buyers country can be taken into account. These are when the relevant regulatory standards
of the buyers country:33
(a)
exist in the sellers country as well; or
26

27

28
29

30
31

32
33

Peter Schlechtriem and Petra Butler UN Law on International Sales: The UN Convention on the International Sale of
Goods (Springer, Heidelberg, 2009) at [1]. This text also provides useful commentary on art 35(2)(a) as it applies to
public law provisions of particular countries at [139]. For a useful discussion of the Convention see: Peter Winship
Changing Contract Practices in the Light of the United Nations Sales Convention: A Guide for Practitioners (1995) 29
International Lawyer 525; Karina Winsor What is the CISG? [2011] NZLJ 31.
Peter Schlechtriem Requirement of Application and Sphere of Applicability of the CISG (2005) 36 VUWLR 781 at
789790.
As did French J in the High Court at [82].
New Zealand mussels case (8 March 1995) VIII ZR 159/94, Bundesgerichtshof, Germany. A translation can be found
at the CISG Database.
At bb).
(13 April 2000) 2 Ob 100/00w, Oberster Gerichtshof, Austria; (27 February 2003) 2 Ob 48/02a, Oberster Gerichtshof,
Austria; (25 January 2006) 7 Ob 302/05w, Oberster Gerichtshof, Austria; (19 April 2007) 6 Ob 56/07i, Oberster
Gerichtshof, Austria at [1.2]. This line of jurisprudence suggests that it is incumbent upon the buyer to incorporate
the regulatory provisions of their country into the contract. Translations of these cases can be found at the CISG
Database.
(27 February 2003) 2 Ob 48/02a, Oberster Gerichtshof, Austria.
New Zealand mussels Case at bb).

74

(b)

the buyer has pointed them out to the seller and thereby relied on and was allowed
to rely on the sellers expertise; or
(c)
the relevant provisions in the anticipated export country are known or should be
known to the seller due to the particular circumstances of the case.
[44]
The German Supreme Court went on, in statements not directly necessary to the reasoning,
to list different circumstances in which a court might find that the seller knew or ought to have
known the relevant public law provisions of the buyers country. These circumstances included that
the seller had a branch in the buyers country; the seller already had a business connection with the
buyer for some time; the seller often exports to the buyers country; or the seller has promoted his
or her products in that country.34
[45]
In the United States, the District Court for the Eastern District of Louisiana essentially
adopted the reasoning of the New Zealand mussels case.35 The Court stated that the decision of the
German Supreme Court was authority for the proposition that the seller was not obligated to supply
goods that conformed to public law provisions of the buyers country. The exception was when, due
to special circumstances, such as the existence of a sellers branch office in the buyers state, the
seller knew or ought to have known of the regulations at issue. Case law in France has also shown
that the business relations of the parties may be important in determining non-conformity pursuant
to art 35.36 These cases encourage the conclusion that the existence of such special
circumstances37 may lead to the seller being liable for breach of public law and regulatory
requirements in the buyers country.38
[46]
The international authorities and articles support the proposition that the seller will not be
liable for goods that do not conform to the regulatory provisions or standards of the buyers country
unless the seller knew or ought to have known of the requirements because of special circumstances.
It seems that this principle can apply to the provisions of both art 35(2)(a) and 35(2)(b).
[47]
With respect to proof of particular circumstances, the examples identified in the cases and
the literature include the seller maintaining a branch in the buyers country, a long-standing business
connection between the parties, the seller making regular exports to the buyers country and the
provision of goods in the buyers country. These are illustrative of the factors that may enable a
buyer to establish liability on the seller, despite the general principle to the contrary. Where the
reasonableness of the buyers reliance on the sellers skill and judgment is in issue under art 35(2)(b),
the seller may be able to point to proof of such special circumstances.
[48]
Finally, we note that the existence of an opportunity by the buyer to inspect the goods before
the contract is entered into may be relevant to the analysis. In the Frozen chicken legs case, the
Audiencia Provincial de Granada (an appellate court in Spain) seemed to uphold the principle that the
seller is not expected to know the public law provisions of the buyers country or the ultimate
destination of the goods.39 It was also material in this case that the buyer had had an opportunity to
34
35

36

37

38

39

Ibid at ccc).
See Medical Marketing International Inc v Internazionale Medico Scientifica s.r.l. (17 May 1999) Civil Action No. 990380 Section K (1), District Court for the Eastern District of Louisiana, United States, which can be accessed at the
CISG Database.
M Caiato Roger v La Socit franaise de factoring international factor France S.F.F. (SA) (13 September 1995)
93/4126, Cour dappel, Grenoble, France. A translation of this case can be found at the CISG Database.
The term special circumstances was used in Medical Marketing International Inc v Internazionale Medico Scientifica
s.r.l. to describe the circumstances in which the seller knew or ought to have known of the regulations at issue.
French J also used the term in the High Court decision (see [26] above). Special in this case simply means that
particular circumstances exist that warrant the imposition of liability on the seller, due to actual or deemed knowledge
on the part of the seller.
For useful academic commentary see Ingeborg Schwenzer Section II. Conformity of the goods and third party claims
Art 35 in Ingeborg Schwenzer (ed) Schlechtriem & Schwenzer: Commentary on the UN Convention on the
International Sale of Goods (CISG) (3rd ed, Oxford University Press, Oxford, 2010) at [17]; see also commentary on art
35 at UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Good 2008
revision UNCITRAL <www.uncitral.org>.
Frozen chicken legs case (2 March 2000) 546/1999, Audiencia Provincial de Granada, Spain. Commentary on this

75

inspect the frozen chicken legs, further pushing responsibility for non-conformity with regulatory
provisions towards the buyer. Hence the fact of inspecting the goods may well be relevant to the
particular circumstances of the case.
Submissions of the parties
Appellants submissions
[49]
For the appellants, Mr Dale emphasises that the problems with registration in Australia were
unforeseen by both the buyers and the seller, and are the result of unusual rulings by the
regulatory authorities in Australia. But counsel submits that art 35(2) of the Convention places the
risk of non-registration with the seller.
[50]
Counsel submits that the seller is liable under art 35(2)(a) because the inability to register the
trucks means that they are not fit for purpose. He submits that it is sufficient for the Smallmons to
prove that the trucks could not be registered, as was the case. It is not necessary for the buyers to go
on and prove that the seller ought to have known of the unusual circumstances in Queensland that
prevented registration. This is because art 35(2)(a) itself puts the seller at risk. Any principle from
the international jurisprudence that the seller is not responsible for compliance with regulatory
requirements in the buyers country is a general one only and open to proof to the contrary.
[51]
Counsel further submits that it was not necessary for the Judge to go on and consider art
35(2)(b) because this sale did not involve the making known by the buyers to the seller of any
particular purpose. Accordingly, no issue arises as to whether or not it was reasonable for the
buyers to rely on the sellers skill and judgment about the regulatory position in Australia.
[52]
As to the question of special circumstances, Mr Dale submits that the existence of such
does not arise under art 35(2)(a). This is because there is no reference to this concept in the text of
the article. Counsel draws a distinction between the text of the two provisions, noting that art
35(2)(b) alone refers to circumstances showing that the buyer did not rely, or it was unreasonable for
him to rely, on the sellers skill and judgment.
[53]
By way of fall-back position Mr Dale submits that, if it is necessary for the Smallmons to
establish special circumstances, there were such circumstances in this case. They comprised the fact
that the seller had previously exported trucks into Australia and promoted the sales of trucks by
advertisement in Australia. The trial Judge erred in finding that such special circumstances were
outweighed by the twin factors of the reference in the advertisement to landed in Brisbane and the
recommendation by Mr Miller to the Smallmons of two Australian advisers who could assist with
importation of the trucks and registration.
[54]
The one factual aspect that Mr Dale advances is that the Judge was wrong to ignore the
Smallmons evidence to the effect that Grant [Miller] and his guys were to arrange for the obtaining
of the roadworthies and everything else up to the point of the Smallmons taking the trucks along to
have them registered. Mr Dale submits in this context that at the trial counsel for the respondents
never directly put to the Smallmons the proposition that Grant did not say he would take care of
everything. These submissions therefore involve a challenge to the Judges conclusion that the
Smallmons agreed it was their responsibility to attend to roadworthies and registration once the
trucks arrived in Brisbane.40 A further aspect of this challenge is counsels submission that there was
no proper pleading by the respondents that neither the engagement of Messrs Walsh and Tucker, nor
any other factual aspects, resulted in responsibility for registration of the trucks in Queensland being
placed on the Smallmons.
Respondents submissions
[55]
For the respondents, Mr James relies on the international authorities and articles as
supporting the principle applicable to art 35(2)(a) and (b) that the seller is not responsible for

40

case can be found at the CISG Database, where a link to a translated version exists.
At [30].

76

compliance with the regulatory provisions or standards of the buyers country. Despite this being a
general principle, he submits it applies for the sellers benefit in this case.
[56]
Further, Mr James submits that the circumstances relied on by the buyers as special
circumstances showing that the seller ought to have known about the regulatory impediments in
Queensland are not decisive: the general principle continues to apply in the sellers favour.
Mr James refers to the portions of the evidence supporting the trial Judges factual findings to this
effect.
[57]
As an alternative argument, Mr James refers to factual findings that support the conclusion
that art 35(2) is not engaged at all, because the parties have agreed otherwise. Mr James submits
that this proposition was sufficiently signalled in the pleadings to be available to support the
judgement in the High Court on this additional basis.
Our evaluation
Article 35(2)(a)
[58]
Article 35(2) is premised on the fact that the parties have not agreed otherwise. As stated in
the text by Schlechtriem and Butler:41
Article 35(2) sets out what reasonable parties would have agreed upon had they put their
mind to it. This is important since it means that the first inquiry has to be what the parties
agreed upon and only if that inquiry is not satisfactory is Article 35(2) applicable.

[59]
With respect to the first inquiry, the Judge found that there was no express term in the
contract relating to the registrability of the trucks in Queensland. This finding was not challenged on
appeal. The next question concerns any terms to be implied under art 35(2). Here the starting point
is that the goods must be fit for purpose.
[60]
Then there is the principle that, under art 35(2) of the Convention, in an international sale of
goods generally the seller is not responsible for compliance with the regulatory provisions or
standards of the buyers country. Here, it was common ground that the registration requirements for
trucks in Queensland were different to those applicable in New Zealand. Further, at no stage prior to
contracting with TSL did the Smallmons raise the issue of registration requirements with Mr Miller.
The Judge found (and this was not challenged on appeal) that there was no evidence that Mr Miller
knew what the registration requirements were in Queensland.42
[61]
For the purposes of the application to the facts of the principle governing regulatory
requirements, we are satisfied that difficulties experienced by the Smallmons in registering the trucks
in Queensland could fairly be characterised as part of the public law or regulatory requirements of
the buyers country. As noted at [20] above, the reasons why the first of the trucks could not be
registered were that it did not have a compliance plate attached and the absence of an authority to
import. Both of these factors are quintessentially issues for the regulatory authorities, including
Queensland Transport and the National Transport Department, in Australia. It follows that, unless
particular circumstances can be shown by the Smallmons to demonstrate that Mr Miller knew or
ought to have known about either of these requirements, the claim under art 35(2) must fail. As
already noted, there was no evidence Mr Miller actually knew about either requirement.
[62]
On the question of whether he ought to have known about them, the particular
circumstances identified by the Judge as relevant to the analysis are: first, the advertising of trucks for
sale in Australia by TSL and, second, the fact that, prior to the sale to the Smallmons, TSL had sold
seven used Volvo trucks to buyers in Australia.43 The Judge correctly observed that these factors are
capable of amounting to special circumstances.44 But, like the Judge, we are satisfied that neither
of these circumstances, nor any other factor, is sufficient to justify a departure from the general

41

42
43
44

Peter Schlechtriem and Petra Butler, UN Law on International Sales: The UN Convention on the International Sale of
Goods, at [135].
Judgment of French J at [92].
At [94].
At [95].

77

principle under art 35(2) because TSL ought to have known about the regulation provisions or
requirements governing registration of the trucks in Australia.
[63]
With respect to the promotion by TSL of trucks for sale in the Australian trade magazine, we
do not consider much weight, if any, can be placed on this factor. In the advertisement the seller
made no promises about registration or the provision of services to achieve registration in
Queensland. As noted by the Judge, the advertisement offered shipping prices ex New Zealand or
landed at Brisbane (or elsewhere), indicating that the sellers role ceased at the latest upon delivery
by ship onto the wharf at Brisbane.
[64]
The fact that TSL had previously exported seven Volvo trucks to Australia likewise can have
little weight as a particular circumstance in overcoming the general principle. First, in all previous
sales to Australia, Mr Miller was not aware that the buyers had encountered any problems with the
import regulations, or in achieving registration in Queensland. The regulatory authorities had
facilitated the registration process, despite the trucks not having compliance plates attached and the
owners not having an authority to import.
[65]
It was against this background and state of Mr Millers knowledge that the sale to the
Smallmons took place. Mr Miller expressly recommended to the buyers two expert Australian
contractors, Messrs Walsh and Tucker, who could assist with the importation, ADR compliance and
registration processes. We agree with the Judges view that Mr Miller was thereby delineating the
respective responsibilities of the parties to the contract. At the same time, Mr Miller was informing
the buyers about the limits of his own expertise and knowledge about regulatory requirements
within Australia.
[66]
Another circumstance that we consider to be material is the knowledge and experience of
the Smallmons. As the Judge found,45 they were experienced transport operators. Hence they were
in a much better position than Mr Miller to know the registration requirements of their own country.
Moreover, having received preliminary expert advice from Mr Walsh about matters to watch out for,
they had the opportunity to (and did) inspect the four trucks in New Zealand. The fact that the trucks
did not have compliance plates on them was not kept from them. It was there for them (and anyone
else) to see. The Judge was satisfied that, given their experience, they could be expected to be able
to identify the presence or absence of a compliance plate. We agree.
[67]
Counsel for the Smallmons also relies on the Frozen pork case46 as authority supporting the
proposition that the trucks were non-conforming under art 35(2)(a) because they could not be
registered in Australia. The Frozen pork case involved the sale of meat foodstuffs at risk of
contamination and subject to regulatory provisions in Europe, including the country of ultimate
consumption, which had prohibited the sale of these goods. The German Supreme Court found that
the goods did not conform with the contract within the meaning of arts 35(1) and 35(2)(a), as the
meat was not resalable. The appellants submitted that this case formed a contrary principle to that
espoused in the New Zealand mussels case. We do not agree. The contaminated state of the pork
product sold led to the issue of protective regulations. In our case, the regulations that were the
source of the problems for the Smallmons well pre-dated the sale and importation of the trucks.
[68]
As the German Supreme Court stated in the Frozen pork case:47
It is true that a seller is generally not liable for the goods meeting the public law regulations
valid in the country of consumption. In this case, however, the product itself caused the
issuance of protective regulations under public law, and not only in the ultimate buyer s
country (Bosnia-Herzegovina), but also throughout the entire European Union, including the
country of origin, Belgium.

[69]
The German Supreme Court went on to state that under art 35 (1)(a) the circumstances in the
sellers country are generally controlling as the seller cannot be expected to know all relevant
45
46

47

At [99].
Frozen pork case (2 March 2005) VIII ZR 67/04, Bundesgerichtshof, Germany. Translation available at the CISG
Database.
At [I].

78

provisions in the buyers country or in the country of the ultimate consumer. The situation is only
different if the regulatory or public law provisions in the sellers and buyers country are the same, or
if the seller is familiar with such provisions of the buyers country due to particular circumstances. In
our view, this case does not support the appellants case. The fact that it involved goods destined for
human consumption and suspected of being contaminated (as compared with fully-functioning
trucks) further distinguishes it from the present case.
[70]
For all of the above reasons, we are satisfied that there is no proper basis upon which the
Smallmons can establish that the general principle does not apply on the ground that Mr Miller ought
to have known about the regulatory standards or requirements of Australia.
Article 35(2)(b)
[71]
The Judge also analysed the facts by applying art 35(2)(b).48 She did so on the basis that the
buyers made it known to Mr Miller that they wanted to use the trucks in Australia. That could be said
to be a particular purpose in terms of art 35(2)(b).
[72]
Such analysis calls for an assessment of whether there were circumstances that show that the
buyers did not rely, or that it was unreasonable for them to rely, on the sellers skill and judgment.
The same facts as described above were used by the Judge to support the conclusion that the buyers
did not so rely, it being unreasonable for them to have done so in all the circumstances. We agree
with that conclusion.
The factual challenge
[73]
We have considered the evidence touching the question of the responsibility for attending to
roadworthies and registration once the trucks arrived in Brisbane. We are satisfied there is clear
evidence that both Mr and Mrs Smallmon accepted that the parties agreed that these matters were
their responsibility. There was thus ample justification for the Judges finding on the point. Further,
we reject the suggestion by Mr Dale that the negative of the proposition asserted by the Smallmons
was not properly put to them. Both the topic generally and the specifics of the issue of responsibility
for registration in Queensland were adequately raised at trial by counsel for the respondents. We
deal with the pleading point in the next section.
Is art 35(2) engaged?
[74]
It remains for us to address the alternative argument raised by the respondents for dismissing
the appeal. Such an argument was not dealt with by the Judge. It concerns whether art 35(2) is
engaged at all.
[75]
We consider that it is open to the respondents to contend that the parties agreed as part of
the contract that the buyers would be responsible for obtaining registration of the trucks in Australia.
This follows from the factual findings set out below:
(a)
the Smallmons acceptance that Messrs Walsh and Tucker were their agents: they
were only his [Mr Millers] guys in the sense that he was the person who
recommended them and put them in touch with the Smallmons;49
(b)
the Smallmons acceptance that it was their responsibility under the contract to
attend to roadworthies and registration once the trucks arrived in Brisbane;50
(c)
the fact (accepted by the Smallmons) that Mr Miller was not aware of what
formalities would be required to get the trucks registered in Queensland and had
made no inquiries about the Australian requirements because under the contract
that was not his responsibility;51
(d)
the Smallmons subsequently worked with Messrs Walsh and Tucker to arrange
importation, ADR and registration requirements (including the modifications) in
Australia;52 and
48
49
50
51
52

At [97][100].
At [29].
At [30].
At [31].
At [34][35].

79

(e)

the Smallmons acceptance that TSLs responsibility was limited to cleaning and
shipping the trucks: TSL never agreed to arrange importation and registration, as that
was the Smallmons own responsibility.53
[76]
In our view, this evidence and other findings giving rise to supporting inferences,54 provides a
proper foundation for the proposition that Mr Miller made no promise as to the registerability of the
trucks in Queensland, thereby delineating that he was not accepting any responsibility for this
process. In terms of such responsibility, the Smallmons were found to have agreed to such
delineation. It follows that any risk that the goods could not be registered must lie with the
Smallmons. In terms of the opening words of art 35(2), the parties must be treated as having agreed
otherwise. The parties agreed that conforming with the regulatory requirements (including
importation and registration) in Australia was the buyers responsibility.55
[77]
Having accepted that the Judges factual findings could not be challenged, Mr Dale responds
by contending that the respondents did not adequately plead that the contract placed the
responsibility for dealing with importation and registration on the Smallmons. We do not agree.
[78]
The Smallmons statement of claim pleaded that there was an oral contract between the
parties with certain express terms. These relevantly included:
a.
b.

d.

The First Defendant agreed to sell to the Plaintiff four Volvo FM12 trucks of a specified
type, age and kilometre reading (the Trucks);
The First Defendant would arrange for the export of the Trucks from New Zealand and
their importation into Australia, via its agents.
In consideration for the purchase and export of the Trucks, the Plaintiff would make the
following payments:

iii.
The reasonable costs of the First Defendant and its duly authorised agents
incurred in the export of the Trucks from New Zealand into Queensland,
Australia.

[79]
There followed a pleading of a number of terms said to be implied in the contract as a matter
of law:
a.
b.
c.

d.

The First Defendant warranted that the Trucks were fit for the purpose of, and intended
use by, the Plaintiff in its business;
The First Defendant and its duly authorised agents would exercise reasonable care and
skill in carrying out the terms of the contract;
The First Defendant had requisite knowledge and ability in the area of the export of
trucks from New Zealand and the import of trucks into Australia, to enable it to import
the Trucks into Australia in a manner which would allow for the Plaintiffs full business
use and in a timely manner; and
The First Defendant had the requisite knowledge and ability to determine the correct
documentation or authorities needed for import of the Trucks from New Zealand into
Australia for the Plaintiffs full business use and in a timely manner.

[80]
The respondents admitted the agreement to sell the four trucks to the Smallmons. But they
denied the allegations as to responsibility to arrange the importation of the trucks into Australia via
its agents. In particular, the respondents pleaded relevantly:
(a)

They never agreed to export and import, only shipping with the Plaintiff paying their
own agent to attend to import and export.

(d)

[81]
53
54
55

They say the costs were never paid as referred to in (d)(iii). They deny that they
needed to pay such costs and say that no claim has [ever] been made for it as it was
never agreed to by the First and Second Defendants.

With respect to the implied terms, the pleading in the statement of defence was:
At [69].
For example some of the matters listed as common ground set out at [13] above.
This can be adduced by the parties intentions: art 8 of the Convention.

80

14.

THAT they deny each and every allegation contained in paragraph 16 of the Plaintiffs
statement of claim and say that no warranty was given as to:a)
Their fitness or purpose;
b)
That they had the requisite knowledge and ability in the area of the export of
trucks from New Zealand and the import of trucks into Australia;
c)
That they had the requisite knowledge and ability to determine the correct
documentation or authorities needed for import of the trucks from New
Zealand into Australia.

[82]
In the light of the above pleadings, there was a clear engagement by the parties as to where
the contractual responsibility lay for arranging importation and registration in Australia. That was a
live issue at trial. It was thus open to the Judge to make the findings she did as summarised at [75]
above. Therefore, had it been necessary for us to do so we would have been prepared to uphold the
respondents alternative argument that art 35(2) is not engaged.
Quantum of damages
[83]
As the Smallmons arguments as to liability have failed, there is no need for us to deal with
any issues of quantum of damages. We note that the Judge did not consider them either, given her
findings on art 35(2). Had we been required to do so, it is likely that, given the state of the evidence
and the number of questions requiring resolution, we would have sent this aspect back to the High
Court.
Result

[84]

The appeal is dismissed.

TRIBUNALE BUSTO ARSIZIO, ITALY, 13 DECEMBER 2001 (PLASTIC BAGS CASE)

An Ecuadorian buyer and an Italian seller concluded a contract for the sale of machinery to be used
in the recycling of plastic bags. During the negotiations, the buyer sent a sample of the goods to the
seller, so as the latter could be aware of the specific features of the goods to be processed; the buyer
also informed the seller of the difficulties incurred by other companies previously entrusted with the
recycling. The seller assured the buyer that the machinery would fit the particular purpose made
known to seller and that it would reach a specific level of production. Upon installation, the
machinery turned out to be defective and not capable of reaching the promised production level.
The buyer notified forthwith the seller of non-conformity; however, the defects could not be
repaired by the sellers technicians even after several attempts. Since the seller, arguing that the
buyer had not properly used the machinery and had used material other than that of the sample,
declined any responsibility, the buyer brought an action claiming avoidance of the contract.
The Court held that the contract was governed by CISG (art. 1(1)(a) CISG).
As to the merits, the Court found that the seller had failed to deliver conforming goods (art. 35 CISG).
Indeed, as from the time it was installed, the machinery turned out to be totally unfit for the
particular use made known to the seller before the conclusion of the contract; the machinery was
also not capable of reaching the promised production volume, which was an essential condition for
the conclusion of the contract.
Furthermore, the Court rejected the sellers argument that notice of non-conformity was untimely
(Art. 39(1) CISG). Not only did the buyer give notice of the defects immediately after the installation
of the machinery, but it continued to inform the seller or its agent of any additional defect it had
discovered subsequently.
81

The Court also held that the buyers notice was sufficiently specific (Art. 39(1) CISG), as it contained a
description of the defects as they appeared. According to the Court the buyer was not under a duty
to indicate also the cause of the defective functioning of the machinery, all the more so as it in the
case at hand not even the seller could provide the necessary information.
Finally, the Court held that the buyer had declared the avoidance of the contract within a reasonable
time (Art. 49(2) CISG). In reaching this conclusion, the Court stated that the reasonable time ex Art.
49 CISG differs from the reasonable time ex Art. 39 CISG with respect to both its starting point and
its length. Since in the system of the Convention the remedy of avoidance of contract represents a
last resort as compared to all the other remedies available to the buyer, it follows that the starting
point of the time limit for declaring avoidance is not the same moment as that of the time limit for
giving notice of non-conformity. In fact, whereas non-conformity has to be notified as soon as it is
discovered or ought to have been discovered (in the case at hand: as soon as the machinery was put
into operation), avoidance has to be declared only after it appears that the non-conformity amounts
to a fundamental breach which cannot be otherwise remedied (in the case at hand: only after the
buyer becoming aware that all the sellers attempts to make the machinery fit for the particular
purpose had failed).
In this respect the Court, though without mentioning Art. 7(1) CISG, expressly stated that the
principle of good faith in the performance of the contract applies also under international law, and
that in in the case at hand to avoid the contract without waiting the outcome of the attempt to cure
the defects would have been contrary to such principle.
LANDGERICHT, FRANKFURT (MAIN), GERMANY, 11 APRIL 2005 [2-26 O 264/04] (USED SHOES CASE)
The Plaintiff [Buyer] is a society that has its place of business in Kampala, Uganda. Because of an
announcement on the Internet placed by the Defendant [Seller], it bought from the Seller 360 bags
of used shoes, quality class one and 360 bags of used shoes, quality class two (9,000 kg each) at a
price of 27,000 EUR plus C&F FOB Mombassa, Kenya (3,750 EUR), thus at a total price of 30,750 EUR.
Quality class one consists of used shoes in a very good condition, i.e., without rips or holes and if at
all with only slight, minor signs of use. Quality class two means shoes of good quality, i.e., with slight
signs of use, but also without rips or holes. The goods sent by the Seller arrived in Mombassa on 26
April 2004. After the Buyer had paid the last installment of the purchase price on 18 May 2004, it
received the original Bill of Lading document from the Seller on 24 May 200[4]. The Buyer had the
goods transported to Kampala then, Uganda, where it examined them on 16 June 2004. On 17 June
2004, the Buyer reprimanded the Seller for the bad condition of the goods. The Buyer complained
about the condition of the goods again by a letter of 23 June 2004 and set an extension until 22 July
2004. The Uganda National Bureau of Standards declined the import of the shoes by letter of 24 June
2004. For the wording of that statement, reference is made to page 14 of the record. The Bureau
stated that the shoes were not acceptable for the Ugandan market because of their bad and
unhygienic condition. It declared the shoes to be unfit for usage and recommended their destruction
at the parties cost.
The Buyer declared avoidance of the contract by letter of 2 July 2004.
The Buyer contends that the shoes that were delivered had not been in conformity with the contract.
Instead of the quality agreed upon, the bags had only contained defective and unusable shoes,
among them high-heel womans shoes, inline-skates and shoe trees. With respect to the timeliness
of the notice of non-conformity, it states that the Seller had known that the shoes would be
forwarded from Mombassa to Uganda. Buyer also states that the goods could not be examined in
Mombassa because of international regulations on freight and customs, as the containers had been
82

sealed in Germany. An examination in Mombassa would have required damage to the customs seal
and would thus have caused a payment of customs duty for the goods in Kenya. The Buyer argues
that paying additional customs in Kenya would have been an unreasonable burden.
The Buyer demands reimbursement of the purchase price as well as of the costs incurred such as
customs, handling fees and freight costs.
The Buyer has requested the court to order the Seller to pay EUR 62,301.63 plus interest 8 % . The
Seller has requested that the claim be dismissed. The Seller argues that the notice of non-conformity
of the goods was not sent in time. It also contests the amount of the damage.
In addition to the parties arguments stated here, reference is made to the memoranda that have
been added to the file.
REASONS FOR THE DECISION
The Buyers claim is admissible but not justified.
1. The Convention on Contracts for the International Sale of Goods (CISG) is applicable to the present
dispute, as the contract is for the sale of goods and the parties have their place of business in
different States which are parties to the Convention (Art. 1(1)(a) CISG). The Federal Republic of
Germany has been party to the Convention since 1 January 1991, Uganda since 1 March 1993.
2. The Buyer is not entitled to any payment under Arts. 45(1)(b), 74, 8[4](1) CISG nor under any other
provision.
a) The Seller has fundamentally breached the contract concluded between the parties by
delivering shoes not in conformity with the contract. This can be inferred from the letter by the
Uganda National Bureau of Standards of 24 June 2004 (page 14 of the record) according to which the
shoes were in a bad and unhygienic condition and not acceptable for the Ugandan market. The fact
that this document refers to the goods delivered can be inferred from the wording of the letter and
the enclosure, which states the number of the bags as well as the sender and recipient of the goods.
According to this letter, the shoes delivered were not in conformity with the quality classes one and
two agreed upon in the contract. As the Seller itself has stated that shoes are not perishable items
and therefore cannot rot in a container in a warehouse (page 55 of the record), it is assumed that
the goods had been in the same bad condition before they arrived in Mombassa.
b) The Buyer is, however, precluded from relying on a lack of conformity (Art. 39(1), 38 CISG). This
is because the Buyer did not examine the goods soon enough and also did not give notice of the nonconformity of the goods within a reasonable period of time.
The Buyer detected the non-conformity of the shoes delivered on 16 June 2004 in Kampala, Uganda
and gave notice to the Seller on 17 June 2004. The Seller was thus given notice of the lack of
conformity only one day after it had been detected. The examination of the goods, and consequently
the notice was, however, too late.
According to Art. 38(1) CISG, the Buyer was obliged to examine the goods within the shortest period
practicable under the circumstances. Mombassa, Kenya was the goods contractual destination.
Therefore, the examination of the goods was to be conducted there, Art. 38(2). The goods arrived in
Mombassa on 26 April 2004. The court will, however, assume in favor of the Buyer that the period
for examination did not begin before 24 May 2004 as this is the date when the Buyer received the
original Bill of Lading document after having paid the last installment of the purchase price. But even
under the assumption that this was the date when the time to examine the goods began, the notice
83

was made too late, as it was only made on 17 June 2004, which is three weeks after the time for
examination started. Art. 38(1) CISG does not give a special period of time but only states that the
goods have to be examined within as short a period as is practicable in the circumstances. The
strict measure of 377 HGB cannot be applied here (Schlechtriem/Schwenzer, Handbuch zum
Einheitlichen UN-Kaufrecht, 4. ed. Art. 38 para. 16; MKo/Benicke, Handelsgesetzbuch 373-406,
CISG Vol. 6, before Art. 38, 39 para. 1). However, an examination that did not take place until more
than three weeks had passed has to be regarded as too late and unreasonable in international
commerce. The Buyer had known for several weeks that the goods had arrived in Mombassa and
would have been able to organize an examination (cf. Achilles, Kommentar zum UNKaufrechtsbereinkommen (CISG), Art. 38 para. 9). The goods were neither complicated technical
equipment nor was it necessary to assemble or process them in order to examine them
(Schlechtriem/Schwenzer, Art. 38 para. 17). The non-conformity of the goods could have been
detected by only looking at a sample. As the examination did not require much effort, the Seller
could expect that it would be conducted within a short period of time (MKo/Benicke, Art. 38 para.
7). The Buyer has not presented any facts that would justify a longer period. Consequently, the Buyer
had no right to postpone the examination until the goods had arrived in Uganda.
The Buyer cannot rely on Art. 38(3) CISG according to which the examination can be postponed until
the goods have arrived at their final destination. Article 38(3) would only be applicable if the Buyer
did not have a sufficient possibility to examine the goods and if the Seller knew or ought to have
known the possibility that the goods would be forwarded. Art. 38(3) is generally applicable in this
case, because the Buyer redirected the shoes to Kampala, Uganda, after they had arrived in
Mombassa and the goods were examined immediately after their arrival in Uganda. It is, however,
questionable, whether the Seller knew or ought to have known of the possibility that the goods
would be forwarded to Uganda at the time the contract was concluded. The Seller has contested
this. The fact that the Buyer has its place of business in Uganda is insofar insufficient. The e-mail of
13 April 2004 (page 91 of the record) is irrelevant in this context as it was sent after the conclusion of
the contract.
This question, which is in dispute between the parties, does, however, not need to be decided. The
Buyer has not convinced the court that it did not have a reasonable opportunity to examine the
goods before they were forwarded (Art. 38(3) CISG). As shown above, the Buyer had sufficient time
to organize and conduct the examination of the goods in Mombassa. It was under no pressure of
time as the goods were not forwarded immediately after their arrival in Mombassa. Eventually, the
goods were forwarded three weeks after the Buyer had received the Bill of Lading and seven weeks
after their arrival in Mombassa. In addition, the packaging did not have any distinct features that
would have made an examination on the spot unreasonable. The shoes were packed in simple plastic
bags which could be opened without difficulties and without destroying the packaging
(Schlechtriem/Schwenzer, Art. 38 para. 25; Honsell, Kommentar zum UN-Kaufrecht, Art. 38 para. 31).
Repacking which could have caused costs was not necessary as well (Achilles, para. 15). In addition,
the court cannot see why opening the containers would have been inadequate or unreasonable in
the present case. The argument presented by the Buyer that it would have been unreasonable to fly
from Uganda to Kenya to examine the goods is not convincing. The Buyer, or respectively its
manager, did not need to fly to Kenya itself to examine the goods. It could have ordered somebody
else to examine the goods (Art. 38(1) CISG - cause them to be examined). In addition, the
inconvenience of a flight from Uganda to Kenya cannot be an argument against the Seller, as the
Buyer itself has chosen Mombassa as the goods destination. It was free to agree upon a different
destination with the Seller.
The Buyers argument that the goods could not be examined in Mombassa because of international
regulations for freight and customs as the customs seal would have been damaged which would have
84

caused an obligation to pay customs duties in Kenya is not convincing. The argument that paying the
customs duties would have been unreasonable, cannot be followed because the obligation to pay
customs duties does not represent a lack of a reasonable opportunity in the sense of Art. 38(3) CISG
which could be used to construct a disadvantage for the Seller. The number and the amount of
customs duties that would have to be paid were factors that the Buyer had to take into account in its
commercial consideration. The Buyer had to consider whether the deal would be profitable with
respect to the purchase price and the resale price. In addition, it would have been possible for the
Buyer to agree upon Kampala, Uganda and not Mombassa, Kenya as the destination of the goods.
Apart from that, it is doubtful whether the buyer would have needed to pay additional customs
duties if the customs seal had been damaged in Kenya for an examination of the goods. This has not
sufficiently been demonstrated by the buyer. Even if double customs duties would have had to be
paid, this does not automatically make the examination unreasonable. Reasons for unreasonableness
have not been presented by the Buyer. The Buyer has not even specified how high the customs
duties in Kenya would have been. Consequently, Art. 38(3) CISG does not lead to an extended period
for examination and notice.
3. The Buyer also cannot reduce the price. The lack of a timely notice of non-conformity has not been
supported by an acceptable excuse by the Buyer (Art. 44 CISG). Accordingly, the claim had to be
declined.
The decision on costs is based on 91 ZPO, the decision on provisional enforceability on 709 ZPO.
HGB = Handelsgesetzbuch [German Commercial Code]; MKo = Mnchener Kommentar [German
commentary on commercial law]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

SOCIT FRANCO-AFRICAINE DE DISTRIBUTION TEXTILE V MORE AND MORE TEXTILFABRIK GMBH,

COUR DAPPEL DE PARIS, 1RE CHAMBRE, SECTION D,
FRANCE, 13 MARCH 1998

A French buyer and a German Italian seller concluded a contract for the sale of clothing. The
parties agreed that the goods had to be delivered EXW (ICC-INCOTERM Ex Works) at the
sellers factory. When the goods were delivered, the buyer brought an action against the
seller before a French court alleging that the goods were defective. The seller objected to
the jurisdiction of the French courts. The Court of first instance (Tribunal de Commerce de
Montereau, 04-11-1997) declined jurisdiction in favour of the German courts. The buyer
appealed on the issue of jurisdiction.
The Court of Appeals applied Art. 5(1) of the EC Convention on Jurisdiction and the
Enforcement of Judgments in Civil and Commercial Matters (Brussels, 1968), according to
which a person domiciled in a Contracting State (in the case at hand: the seller) may be sued
in the Court for the place of performance of the obligation in question. The Court held that
the obligation in question was the sellers obligation to deliver conforming goods, and
applied CISG as the law governing the contract (Art. 1(1)(a) CISG) to determine such place.
Referring to Arts. 35(1) and 35(2)(a) CISG, the Court held that the obligation of
conformity of the goods to their ordinary use is not independent from the obligation of
delivery. Therefore both obligations must be performed at the same place.
In the case at hand, the EXW INCOTERM clause indicated that the parties had
agreed on the sellers place of business as the place of delivery. Moreover, the seller had
85

actually handed the goods over to a carrier on its own premises. Therefore, under Art. 31(a)
CISG the obligation to deliver conforming goods was to be performed at the sellers place of
business in Germany. On this ground the Court concluded that the jurisdiction to hear the
case was vested in the German courts.

86

Incoterms 2010

87

SeaRates LP, sourced from http://www.searates.com/reference/incoterms/ on 14 May 2014

3.3

PASSING OF RISK

CHAPTER IV. PASSING OF RISK

Article 66
Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from
his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.
Article 67
(1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them
over at a particular place, the risk passes to the buyer when the goods are handed over to the first
carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to
hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the
goods are handed over to the carrier at that place. The fact that the seller is authorized to retain
documents controlling the disposition of the goods does not affect the passage of the risk.
(2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the
contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or
otherwise.
Article 68
The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the
contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time
the goods were handed over to the carrier who issued the documents embodying the contract of
carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or
ought to have known that the goods had been lost or damaged and did not disclose this to the buyer,
the loss or damage is at the risk of the seller.
Article 69
(1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods
or, if he does not do so in due time, from the time when the goods are placed at his disposal and he
commits a breach of contract by failing to take delivery.
(2) However, if the buyer is bound to take over the goods at a place other than a place of business of
the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are
placed at his disposal at that place.
(3) If the contract relates to goods not then identified, the goods are considered not to be placed at
the disposal of the buyer until they are clearly identified to the contract.
Article 70
If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the
remedies available to the buyer on account of the breach.

88

ST. PAUL GUARDIAN INSURANCE CO V

NEUROMED MEDICAL SYSTEMS & SUPPORT, GMBH
UNITED STATES 26 MARCH 2002 FEDERAL DISTRICT COURT [NEW YORK]
SIDNEY H. STEIN, U.S. District Judge: Shared Imaging, an American corporation, and Neuromed, a
German corporation, entered into a contract of sale for a Siemens Harmony 1.0 Tesla mobile MRI.
Thereafter, both parties engaged various entities to transport, insure and provide customs entry
service for the MRI. Plaintiffs originally named those entities as defendants, but the action has been
discontinued against them by agreement of the parties. Neuromed is the sole remaining defendant.
According to the complaint, the MRI was loaded aboard the vessel Atlantic Carrier
undamaged and in good working order. When it reached its destination of Calmut City, Illinois, it had
been damaged and was in need of extensive repair, which led plaintiffs to conclude that the MRI had
been damaged in transit.
The one page contract of sale contains nine headings, including: Product; Delivery Terms;
Payment Terms; Disclaimer; and Applicable Law. Under Product the contract provides, the
system will be delivered cold and fully functional. Under Delivery Terms it provides, CIF New
York Seaport, the buyer will arrange and pay for customs clearance as well as transport to Calmut
City.
Under Payment Terms it states, By money transfer to one of our accounts, with following
payment terms: US$93,000 - downpayment to secure the system; US$744,000 - prior to shipping;
US$93,000 - upon acceptance by Siemens of the MRI system within 3 business days after arrival in
Calmut City. In addition, under Disclaimer it states, system including all accessories and options
remain the property of Neuromed till complete payment has been received. Preceding this clause is
a handwritten note, allegedly initialed by Raymond Stachowiak of Shared Imaging, stating,
Acceptance subject to Inspection.
Neuromed contends that because the delivery terms were CIF New York Seaport, its
contractual obligation, with regard to risk of loss or damage, ended when it delivered the MRI to the
vessel at the port of shipment and therefore the action must be dismissed because plaintiffs have
failed to state a claim for which relief can be granted. Plaintiffs respond that the generally accepted
definition of the CIF term as defined in Incoterms 1990, is inapplicable. Moreover, plaintiffs suggest
that other provisions of the contract are inconsistent with the CIF term because Neuromed,
pursuant to the contract, retained title subsequent to delivery to the vessel at the port of shipment
and thus, Neuromed manifestly retained the risk of loss.
The parties concede that pursuant to German law, the U.N. Convention on Contracts for
the International Sale of Goods (CISG) governs this transaction because (1) both the U.S. and
Germany are Contracting States to that Convention, and (2) neither party chose, by express provision
in the contract, to opt out of the application of the CISG. See CISG, art. 1(1)(a), reprinted in 15
U.S.C.A. App.; see also Claudia v. Olivieri Footwear Ltd., 1998 U.S. Dist. LEXIS 4586, No. 96 Civ. 8052,
1998 WL 164824, at *4 (S.D.N.Y. Apr. 7, 1998); Larry A. DiMatteo, The Law of International
Contracting, 206 (2000) (hereinafter Contracting).
The CISG aims to bring uniformity to international business transactions, using simple, nonnation specific language. See Larry DiMatteo, The CISG and the Presumption of Enforceability:
Unintended Contractual Liability in International Business Dealings, Yale J. Intl L. 111, 133 (1997). To
that end, it is comprised of rules applicable to the conclusion of contracts of sale of international
goods. See Annemieke Romein, The Passing of Risk: A Comparison Between the Passing of Risk under
the
CISG
and
German
Law
(Heidelberg,
June
1999),
at
http://www.cisg.
law.pace.edu/cisg/biblio/romein.html. In its application regard is to be paid to comity and
interpretations grounded in its underlying principles rather than in specific national conventions. See
CISG art. 7(1), (2); see also Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995).
Germany has been a Contracting State since 1991, and the CISG is an integral part of German
law. See Romein, supra. Where parties, as here, designate a choice of law clause in their contract
89

selecting the law of a Contracting State without expressly excluding application of the CISG
German courts uphold application of the Convention as the law of the designated Contracting state.
See Martin Karollus, Judicial Interpretation and Application of the CISG in Germany 1988-1994,
(citing OLG Koblenz 17 September 1993; OLG Koln 22 February 1994) at
http://www.cisg.law.pace.edu/cisg/biblio/karollus.html. To hold otherwise would undermine the
objectives of the Convention which Germany has agreed to uphold.
CIF, which stands for cost, insurance and freight, is a commercial trade term that is
defined in Incoterms 1990, published by the International Chamber of Commerce (ICC). The aim of
INCOTERMS, which stands for international commercial terms, is to provide a set of international
rules for the interpretation of the most commonly used trade terms in foreign trade. These trade
terms are used to allocate the costs of freight and insurance in addition to designating the point in
time when the risk of loss passes to the purchaser. INCOTERMS are incorporated into the CISG
through Article 9(2) which provides that, The parties are considered, unless otherwise agreed, to
have impliedly made applicable to their contract or its formation a usage of which the parties knew
or ought to have known and which in international trade is widely known to, and regularly observed
by, parties to contracts of the type involved in the particular trade concerned. CISG, art. 9(2),
reprinted in 15 U.S.C.A. App.
At the time the contract was entered into, Incoterms 1990 was applicable. INCOTERMS
define CIF (named port of destination) to mean the seller delivers when the goods pass the ships
rail in the port of shipment. The seller is responsible for paying the cost, freight and insurance
coverage necessary to bring the goods to the named port of destination, but the risk of loss or
damage to the goods passes from seller to buyer upon delivery to the port of shipment. Further,
CIF requires the seller to obtain insurance only on minimum cover.
Plaintiffs legal expert contends that INCOTERMS are inapplicable here because the contract
fails to specifically incorporate them. Nonetheless, he cites and acknowledges that the German
Supreme Court (Bundesgerichtshof [BGH]) the court of last resort in the Federal Republic of
Germany for civil matters, see Karollus, supra concluded that a clause fob without specific
reference to INCOTERMS was to be interpreted according to INCOTERMS simply because the
[INCOTERMS] include a clause fob. (citing 18th June 1975, file Nr. VIII ZR 34/74, published in WM
1975 page 917).
Conceding that commercial practice attains the force of law under section 346 of the
German Commercial Code (Handelsgesetzbuch [HGB]), plaintiffs expert concludes that the opinion
of the BGH amounts to saying that the [INCOTERMS] definitions in Germany have the force of law as
trade custom. As encapsulated by defendants legal expert, It is accepted under German law that in
case a contract refers to CIF-delivery, the parties refer to the INCOTERMS rules ... .
The use of the CIF term in the contract demonstrates that the parties agreed to the
detailed oriented [INCOTERMS] in order to enhance the Convention. Neil Gary Oberman, Transfer of
Risk From Seller to Buyer in International Commercial Contracts: A Comparative Analysis of Risk
Allocation
Under
CISG,
UCC
and
Incoterms,
at
http://www.cisg.law.pace.edu
/cisg/thesis/Oberman.html. Thus, pursuant to CISG art. 9(2), INCOTERMS definitions should be
applied to the contract despite the lack of an explicit INCOTERMS reference in the contract.
Plaintiffs argue that Neuromeds explicit retention of title in the contract to the MRI
machine modified the CIF term, such that Neuromed retained title and assumed the risk of loss.
INCOTERMS, however, only address passage of risk, not transfer of title. Charles Debattista,
Incoterms and Documentary Practices, in Incoterms 2000: A Forum of Experts 63, 86 (2000). Under
the CISG, the passage of risk is likewise independent of the transfer of title. See CISG art. 67(1).
Plaintiffs legal expert mistakenly asserts that the moment of passing of risk has not been defined in
the CISG. Chapter IV of that Convention, entitled Passing of Risk, explicitly defines the time at
which risk passes from seller to buyer pursuant to Article 67(1), If the contract of sale involves
carriage of the goods and seller is not bound to hand them over at a particular place, the risk passes
to the buyer when the goods are handed over to the first carrier for transmission to the buyer in
90

accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a
particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at
that place. CISG, art 67(1), reprinted in 15 U.S.C.A. App.
Pursuant to the CISG, the risk passes without taking into account who owns the goods. The
passing of ownership is not regulated by the CISG according to art. 4(b). Romein, supra. Article 4(b)
provides that the Convention is not concerned with the effect which the contract may have on the
property in the goods sold. CISG art. 4(b). Moreover, according to Article 67(1), the passage of risk
and transfer of title need not occur at the same time, as the sellers retention of documents
controlling the disposition of the goods does not affect the passage of risk. CISG art. 67(1).
Had the CISG been silent, as plaintiffs expert claimed, the Court would have been required
to turn to German law as a gap filler. There again, plaintiffs assertions falter. German law also
recognizes passage of risk and transfer of title as two independent legal acts. In fact, it is standard
practice under German law to agree that the transfer of title will only occur upon payment of the
entire purchase price, well after the date of passing of risk and after receipt of the goods by the
buyer. Support for this proposition of German law is cited by both experts. They each refer to
section 447 of the German Civil Code (Bugerliches Gesetzbuch [BGB]), a provision dealing with long
distance sales, providing in part -- as translated by plaintiffs expert -- that the risk of loss passes to
the buyer at the moment when the seller has handed the matter to the forwarder, the carrier or to
the otherwise determined person or institution for the transport.
Accordingly, pursuant to INCOTERMS, the CISG, and specific German law, Neuromeds
retention of title did not thereby implicate retention of the risk of loss or damage.
Plaintiffs next contend that even if the CIF term did not mandate that title and risk of
loss pass together, the other terms in the contract are evidence that the parties intention to
supercede and replace the CIF term such that Neuromed retained title and the risk of loss. That is
incorrect.
Citing the Delivery Terms clause in the contract, plaintiffs posit that had the parties
intended to abide by the strictures of INCOTERMS there would have been no need to define the
buyers obligations to pay customs and arrange further transport. Plaintiffs argument, however, is
undermined by Incoterms 1990, which provides that it is normally desirable that customs clearance
is arranged by the party domiciled in the country where such clearance should take place. The CIF
term as defined by INCOTERMS only requires the seller to clear the goods for export and is silent as
to which party bears the obligation to arrange for customs clearance. The parties are therefore left
to negotiate these obligations. As such, a clause defining the terms of customs clearance neither
alters nor affects the CIF clause in the contract.
Plaintiffs also cite to the Payment Terms clause of the contract, which specified that final
payment was not to be made upon sellers delivery of the machine to the port of shipment, but
rather, upon buyers acceptance of the machine in Calumet City. These terms speak to the final
disposition of the property, not to the risk for loss or damage. INCOTERMS do not mandate a
payment structure, but rather simply establish that the buyer bears an obligation to pay the price as
provided in the contract of sale. Inclusion of the terms of payment in the contract does not modify
the CIF clause.
Finally, plaintiffs emphasize the handwritten note, Acceptance upon inspection. upon its
placement within the contract and express terms, the note must serve to qualify the final clauses of
the Payment Terms, obliging buyer to effect final payment upon acceptance of the machine. As
defendants expert correctly depicts, A reasonable recipient, acting in good faith, would understand
that the buyer wanted to make sure that receipt of the GOOD should not be construed as the
acceptance of the buyer that the GOOD is free of defects of design or workmanship and that the
GOOD is performing as specified. This addition does not relate to the place of delivery. Accordingly,
despite plaintiffs arguments to the contrary, the handwritten note does not modify the CIF clause;
it instead serves to qualify the terms of the transfer of title.
91

The terms of the contract do not modify the CIF clause in the contract such that the risk of
loss remained with Neuromed. The fact remains that the CISG, INCOTERMS, and German law all
distinguish between the passage of the risk of loss and the transfer of title. Thus, because (1)
Neuromeds risk of loss of, or damage to, the MRI machine under the contract passed to Shared
Imaging upon delivery of the machine to the carrier at the port of shipment and (2) it is undisputed
that the MRI machine was delivered to the carrier undamaged and in good working order,
Neuromeds motion to dismiss for failure to state a claim is hereby granted.
For the foregoing reasons, Neuromeds motion to dismiss for failure to state a claim is
granted and the complaint is dismissed.

BEDIAL SA V PAUL MUGGENBURG & CO GMBH, CMARA NACIONAL DE APELACIONES EN LO

COMERCIAL, SALA C, ARGENTINA, 31 OCTOBER 1995
A German seller and an Argentinian buyer concluded a contract for the sale of dried mushrooms to
be shipped to the buyer, with a C & F delivery clause. The goods, which were shipped from Hong
Kong to Buenos Aires, deteriorated during shipment. The buyer commenced an action against the
seller claiming damages and alleging non conformity due to defects of the goods which caused
deterioration during transportation.
As in the first instance decision, the appellate Court held that according to Art. 67 CISG the
risk for deterioration of goods passes to the buyer from the time the seller delivers the goods to the
first carrier.
The Court also held that the C & F clause obliged the seller to deliver the goods for shipment
and to pay the freight, but did not change the time of passing of risk, which remained the time of
loading aboard the ship. Moreover, in the case at hand, this was confirmed by the fact that the buyer
had concluded an insurance policy for transportation risks.
The Court finally held that according to Art. 66 CISG, the buyer was not discharged from its
obligation to pay the price, as deterioration of the goods occurred after the passing of risk and the
buyer had not proved that deterioration was due to an act or omission on the part of the seller.

OBERLANDESGERICHT OLDENBURG, 2 U 54/98, GERMANY,

22 SEPTEMBER 1998 (SMOKED SALMON CASE)
The German Defendant had been in a longstanding business relationship with a Danish company
producing smoked salmon which it usually bought from the Norwegian Claimant. Due to economic
difficulties of the Danish company, Claimant contacted Defendant offering to sell directly to it a
certain quantity of raw salmon for further processing by the Danish company. Defendant accepted.
The contract provided for delivery of the goods at a public warehouse at buyers disposal.
Notwithstanding that, Claimant delivered the goods at the place of business of the Danish company,
as indicated in the invoices and delivery notes to which Defendant never objected. After the delivery
of the goods the Danish company turned bankrupt and Defendant never received either the raw
salmon or the smoked salmon. Requested by Claimant to pay the price of the raw salmon, Defendant
refused to pay and asked for avoidance of the contract, claiming that Claimant had failed to deliver
the goods at the place indicated in the contract.
The Court held that CISG was applicable as both parties had their place of business in
contracting States (Art. 1 (1) CISG).
As to the merits of the case the Court found that Defendant was not entitled to avoid the
contract. First of all, Claimants delivery of the goods at the place of business of the Danish company
had been tacitly accepted by Defendant. Moreover, in no case it could amount to a fundamental
breach of the contract according to Art. 25 CISG, since it did not deprive Defendant of what it was
92

entitled to under the contract: indeed, at the time of the contract it did not appear to endanger
Defendants position, given that the contract not only made it clear that the goods remained in
Defendants property, but also that they were to be delivered, once processed, to Defendant. Finally,
the Court found that Defendant had at any rate lost its right to declare the contract avoided since it
had not done so within a reasonable time according to Art. 49(2)(b) CISG.
Since Claimant had fulfilled its contractual duty by delivering the goods to the Danish
company, the risk had passed to Defendant according to Art. 69(2) CISG. Therefore Defendant was
not discharged from its obligation to pay the price according to Art. 66 CISG.

TRIBUNALE DI APPELLO DI LUGANO, SECONDA CAMERA CIVILE, 12.97.00193, SWITZERLAND,

15 JANUARY 1998 (COCOA BEANS CASE)
A Swiss seller and an Italian buyer concluded a contract for the sale of Ghana cocoa beans. The
contract contained an Incoterm CIF (Cost, Insurance and Freight) clause, whereby the seller was to
arrange for transportation of the goods by ship from Ghana to Italy. The price had to be paid by
irrevocable letter of credit, payable upon presentation to a bank along with a certificate issued by an
independent surveillance authority (Socit Gnrale de Surveillance), attesting the quality of the
goods specifically agreed by the parties. Before shipment, a certificate of analysis was issued by the
surveillance authority, which found that the goods (examined by sample) possessed the agreed
quality. Three weeks later, the goods were closed in containers and shipped from Ghana. The seller
then presented the letter of credit along with the quality certificate and obtained payment from the
bank. The goods arrived at their destination in Italy one month after shipment. The analysis made by
the buyer upon receiving the goods revealed that their quality was well below the agreed margin of
tolerance. The buyer gave notice of non-conformity to the seller requiring delivery of substitute
goods within a given period of time. As the seller failed to do so, the buyer declared the contract
avoided and commenced legal action against the seller claiming restitution of the purchase price and
interest.
The Court of first instance (Pretore del distretto di Lugano, 13-03-1997) held CISG applicable
(Art. 1(1)(a) CISG) and rejected the buyers claim. The buyer appealed.
The Court of Appeals held that, as the sale involved carriage of the goods, the risk had
passed to the buyer when the identified goods were handed over to the carrier in Ghana for
transportation, pursuant to Art. 67 CISG. The Court also found that the goods arrived at destination
in Italy in such conditions that the buyer could not make any use of them. However, in the case at
hand it was necessary to ascertain whether or not the goods lacked conformity, in either latent or
apparent manner (Art. 36 CISG), upon their being handed over the carrier, and which party is to
provide evidence thereof.
The Court found that CISG does not expressly settle the matter of burden of proof regarding
conformity of the goods (Art. 7(2) CISG). The Court noted that some scholars maintain that this is a
matter governed but not expressly settled by the Convention and that Arts. 35 et seq. CISG is the
expression of a general principle which can be used to fill this gap in the Convention, namely, that
the burden of proof lies on the buyer. The Court also noted that other scholars maintain that, in the
absence of a general principle, this matter is to be decided in conformity with the domestic law
applicable by virtue of the rules of private international law, which in the case at hand led to the
application of Swiss law. In this connection, the Court found that even under Swiss domestic law the
burden of proof lies on the buyer.
The mere fact that the conformity of goods had been certified by the surveillance authority
before shipment was no evidence of the buyer accepting the goods as such. In fact, the certificate of
quality was intended only for the seller to receive payment by letter of credit, while the buyer was
still entitled to examine the goods upon their arrival at the Italian port and to give notice of any nonconformity under Art. 38 CISG.
93

The Court also found that the seller, by letter sent to the buyer after delivery, had implicitly
admitted that the goods lacked conformity at the time of shipment and that they could not have
been deteriorated during transportation.
Therefore, either in the event that the analysis made before shipment was mistaken, or in
the event that the goods were deteriorated during the three-week period before their being closed
into the containers and shipped, or in the event that the goods lacked conformity upon passing of
the risk but the defects became apparent only after their arrival at the port of destination, in all
these cases the goods were defective when handed over to the carrier for transportation, so that the
seller was in breach for non-conformity.
On these grounds, the Court held that the buyer was entitled to declare the contract avoided
(Art. 49 CISG), and to restitution of the price paid under the contract (Art. 81(2) CISG) as well as to
payment of expenses as further damages (Arts. 74 and 81(1) CISG). The buyer was also entitled to
interest on the price, accruing from the date on which the price was paid (Art. 84(1) CISG). As to the
rate of interest, the Court found this to be a matter not governed by the Convention and to be
settled in accordance with the law applicable by virtue of the rules of private international law; in the
case at hand Swiss domestic law.

PASSING OF PROPERTY
THE TANG HE [2000] 4 HKC 701

CHEUNG J: Facts
On 16 April 1995, a collision occurred between two vessels in the Hong Kong harbour. The two
vessels were California Luna and Tang He. The California Luna carried containers which had
fireworks inside. The collision occurred shortly after it set sail. As a result of the collision, the
fireworks caught fire and were destroyed.
In this action, the owners of the fireworks claimed against the owners of Tang He for the
value of the damaged fireworks. The plaintiffs who claimed to be owners of the fireworks are Wald &
Co Inc (Wald), LW Loyd Co Inc (Loyd) and Sunlight China Products Ltd (Sunlight). The owners of Tang
He admitted liability for the damaged fireworks to the extent of 70% of their invoice value. The issue
common to the plaintiffs claims is whether they had the title to the fireworks at the time of the
collision. The plaintiffs will have the title to sue if they were the owners of the cargoes at the time of
the collision: The Charlotte [1908] P 206.
The claim of Wald
Wald purchased the fireworks from two companies in Hong Kong. The first company was Yuen Loong
Hong Firecrackers Ltd (Yuen Loong Hong) who sold to Wald 816 cartoons of fireworks at an invoice
value of US$12,970.80. In respect of this sale, the documents produced included a packing list and an
invoice both dated 21 April 1995. The invoice described the term of sale as FOB Hong Kong. There
was also a bill of lading dated 21 April 1995 in which Yuen Loong Hong was described as the shipper
and the consignee was described as TO ORDER OF SHIPPER. No written contract was produced.
The second lot of fireworks was purchased from Po Sing Fireworks (Hong Kong) Ltd (Po Sing).
The invoice value was US$ 20,129.01. In respect of this sale, there was a confirmation note dated 20
September 1994 in which the price was described as FOB Hong Kong; and an invoice dated 18 April
1995 for the value of FOB Hong Kong US$ 20,129.01. Page 1 of the invoice stated, among other
things, BY ORDER AND FOR ACCOUNT RISK OF: WALD & CO INC. There was a packing list dated 18
94

April 1995 and a bill of lading dated 24 April 1995. In the bill of lading the shipper was described as
Po Sing and the consignee was TO ORDER OF SHIPPER. Again, there was no written contract of sale.
According to Wald, it had done business with both of these Hong Kong companies before.
The usual arrangement with them was for the paperwork for the shipments to be forwarded to
Wald, either through the banks or simply by courier. They endorsed the bills of lading and sent them
to Wald. Wald would then make payment following receipt of the shipping documents. Sometimes
payment would be made after Walds receipt of the goods. The payments in respect of the two
consignments were arranged on 26 July 1995. Payment was made through Mark Twain Kansas City
Bank (Mark Twain Bank) who arranged for a bank draft to be supplied to Yuen Loong Hong. Payment
was made to Po Sing by way of a telegraphic transfer to their account from Mark Twain Bank as well.
Sale of Goods Ordinance
The following are some of the relevant sections of the Sale of Goods Ordinance (Cap 26) (the
Ordinance) which deal with the transfer of property between the seller and the buyer:
18. Goods must be ascertained
Where there is a contract for the sale of unascertained goods no property in the goods is transferred to
the buyer unless and until the goods are ascertained.
19. Property passes when intended to pass
(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is
transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the
contract, the conduct of the parties, and the circumstances of the case.
20. Rules for ascertaining intention
Unless a different intention appears, the following are rules for ascertaining the intention of the parties
as to the time at which the property in the goods is to pass to the buyer
Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by description, and
goods of that description, and in a deliverable state, are unconditionally appropriated to the contract,
either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the
property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may
be given either before or after the appropriation is made.

Passing of property in FOB contract

It is accepted by both parties that the fireworks were unascertained goods. In a FOB (free on board)
contract, prima facie, the property passes on shipment: Halsburys Laws of England (4th Ed, Reissue),
Vol 41 at para 351. The rationale for this is in fact based on r 5(1) of s 20 of the Ordinance in that the
goods had been unconditionally appropriated when they were shipped. A discussion on this topic can
be found at para 20-057 of Benjamins Sale of Goods (5th Ed):
... The question whether goods are unconditionally appropriated to the contract depends on the
intention of the parties; and appropriation is used both in a contractual and in a proprietary sense.
In the case of an f.o.b. contract goods are appropriated to a contract in the contractual sense (so
that the seller is irrevocably bound to deliver those goods under the contract) on shipment at the
latest. Property under an f.o.b. contract cannot pass before such appropriation and will pass if the
goods have been shipped and there has also been a proprietary appropriation, i.e. one that is
unconditional in the sense that the seller does not reserve a right of disposal. But often there will be
no such unconditional appropriation on shipment, for the seller may, by the manner in which he
deals with the shipping documents, indicate his intention to retain a right of disposal.

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If the property had passed to Wald then it clearly had the title to sue. The presumption that property
passes on shipment, however, is only a prima facie presumption and can be rebutted. In Halsburys
at para 351 it is stated that:
Prima facie the property passes to the buyer on shipment, but as in a cif contract the inference may be
rebutted and the moment of the passing of the property postponed, as where the seller takes or deals
with the bill of lading in such a form or manner as to show that he did not intend to appropriate the
goods to the contract, or that he has reserved a right of disposal until performance of the contract
terms of payment, whether they are for payment in cash or by acceptance of a bill of exchange or
under a letter of credit.

Bills of lading deliverable to the order of the seller

Mr Sussex SC, counsel for the defendants, argued that this prima facie rule is rebutted because in the
bills of lading, the consignee described as To the order of the seller. Under s 21(2) of the Ordinance,
if the bills of lading are deliverable to the order of the seller, the seller is, prima facie, deemed to
have reserved the right of disposal. Where in a contract goods are appropriated to the contract and
where the seller reserved the right of disposal of the goods until certain conditions are fulfilled, s
21(1) of the Ordinance provides that notwithstanding the delivery of the goods to the buyer, or to a
carrier for the purpose of transmission to the buyer, the property in the goods does not pass to the
buyer until the conditions imposed by the seller are fulfilled.
In The Ciudad de Pasto [1998] 2 Lloyds Rep 208, Staughton LJ at 213 held that:
Here by the bills of lading the goods were deliverable to the order of the sellers: consequently the
prima facie presumption is that they reserved the right of disposal. Unless the presumption is
displaced, that has the result that the property did not pass to the buyers until the condition imposed
by the sellers was fulfilled. That condition was, presumably, that the balance of the price be paid.

In The Starsin [2000] 1 Lloyds Rep 85 Colman J held at 104:

Fetim purchased its Port Klang cargo on f.o.b. terms. The vessel sailed on Dec. 8, 1995 ... Mr. Keller of
Fetim stated in his statement that the purchase took place when payment was made on Dec. 11, 1995.
The bills, which were to the sellers order, were received on Dec. 18, following payment. I infer that the
sellers retained a jus disponendi. It is to be inferred that had they not been paid, they would not have
been obliged to send the bills to the buyers. Notwithstanding that in an ordinary f.o.b. contract title
passes on shipment if the seller retains a jus disponendi, title passes on payment of the price: see Mitsui
& Co. Ltd. v. Flota Mercante Grancolonbiana S.A. (The Ciudad de Pasto), [1988] 2 Lloyds Rep. 208 in
which the retention of a jus disponendi in a f.o.b. contract as envisaged in s. 19(2) of the Sale of Goods
Act, 1979, was inferred.

In Benjamins Sale of Goods (5th Ed) para 20-064, the authors dealing with the equivalent of our s
21(2) stated that the prevailing view is that the section can apply to an FOB contract:
Under such a contract the seller is not bound to pass the property in the goods at any particular time: he
can perfectly well ship the goods in performance of his contract and so perform his duty to deliver
without simultaneously making an unconditional appropriation so as to pass the property. If this were
not the case, considerable difficulties would arise in financing f.o.b. sales. Section 19(2) (i.e. our section
21(2)), however, embodies only a prima facie rule; so that it is theoretically possible for property to pass
on shipment despite the fact that the bill of lading made the goods deliverable to the sellers order. But
where the buyer has not yet paid for goods shipped under such a bill this result would follow only in
highly exceptional circumstances. The current view is that property normally passes only on payment in
full; and a number of earlier authorities which at first sight may appear to support a different view are, it
is submitted, explicable on other grounds.

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The parties position

Mr Sussex argued that because of the reservation by the sellers in the bills of lading, property had
not passed at the time of the collision. Such evidence of a course of dealing is brief, and inadequate
to establish a contractually binding course of dealing affecting the legal rights of the parties as to the
passing of the property, so as to displace the general rule. Furthermore, despite request from the
defendants, Wald had not provided any discovery to support the suggestion of a course of dealing.
He further relied on a letter dated 29 March 1995 from Po Sing to Wald which stated that
would you kindly either open your L/C covering the above shipment or if possible, we would prefer
that you wire transfer the money to us immediately after shipment effected. This strongly suggested
that the seller did intend to reserve the right of disposal in the goods until they had secured or even
received payment. He also referred to two faxes by Yuen Loong Hong to Wald. In the fax dated 18
April 1995, Yuen Loong Hong stated that:
The shipping company confirmed that the container is a total loss. Very sorry. We are preparing the
paper work for this shipment, and it will be forwarded to you through the banks as we normally do.
Hopefully your insurance company will settle the claim before the bill comes due.

In the fax dated 21 July 1995, Yuen Loong Hong stated that:
We presented the above invoice through our Hong Kong Chinese Bank to your Mark Twain Bank for
payment. Please make payment of this invoice as you normally would through Mark Twain Bank. Thank
you.

Mr Smith, counsel for the plaintiffs, stated that the defendants had made the request for discovery
rather late which made the task of the plaintiffs providing the documents impossible. The
transactions between the parties took place in 1995. The plaintiffs had supplied its list of documents
in January of this year, but the defendants only chose to make the request for additional documents
in September which was shortly before the trial.
Evidence lacking
In my view, in ascertaining the intention of the parties, it would not be too useful to look at the
dealings with the bills of lading after the collision because although the bills of lading were
documents of title, the goods no longer existed when the bills were sent to Wald. What this claim
boils down is really this: has Wald provided evidence which would rebut the presumption that
property had not passed because of the reservation of disposal by Yuen Loong Hong and Po Sing. The
starting point is that the current view is that where there is a reservation of disposal by the seller, the
property would only pass with payment in full. In this case Wald had not made the payment before
the collision. I accept that the previous manner in which Wald transacted its business with its
suppliers is a relevant consideration, particularly when one of them was prepared to endorse the bill
of lading and sent it by courier to Wald even before it received payment. But in my view, Wald had
not produced credible evidence in support of its contentions. It is not simply a matter of the
defendants making the request for documents late, surely the burden must be on Wald to establish
its claim by credible evidence. This would involve the discovery of previous transactions relied upon
by Wald. The problem in this case is particularly acute because Wald did not give any oral evidence.
The statement of Wald was admitted by way of hearsay notice. There is no chance for the
defendants to test the accuracy of the statement in court by cross-examination. Wald had not
provided documentary evidence in respect of the previous dealings. I can only repeat the
observation of the judge at p 215 of Ciudad de Pasto, Where evidence is wholly inadequate the
impact of the burden of proof assumes critical importance. In my view Wald has failed to show that
property had passed to it at the time of the collision. I shall dismiss the claim of Wald.
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The claim of Loyd

Loyd purchased the fireworks from Po Sing as well. According to Loyd, it had done business with Po
Sing for several years. The order was placed with Po Sing in August 1994. The purchase price was
US$53,694.51. The sale was FOB Hong Kong. Among the documents related to the sale was an
invoice and packing list both dated 18 April 1995 issued by Po Sing. According to Loyd, following
shipment, Po Sing would endorse the bill of lading and send it to Loyd by DHL courier. The normal
procedure would be for Loyd to send a cheque to Po Sing upon receipt of the original documents. In
this case, Loyd sent a cheque to Po Sing on 24 July 1995. It was stated that its agreement with Po
Sing was to send the payment upon receipt of the documents, however on occasion it had taken the
liberty of paying after receipt of the goods. The bill of lading in respect of the fireworks shipped on
the California Luna was dated 24 April 1995. The shipper was Po Sing while the consignee was again
described as TO THE ORDER OF SHIPPER.
Same problem
In my view, the claim by Loyd faces the same problem as the claim by Wald. The defendants were
precluded from cross-examining Loyd, whose witness statement was admitted by way of the hearsay
notice only. The evidence is wholly inadequate, the previous dealings alleged by Loyd were not
supported by documents. In my view, the seller had again reserved the right of disposal which
precluded the passing of property at shipment. I shall dismiss the claim by Loyd.
The claim of Sunlight
Sunlight agreed to sell the fireworks to Greg Shelton in the USA. According to Mr Wilson Wai Shing
Mao of Sunlight, the goods were sold on C & I terms. Mr Mao produced a packing list dated 18 April
1995 in respect of the shipment and also the invoice dated 21 April 1995. Page 1 of the invoice stated
Payment Term -- C & I OMAHA, NE (ie Nebraska) BY TT WIRE. Page 4 of the invoice stated that:
Total 1139 ctns.
Total: F. O. B HongKong US$ 43625.33
Plus: Insurance US$ 144.00
Grand Total: C & I OMAHA, US$ 43769.33

The bill of lading was dated 15 May 1995, the shipper was Sunlight and the consignee is TO ORDER
OF GREG SHELTON. Mr Mao said that it was not the practice of Sunlight to send the original bills of
lading until they received the wired funds from the buyer. He confirmed that Sunlight had received
no payment from the buyer in USA.
Nature of the contract
Mr Sussex argued that the contract being a C&I (cost and insurance) contract, the buyer was
responsible for the freight. This contract was in the nature of an FOB contract. In an FOB contract,
the property in the goods, prima facie, passes to the buyer on shipment. He further submitted that
the taking of a bill of lading to the buyers order suggests that it was the intention of the parties that
property would pass on shipment. If the property had already passed to the buyer, then Sunlight
does not have the title to sue.
Mr Smith, on the other hand, argued that a C&I contract is akin to a CIF (cost, insurance,
freight) contract. The property in the goods had not passed at shipment. It would only do so when
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the bill of lading is subsequently endorsed to the seller. In Sanders Brothers v Maclean & Co (1883)
11 QBD 327, in a transaction involving a CIF contract, Bowen LJ held that:
... A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this
period of transit and voyage, the bill of lading by the law merchant is universally recognised as its
symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the
cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is
the intention of the parties that the property should pass, just as under similar circumstances the
property would pass by an actual delivery of the goods.

In The Elafi [1981] 2 Lloyds Rep 679, Mustill J (as he then was) held that:
... Here, since the contract was on c.i.f. terms, it is very probable that the property would have passed to
the claimants when the shipping documents were negotiated, for the cargo was ascertained and
appropriated from the outset, and the general rule is that under a c.i.f contract the property passes with
the documents. The only cause for uncertainty is the fact that the claimants had a right to reject goods
in excess of the stipulated quantity, so that it would not be possible to know during the voyage whether
any individual portion of cargo might not ultimately revert to the vendors. I believe, however, that in
such a situation the property in the entire cargo would pass conditionally to the claimants, subject to a
retransfer of any excess if the claimants so elected, and that this would be sufficient to found a claim in
tort in respect of all such cargo as the claimants chose to accept.

Paragraph 342 of Halsburys has a further discussion on the parting of properties in CIF contract:
The general statutory rules as to the passing of property under a contract for the sale of goods do not
greatly assist in ascertaining the moment at which the property passes where goods, whether specific or
unascertained, are sold on cif terms. The provisions as to the passing of an undivided share in goods
which form part of a bulk should, however, be borne especially in mind, given the frequency with which
goods sold on cif terms are shipped in bulk. Likewise, special attention should be given in the context of
cif sales to the provisions as to the right of disposal. When an agreement is made for the sale of specific
goods in a deliverable state on cif terms, it is not an unconditional contract, because the commercial
meaning of cif imports an undertaking by the seller to do something more, namely to put the goods on a
ship, and this postpones the passing of the property until at least the goods are shipped by the seller.
Further, where, as is generally the case in a cif contract, the seller reserves the right of disposal of the
goods until certain conditions laid down at the time of the contract or appropriation are fulfilled, the
property does not pass until fulfillment of the conditions, ordinarily when the seller transfers the bill of
lading. The presumption that property passes on shipment may also be rebutted where the facts of the
case show that the seller never intended the mere act of shipment to operate as an appropriation of the
goods to the contract either conditionally or at all.

My view
In my view, it would not be too useful to attach too much importance to the label of the contract.
Even if the contract in question is in the nature of an FOB contract, it is only a prima facie rule that
the property would pass on shipment. Mr Mao had clearly stated that it was not the practice of
Sunlight to send the original bill of lading until they receive payment from the buyer. The retention of
the bill of lading, which is a document of title, until payment has been received is clearly an
indication that Sunlight did not intend the property to be passed on shipment to the US buyer. Unlike
the situation where a bill of lading is made to the order of the seller which creates a prima facie
presumption that the seller reserves the right of disposal of the goods, there is no presumption that
where a bill of lading is made to the order of the buyer, the seller is treated to have given up his right
of disposal. As pointed out in Benjamins at para 20-070:

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... retention even of such a bill of lading gives the seller considerable control over the goods; for the
buyer is not normally entitled to demand delivery of the goods from the carrier without presenting the
bill, while the seller is normally entitled to direct the carrier to deliver the goods to a different
consignee. It therefore does not follow that property will pass on shipment merely because the bill of
lading is made out to buyers order. As Lord Sumner said in a case involving a c.i.f contract: in spite of
the insertion of the consignees ( i.e. the buyers) name in the bill of lading, the intention to reserve the
jus disponendi to the seller til the documents are taken up is manifested by the way in which the
transaction is carried through with regard to the presentation of the documents. It is submitted that
where the contract provides for payment against bill of lading the normal inference would be that the
seller had reserved a right of disposal until payment in accordance with the contract had been made.

At the time of shipment, Sunlight had not received payment. Its practice was to send the bills of
lading when payment was received. In my view, Sunlight had discharged the burden of proof on a
balance of probability that it was the owner of the goods at the time of the loss. Hence, it has the
title to sue in this action and recover the loss from the defendant.
Insurance
Wald, Loyd and Sunlight had received payment from the insurers in respect of the loss of the
firework. Each of them had signed a subrogation form in favour of the insurers. It is clear that
payment by the insurers to them have no relevance in this case.
Conclusion
The claims by Wald and Loyd are dismissed. There shall be judgment to Sunlight for US$ 30,638.53
(70% of the invoice value of US$ 43,769.33). There shall be interest at judgment rate from the date
of the service of the writ until payment.

CARLOS FEDERSPIEL & CO SA V CHARLES TWIGG & CO LTD [1957] 1 LLOYDS REP 240
Mr. Justice PEARSON: In this case the basic facts are agreed and all the evidence is contained in
agreed documents. The only remaining issues are (1) whether the ownership of certain goods passed
from the defendant company, as sellers, to the plaintiffs, as buyers, in which case both defendants
would be liable to the plaintiffs for conversion of their goods; (2) if there is liability, whether the sum
described as loss of profit can, under any guise, be included in the damages. The defendant company
has taken no part in the trial, and the contest has been between the plaintiffs and the second
defendant, who is receiver for a debenture-holding company. the figures of damage, in the event of
liability being established, are agreed at, I think, 646 5s. without the sum for loss of profit, and that
sum, if it is to be added, is agreed at a figure which I think is 89 7s.8d.
As stated in par. 1 of the statement of claim, the plaintiffs are a company incorporated in San
Jose, Costa Rica, who were at all material times carrying on business as merchants in Costa Rica. The
defendant company at all material times in the early part of 1953 carried on business as
manufacturers of childrens bicycles and tricycles at Lye in the County of Worcester. Then, as stated
in par. 4 of the statement of claim, and admitted in the defence, in about June, 1953, the plaintiffs
agreed to buy and the defendant company agreed to sell and deliver at a price of 1820 U.S. dols.,
certain goods which are set out in that paragraph of the statement of claim, namely, cycles, tricycles
and certain accessories. As stated in par. 5 of the statement of claim and admitted in the defence,
the agreement was contained in or evidenced by an order in writing from the plaintiffs to the
defendant company dated June 16, 1953, and an acceptance in writing of the said order from the
defendant company to the plaintiffs, dated June 25, 1953. Then it is also common ground that, as
stated in par. 6 of the statement of claim, pursuant to the said agreement, the plaintiffs on or about
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July 1, 1953, paid the said price to the defendant company by cheque of that date, and the receipt of
it was acknowledged by the defendant company on July 7, 1953. Then it appears from par. 2 of the
defence, which is similar to, but as to the date more accurate than, par. 3 of the statement of claim,
that on July 28, 19538 the second defendant, Mr. H. J. Patience, was appointed receiver and
manager of the defendant company by the debenture holders. Thereafter all goods belonging to the
defendant company, which were charged to the debenture holders by virtue of their debentures,
passed into his management and control. On Oct. 2, 1953, the second defendant, Mr. Patience, the
receiver, refused to deliver to the plaintiff company any goods in fulfilment of the contract of sale
which had been made in June, 1953. Then on Nov. 17, 1953, the company being insolvent, a
compulsory winding-up order was made.
The plaintiffs claim, in its essence, appears from par. 7 of the statement of claim which
alleges:
Pursuant to the said agreement the said goods were duly manufactured by the defendant company and
thereafter were made available to the plaintiffs and appropriated to the said agreement, which
availability and appropriation were duly notified to the plaintiffs by letters to the plaintiffs dated the
27th August and the 14th September 1953 from the defendant company and/or the defendant Patience
as receiver and manager thereof.

Some further and better particulars were given of the acts and matters relied further and better
particulars are dated June 6, 1955, but I do not have to refer to them here, because the matters
referred to will be mentioned in due course.
Then par. 8 of the statement of claim alleges:
The property in the said goods in the premises passed to the plaintiffs by virtue of Sect. 18(5) of the Sale
of Goods Act 1893 but the defendant company and the defendant Patience none the less failed and
neglected to deliver the same to the plaintiffs and wrongfully and in breach of the said agreement
detained and still detain the same.

Then it is alleged and this is, I think, admitted that the plaintiffs demanded the goods from the
receiver, and the receiver and the defendant company refused to deliver them up. It is admitted that
if the goods were the property of the buyers, that is to say, the plaintiff company, there was
conversion by the defendants.
The issue in the case appears from par. 5 of the defence. I should perhaps read also part, at
any rate, of par. 4:
This defendant [Patience] . . . denies that any bicycles or tricycles were made available to the plaintiffs
or appropriated to the said agreement.

In par. 5 it is said:
This defendant denies that the property in any bicycles or tricycles manufactured by the defendant
company passed to the plaintiffs either as alleged or at all. This defendant admits that no bicycles or
tricycles have been delivered to the plaintiffs pursuant to the said agreement but he denies that he or
the defendant company detain wrongfully or in breach of the said agreement any goods belonging to
the plaintiffs.

That, therefore, is the main issue: whether or not the goods were appropriated to the contract by
the sellers with the consent of the buyers so as to pass the ownership to the buyers; and the buyers
are the plaintiff company. I should have said that the defence to which I have referred is the defence
of the defendant Patience only. As I have said, the defendant company have taken no part in the
trial, and they did not even deliver a defence at the earlier stage.
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 This is a case in which the contract is for the sale of unascertained goods by description, for
the sale of future goods probably still to be manufactured. Afterwards certain goods were
manufactured, and the sellers at one time apparently expected to use them in fulfilment of the
contract. The question is whether there was an appropriation of those goods to the contract by the
sellers with the assent of the buyers within the meaning of Rule 5 of Sect. 18.
I think it is convenient just, in effect, to lay a foundation for the understanding of the exact
meaning and effect of Sect. 18 by reading a short passage from an old case, Mirabita v. Imperial
Ottoman Bank, (1878) 3 Ex.D. 164. The relevant passage is from the judgment of Lord Justice Cotton,
at p. 172, where he says:
Under a contract for sale of chattels not specific the property does not pass to the purchaser unless
there is afterwards an appropriation of the specific chattels to pass under the contract, that is, unless
both parties agree as to the specific chattels in which the property is to pass, and nothing remains to be
done in order to pass it. In the case of such a contract the delivery by the vendor to a common carrier,
or (unless the effect of the shipment is restricted by the terms of the bill of lading) shipment on board a
ship of, or chartered for, the purchaser, is an appropriation sufficient to pass the property.

There was an old case called Wait and Another v. Baker, (1848) 2 Ex. 1, in which there was a
discussion by Baron Parke which is of considerable interest. I think it is convenient to read only a
short passage from it. He said, at p. 7:
it is perfectly clear that the original contract between the parties was not for a specific chattel. That
contract would be satisfied by the delivery of any 500 quarters of corn, provided the corn answered the
character of that which was agreed to be delivered. By the original contract, therefore, no property
passed; and that matter admits of no doubt whatever. In order, therefore, to deprive the original owner
of the property, it must be shown in this form of action - the action being for the recovery of the
property - that, at some subsequent time, the property passed. It may be admitted, that if goods are
ordered by a person, although they are to be selected by the vendor, and to be delivered to a common
carrier to be sent to the person by whom they have been ordered, the moment the goods, which have
been selected in pursuance of the contract, are delivered to the carrier, the carrier becomes the agent
of the vendee, and such a delivery amounts to a delivery to the vendee; and if there is a binding
contract between the vendor and vendee, either by note in writing, or by part payment, or subsequently
by part acceptance, then there is no doubt that the property passes by such delivery to the carrier. It is
necessary, of course, that the goods should agree with the contract.

Later, on p. 9, having referred to Roman law, he says on this subject:

The law of England is different: here, property does not pass until there is a bargain with respect to a
specific article, and everything is done which, according to the intention of the parties to the bargain,
was necessary to transfer the property in it.

Then he discusses the different senses in which the word appropriation is used.
Now I will come to the set of documents in this case which constitute the contract. First, there
is the sellers price list, which quotes the prices f.o.b. English port inclusive. That only states the price,
so I think it is not of great significance. Then there is a letter of May 20, 1953, from the buyers to the
sellers, saying:
To-day we are able to inform you that we received your first shipment, according your invoice No . . .
and found that the cycles and tricycles are made of a good quality and are satisfactory.
For the above mentioned, we would like to place a new order and would appreciate very much if
you would send us by airmail, your last catalogue and complete price list. We do not have it complete
and would like to place the new order for rush shipment. The only significance of that is, I think, that at
this early stage, as one will find throughout the correspondence, the emphasis is on shipment as

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indicating the intention of the parties that shipment should be a decisive act of performance by the
seller.

Then there is the letter of June 6 from the sellers to the buyers, and they say, among other things:
. . . as we should very much like to extend our business relationship with your goodselves, we have
pleasure in offering you a commission of 5 per cent. (on the f.o.b. value exclusive of packing) on all
orders which you place with us. This commission would be in addition to the 21/2 per cent. cash
discount which we allow for payment in advance or by confirmed irrevocable letter of credit.

On June 16 there is the offer. It is addressed by the buyers to the sellers, and it says:
Gentlemen,
Regarding to your letter dated June 6th, we are agreed at the present with your indications in
regard to the representation, but hope that in a very near future you are going to accede to our request
naming us your exclusive agents for this territory.
For the following order we beg you to send us two pro-forma invoices to be able to make
advance payment reducing the 5 per cent. and 21/2 per cent. discounts. Please prepare shipment to be
able to ship with direct ship to our Port Limon, as soon as you receive you advance payment remittance.

Then they set out the goods for which the order is given, being cycles, and so on. Then there is the
provision: All boxes have to be marked: C.F. & Co., San Jose - Costa Rica, Port Limon.
The answer, which is the acceptance, is on June 25. There is a letter and an enclosed
confirmation of export order and an enclosed pro forma invoice. The material parts of the letter from
the sellers to the buyers are at the beginning:
Dear Sirs,
We thank you for your letter of the 16th June and are very pleased to have your second order for
cycles and tricycles.
This has been entered by us under reference P/1052 and we are enclosing herewith our official
acknowledgment form. Attached also is our pro-forma invoice, in duplicate, on which we have given the
approximate c.i.f. charges and deducted the 5 per cent. commission and 2 1/2 per cent. cash discount.
This will enable you to remit to us, as suggested, and we look forward to receiving your cheque in due
course.
Meanwhile, we have placed the order on our works and can assure you that we will have the
goods ready for shipment at the earliest possible moment.

Confirmation of export order was enclosed, and it contains these provisions:

Shipping Marks: C.F. & Co., San Jose, Costa Rica, Port Limon.
Delivery: F.o.b. U.K.Port.
Packing: Extra. - No. 4. - As per our pro-forma invoice dated 25.6.53.
Freight: Extra.
Insurance: Extra.
Payment: In advance. - As per your letter dated 16.6.53.

The goods are set out, and there is the provision: All shipments will be invoiced at prices ruling at
the date of despatch, irrespective of anything shown to the contrary on your order sheet.
Then there is the enclosed pro forma invoice, which sets out the goods, sets out the shipping
mark and numbers as before: C.F. & Co., San Jose, Costa Rica, Port Limon. 1/up. Then certain
packing charges are set out, and then there are these words: Approximate c.i.f. charges 60.
Then there is a deduction made for the two commissions, 5 per cent. on the f.o.b. value, exclusive of
packing, and 21/2 per cent. cash discount on the same sum for payment in advance.
Then on July 1 there is a letter from the buyers to the sellers, saying:
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To-day we received your letter dated June 25th from which we separate your two pro forma invoices.
To cover this pro forma invoices we are sending you herewith our cheque 2376 against our
account at the National City Bank of New York in the amount of U.S.A. $1820.
We beg you to acknowledge receipt of this remittance any difference will be paid as soon as we
receive your definitive invoices and two original shipping documents.
Please follow the shipping instructions given on our order of June 16th regarding marks, etc., etc.
To avoid difficulties with the custom house it is indispensable that you send us with the five
invoices, 5 packing lists indicating what contains on each box, with the indication of the No. of each
cycle (serial No.) that would help us very much.
Thanking you in advance for the soon shipment of that order, we remain,
Yours truly,
Carlos Federspiel & Co., S.A.

Then there is the receipt for the cheque, dated July 7, 1953.
Then on July 9 the sellers write to the buyers, saying:
We thank you for your letter of the 1st July together with cheque for the amount of $1820 and have
pleasure in enclosing our official receipt.
Your instructions regarding marks, etc., will be complied with and immediately we have some
definite information as to the date of shipment we will write to you again.
When we forward the documents we will let [you] have a statement showing the actual position
of the account, and you can then remit to us any balance which may be due.
You may be assured that the order is having our best attention, and we anticipate that the goods
will be ready for despatch in the very near future.

That is the end of the contractual documents, and the question arises: what is the nature of this
contract? I agree with Mr. Lyell that fundamentally it is to be regarded as an f.o.b. contract, but one
has to add that it has some c.i.f. features attached to it. The delivery expressly is to be f.o.b., but
freight and insurance are to be extras, and they are stated at an approximate figure of 60. It would
seem that the intention is that the sellers are, in the first instance, to arrange the insurance and the
contract of affreightment, and they are to pay the freight and insurance and charge them as extras to
the buyers; and the intention seems to be that they should charge the cost price to the buyers, so
that any rise or fall in rates of freight or insurance would be for the account of the buyers and of no
interest to the sellers. That seems to be the nature of the contract.
It is, in my view, an f.o.b. contract, but one can also consider what the position would be if that
is a wrong view and if it is in truth to be regarded as predominantly a c.i.f. contract. The first question
is: when would the property pass under that contract of sale in the absence of any further
development subsequently? I will have to consider later whether the subsequent developments
make any difference. There is authority which shows quite clearly that normally, at any rate, under
an f.o.b. contract the property passes on shipment. There is the case of Browne and Another v. Hare
and Another, (1858) 3 H. & N. 484, a decision of the Court of Exchequer. The relevant passage is in
the majority judgment of Chief Baron Pollock, Baron Martin and Baron Channell, beginning on p. 498:
If, at the time the oil was shipped at Rotterdam, the plaintiffs had intended to continue their ownership,
and had taken the bill of lading in the terms in which it was made for the purpose of continuing the
ownership and exercising dominion over the oil, they would in our opinion have broken their contract to
ship the oil free on board, and the property would not have passed to the defendants; but if when
they shipped the oil they intended to perform their contract and deliver it free on board for the
defendants, we think they did perform it, and the property in the oil passed from them to the
defendants.

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I ought to have explained that this was a contract for oil to be shipped free on board at Rotterdam,
and the possible doubt as to the date of passing of the property arose from the fact that the seller
took the bill of lading to his own order but indorsed it specially to the other party. That is what was
said in the Court of Exchequer.
Then it went to appeal, apparently to the Court of Exchequer Chamber, which is therefore of
high authority. Mr. Justice Erle delivered the judgment of the Court, and he says, (1859) 4 H. & N.
822, at p. 829: In this case we are of opinion that the judgment of the Court below should be
affirmed.
The contract was for the purchase of unascertained goods, and the question has been, when
the property passed. For the answer the contract must be resorted to; and under that we think the
property passed when the goods were placed free on board, in performance of the contract.
He went on to discuss the special problem which arose from the fact that the seller, who was
the shipper, took the bill of lading to shippers order but indorsed it to the buyers. That is the first
authority.
Then there is the case of Stock v. Inglis, (1884) 12 Q.B.D. 564, a decision of the Court of
Appeal. That is a case where the difficulty arose in this way: there were two contracts each providing
for 200 tons of sugar to be loaded f.o.b. Hamburg with the port of destination Bristol; but the goods
as put on board were not separated as between the two contracts, and the question was at whose
risk the sugar was, because this was an action by the plaintiff, a Bristol merchant, against a Lloyds
underwriter under a policy of insurance, and the question was whether the plaintiff, who was the
buyer, had an insurable interest.
There is a passage on p. 573 from the judgment of Sir Baliol Brett, M.R., where he says:
Now if the goods dealt with by the contract were specific goods, it is not denied but that the words
free on board, according to the general understanding of merchants, would mean more than merely
that the shipper was to put them on board at his expense; they would mean that he was to put them on
board at his expense on account of the person for whom they were shipped; and in that case the goods
so put on board under such a contract would be at the risk of the buyer whether they were lost or not
on the voyage.

Now that is the meaning of those words free on board in a contract with regard to specific goods,
and in that case the goods are at the purchasers risk, even though the payment is not to be made on
the delivery of the goods on board, but at some other time, and although the bill of lading is sent
forward by the seller with documents attached in order that the goods shall not be finally delivered
to the purchaser until he has either accepted bills or paid cash.
Then the question arises, can there be a contract with the terms free on board which can
be fulfilled without the delivery of specific goods at the time of shipment? Is there any mercantile or
legal reason why a person should not agreed to sell so much out of bulk cargo on board or ex such a
ship upon the terms that if the cargo be lost the loss shall fall upon the purchaser, and not upon the
seller? I can see no reason why he should not; and if such a contract can be made, and in a contract
to buy and sell a certain quantity ex ship or ex bulk there is put in the terms free on board, one
must, with regard to that contract, give some meaning to those words free on board. What
meaning can be given to them with regard to the unseparated part of the goods which is the subjectmatter of the contract, but the same meaning as is given to those words with regard to goods
attributed to the contract? What is there unreasonable or contrary to business or law in those words
free on board, meaning in such a contract I sell you twenty tons out of fifty upon the terms that
you shall pay such a price for those twenty, I paying the costs of the shipment, that is, free on
board, and you bearing the risk of whether they are lost or not?
Then there is a passage on p. 575 in Lord Justice Baggallays judgment, where he says:
It has not been denied that, where the contract deals with specified goods, the introduction of the
provision that they are to be free on board places the goods at the risk of the buyer. But it has been

105

suggested that such is not the case when the goods are not specific, but are, as they were in the present
case, a certain proportion of goods to be delivered out of a larger quantity. I think the argument which
was addressed to us by Mr. Reid in reply was a very forcible one. What authority is there for a suggested
difference between the case of specific goods, and goods of the class which I have just now mentioned?
Why should there be any difference between the two?

Then Lord Justice Lindley said, at p. 576:

Let us look at that contract by itself, and without reference to any particular course of trade. No
particular sugar is specified, but 200 tons of sugar, and I apprehend that that contract might be
performed in one of two ways. 200 tons of sugar might be shipped free on board a vessel at Hamburg,
and be shipped so as to be appropriated at the time of shipment. That is one mode of performing it. And
I should say that would be the ordinary mode of performing it, and in that case, the sugar, provided it
answered the description contracted for, would be appropriated at the time of shipment, and the
property would then pass to the buyer, and of course would be at his risk.

That is the passage that is quite clear in that case.

The case went to appeal, and is reported under the name of Inglis v. Stock, (1885) 10
App.Cas. 263. There the House of Lords were more specifically dealing with the question of the
passing of the risk than the passing of the property. In the House of Lords they could not find
anything inconsistent with the view expressed by Lord Justice Lindley in the Court of Appeal, and I
think it is not necessary to read the passages.
I will merely refer to two other cases. There is the case of Wimble, Sons & Co. v. Rosenberg &
Sons, [1913] 3 K.B. 743; the material passage is at p. 759, where the passage from the Master of the
Rolls judgment in Stock v. Inglis, sup., is reported. Then this is important. There is an express and
clear decision on the subject by Mr. Justice McCardie in Colley v. Overseas Exporters, [1921] 3 K.B.
302. The material passage is at p. 307, where he said:
It seems clear that in the absence of special agreement the property and risk in goods does not in the
case of an f.o.b. contract pass from the seller to the buyer till the goods are actually put on board: see
Browne v. Hare, (1859) 4 H. & N. 822; Inglis v. Stock, (1885) 10 App.Cas. 263; Wimble v. Rosenberg,
[1913] 3 K.B. 743, at p. 747; Benjamin on Sale, 6th ed., p. 785, where several useful cases are collected.

It follows, therefore, that if and so far as this contract was in its true nature an f.o.b. contract, the
natural time at which the property would pass would be on shipment. Undoubtedly this contract also
contained some c.i.f. features, and there is an express reference to what is called approximate c.i.f.
charges in the pro forma invoice. If and in so far as it was a c.i.f. contract, the effect of the
authorities is that the property would pass not earlier than shipment, perhaps later than shipment.
But for the purpose of the present case there is no need to consider whether it would be on
shipment or at some later time. The insurance referred to in a c.i.f. contract is, of course, marine
insurance for the sea voyage. Although authority is hardly required for that, it can be found in
George Ireland and Others v. Livingston, (1872) L.R. 5 H.L. 395, at p. 406. There is also Lord Justice
KENNEDYs dissenting judgment in Biddell Brothers v. E. Clemens Horst Company, [1911] 1 K.B. 934,
the material passage being at p. 956; and Lord Justice Kennedys dissenting judgment was approved
in the House of Lords ([1912] A.C. 18). Then there is Arnhold Karberg & Co. v. Blythe, Green, Jourdain
& Co., [1916] 1 K.B. 495, at pp. 512 and 515. There is also Law & Bonar, Ltd. v. British American
Tobacco Company, Ltd., [1916] 2 K.B. 605, at p. 608.
Therefore, under the contract, it was to be expected that the ownership of the goods would
pass to the buyers on shipment of the goods, or possibly at some later time, when the bill of lading
and insurance policy and final definitive invoice would be handed over to the buyers. The goods were
not in fact shipped, and indeed they were not even dispatched from the sellers works to the port of
shipment. They were, however, packed, and the packages were marked C.F. & Co., San Jose, Costa
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Rica, Port Limon. There were some answers to interrogatories which admitted certain facts,
showing that the preparatory steps towards shipment had been taken by the sellers. Goods to the
quantity and proper description required had been manufactured. They were packed, and they were
marked with these shipping marks. The steps can be regarded, not as intended appropriation, but as
being preparation for the shipment. It was contended that in August or September, 1953, there was
an appropriation of the goods to the contract by the sellers with the assent of the buyers.
I will first go through the relevant further documents which bear on this question. Then I will
consider certain decided cases that were cited and then I will endeavour to apply the principles
which emerge from those cases to the present case now under consideration.
I have already read the letter of July 9, which may be regarded either as the final contractual
letter, or the first letter after the conclusion of the contract. It refers to shipment and says:
Your instructions regarding marks, etc., will be complied with and immediately we have some definite
information as to the date of shipment we will write to you again.
When we forward the documents we will let [you] have a statement showing the actual position
of the account, and you can then remit to us any balance which may be due.
You may be assured that the order is having our best attention, and we anticipate that the goods
will be ready for dispatch in the very near future.

On July 22, 1953, the buyers write to the sellers:

Regarding your letter of July 9th we would appreciate very much if you would execute our pending
order as soon as possible with direct ship to our Port Limon, or Puntarenas.

Thanking you in advance for your co-operation, we remain, and so on. It is of interest to note that
the form of execution of the pending order to which reference is made is, with direct ship to our
Port Limon. That is consistent with the assumption that the intention still was that the performance
of the order should be by shipment.
On July 29, the sellers write to the buyers, saying:
We thank you for your letter of the 22nd July and regret that we have, as yet, been unable to despatch
the goods against your recent order.
Most of the items are available but others are still in course of production and, unfortunately, we
are unable to proceed at the present time as our works are closed for the annual holiday of two weeks.
However, we can assure you that we will endeavour to complete your order at the earliest
possible moment after the re-opening of our factory on August 10th, and we will write you further
immediately we have some definite information regarding the date of shipment.

On Aug. 24 the buyers write to the sellers:

Herewith we beg you to indicate us when you expect to execute our pending order of toys, of June 16th
1953.
As we are in a big urgency of these toys, we will appreciate very much if you ship it, as soon as
possible.
Thanking you for your prompt answer, we remain.

There again there is the contemplation that the order will be executed by shipment.
Then on Aug. 27 shipping instructions were given by the sellers to Messrs. Houlder Brothers &
Co., Ltd., at Birmingham, and the shipping instructions state that the goods are to be consigned by
bill of lading to Carols Federspiel & Co., the plaintiffs. The document says, referring to the sellers:
Freight payable by us. F.o.b. charges payable by us. Please insure for L arranged by us.

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Then the shipping marks are given.

On the same date, Aug. 27, the sellers write to the buyers:
Further to our letter of the 29th July, we have pleasure in advising you that the goods against your order
are now available but, unfortunately, there is no boat sailing direct to Port Limon until the end of
September.
However, we have registered the consignment for shipment and we will write you further
immediately we have some definite news regarding the name of the vessel and the date of sailing.

Then from the form of registration of the consignment for shipment one can see that it did refer to a
proposed shipment of cycles and tricycles, and the amount received was to be received as stated,
and the fact that cash had been received was mentioned and the parties names.
On Aug. 28, the agents, Messrs. Houlder Brothers & Co., Ltd., wrote to the sellers:
We thank you for shipping details covering the undermentioned consignment, which matter is receiving
our attention and required instructions will be sent to you as early as possible.
Insurance is not being effected, in accordance with your instructions.

Then the identification of the undermentioned consignment is: C.F. & Co., San Jose, Costa Rica, Port
Limon, 1/19.
On Aug. 31 there is a letter from the buyers to the sellers, which says:
Referring to your letter of August 27th 1953 we beg you when you have the shipment ready, if there is
not boat sailing direct to Port Limon, please send it, via New York, as soon as possible.

There again the emphasis is on shipment as constituting the performance, or the deciding act of
performance of the contract.
On Sept. 3, Messrs. Houlder Brothers write to the sellers telling them that there were no direct
sailings from Liverpool to Port Limon. They go on:
Shipment may however be arranged with transhipment at Cristobal or New York.

On Sept. 14, there is the letter especially relied upon, together with that of Aug. 27, by the plaintiffs
in their pleading. It is written by the sellers to the buyers, and it says:
Dear Sirs,
We thank you for your letter of the 24th August which crossed ours of the 27th and we also
acknowledge your letter of August 31st.
In accordance with your instructions we are now arranging to ship the consignment via New York
and we hope to let you have some definite information regarding the date of shipment, etc., within the
course of the next few days.
Assuring you of our co-operation at all times.

Then there are forwarding instructions, saying that the goods were then to be sent to the particular
ship, the steamship Britannic, at Huskisson Dock, Liverpool, to the order of Houlder Brothers & Co.,
Ltd.
Then on Oct. 2, 1953, the receiver, the second defendant, wrote to the buyers in these terms:
Dear Sirs,
I have to inform you that I was appointed receiver and manager of this company on the 28th July,
1953, under the terms of a debenture dated the 2nd September, 1952.
I am informed that you are awaiting shipment of tricycles and adult bicycles.

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From a lack of understanding of the legal position, our sales office have had these goods
manufactured. I much regret to have to inform you that I cannot release these goods as they are
claimed for the debenture holders under the terms of the debentures. In the circumstances, I am unable
to dispatch them. You will rank, with the other creditors of the company, in respect of the remittance
you made of $1820, the sterling equivalent of which is 644 19s. 2d.
An alternative, which I do not suppose you will wish to exercise, is for these goods to be shipped
against a fresh payment, which would make this air entirely new transaction with me as receiver and
manager of the company.

Then I was informed that some Chamber of Commerce, the British and Latin American Chamber of
Commerce, at Canning House, 2, Belgrave Square, London, S.W. 1, wrote a letter to the receiver or to
the defendant company or to both, containing strong protests at the treatment which the foreign
buyers were receiving from the two English companies, the sellers and the debenture holders, in this
transaction. It appears from the letter I am about to read that the Board of Trade had been informed
of the matter. Mr. Patience, the receiver and manager of the debenture holders, writes on Nov. 27,
1953, to the British and Latin American Chamber of Commerce:
Dear Sirs,
Carlos Federspiel & Co., S.A.
I have now informed the Board of Trade that I have been advised that I am unable to dispatch
goods to the above against the payment of 1820 dollars made by him.
As you are already aware this payment was received by the company before my appointment as
receiver and manager, and the goods were made up and completed for shipment after that time.
Whilst I fully appreciate the points set forth in your letter of the 2lth October, I much regret my
own legal position compels me to adopt this attitude. I would add that on the 9th November, a winding
up order was made for the compulsory liquidation of the company, and that Federspiels claim as a
creditor has been passed to the Official Receiver who was appointed liquidator.

There are some further letters which show that the shipping instructions for the Britannic had been
cancelled, and I think the rest of the correspondence need not be read. I should, however, mention
that the foreign buyers, not unnaturally, did not accept the offer contained in the last paragraph of
the receivers letter of Oct. 2, 1953.
On that correspondence, the question is whether there was an appropriation of the goods to
the contract by the sellers with the consent of the buyers after the conclusion of the contract and
before the letter of Oct. 2, 1953.
I think one can distinguish these principles. First, Rule 5 of Sect. 18 of the Act is one of the
Rules for ascertaining the intention of the parties as to the time at which the property in the goods is
to pass to the buyer unless a different intention appears. Therefore the element of common
intention has always to be borne in mind. A mere setting apart or selection of the seller of the goods
which he expects to use in performance of the contract is not enough. If that is all, he can change his
mind and use those goods in performance of some other contract and use some other goods in
performance of this contract. To constitute an appropriation of the goods to the contract, the parties
must have had, or be reasonably supposed to have had, an intention to attach the contract
irrevocably to those goods, so that those goods and no others are the subject of the sale and become
the property of the buyer.
Secondly, it is by agreement of the parties that the appropriation, involving a change of
ownership, is made, although in some cases the buyers assent to an appropriation by the seller is
conferred in advance by the contract itself or otherwise.
Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to
involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the
buyer. There is a passage in Chalmers Sale of Goods Act, 12th ed., at p. 75, where it is said:

109

In the second place, if the decisions be carefully examined, it will be found that in every case where the
property has been held to pass, there has been an actual or constructive delivery of the goods to the
buyer.

I think that is right, subject only to this possible qualification, that there may be after such
contractive delivery an actual delivery still to be made by the seller under the contract. Of course,
that is quite possible, because delivery is the transfer of possession, whereas appropriation transfers
ownership. So there may be first an appropriation, constructive delivery, whereby the seller becomes
bailee for the buyer, and then a subsequent actual delivery involving actual possession, and when I
say that I have in mind in particular the two cases cited, namely, Aldridge v. Johnson, sup., and
Langton v. Higgins, sup.
Fourthly, one has to remember Sect. 20 of the Sale of Goods Act, whereby the ownership
and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the
construction of the relevant documents, that the goods were, at all material times, still at the sellers
risk, that is prima facie an indication that the property had not passed to the buyer.
Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by
the seller. For instance, if delivery is to be taken by the buyer at the sellers premises and the seller
has completed his part of the contract and has appropriated the goods when he has made the goods
ready and has identified them and placed them in position to be taken by the buyer and has so
informed the buyer, and if the buyer agrees to come and take them, that is the assent to the
appropriation. But if there is a further act, an important and decisive act to be done by the seller,
then there is prima facie evidence that probably the property does not pass until the final act is
done.
Applying those principles to the present case I would say this. Firstly, the intention was that
the ownership should pass on shipment (or possibly at some later date) because the emphasis is
throughout on shipment as the decisive act to be done by the seller in performance of the contract.
Secondly, it is impossible to find in this correspondence an agreement to a change of ownership
before the time of shipment. The letters, especially those of Aug. 27 and Sept. 14, which are
particularly relied on by the plaintiff, do not contain any provision or implication of any earlier
change of ownership. Thirdly, there is no actual or constructive delivery; no suggestion of the seller
becoming a bailee for the buyer. Fourthly, there is no suggestion of the goods being at the buyers
risk at any time before shipment; no suggestion that the buyer should insist on the seller arranging
insurance for them. Fifthly, the last two acts to be performed by the seller, namely, sending the
goods to Liverpool and having the goods shipped on board, were not performed.
Therefore, my decision that the prima facie inference which one would have drawn from the
contract is that the property was not to pass at any time before shipment, is in my view not displaced
by the subsequent correspondence between the parties. It follows, therefore, that there was no
appropriation of these goods and therefore the action fails.

RODER ZELT- UND HALLENKONSTRUKTIONEN GMBH V ROSEDOWN PARK PTY LTD [1995] 17 ACSR
1. In June and July 1992 the applicant (Roder) agreed to sell goods to the first respondent
(Rosedown) to the value of Deutschmark 609,102.00 with payment to be made by a deposit and
installments after delivery. The goods were received by Rosedown in October 1992. Roder alleges
that the contract contained a term for the retention of title in the goods by Roder until the purchase
price had been paid in full. Rosedown fell into arrears with its payments before the end of 1992, and
the payment schedule was rearranged. On 6 October 1993 the second respondent, Mr Eustace, was
appointed the administrator of Rosedown under s.436A of the Corporations Law (the Law).
Thereupon the company came under administration under Part 5.3A of the Law (ss.435-458): see
s.435C(4). Roder immediately advised Mr Eustace that ownership of the goods remained with Roder,
110

and Roder claimed possession. Mr Eustace disputed the existence of a retention of title term in the
contract, denied both Roders claimed interest in the goods and its right to possession, and asserted
that Roder was merely an unsecured creditor for the outstanding balance of the purchase price.
2. On 8 November 1993 Roder commenced the present action against Rosedown and Mr Eustace
claiming a declaration that the property in the goods remained with Roder, an order for delivering up
of the goods to Roder, an order pursuant to s.440C of the Law granting leave to Roder to take
possession of the goods, and various consequential orders including damages. On 9 November 1993
by specially returnable notice of motion Roder sought interlocutory injunctions restraining the
respondents from removing certain of the goods from South Australia, and from selling, charging, or
otherwise dealing with the goods, and for immediate delivery of the goods into the possession of
Roder. The orders were opposed by the respondents. A meeting of creditors convened under s.439A
of the Law was to be held on the following day to consider a resolution directing Rosedown to enter
into a Deed of Company Arrangement pursuant to Part 5.3A providing for a moratorium on payment
of pre-6 October 1993 debts to all creditors until March 1994 on conditions as to minimum future
trading performance specified in the Deed. Mr Eustace in an affidavit sworn on 9 November 1993
deposed that: If I am unable to use the equipment which the Applicant now claims in and about my
administration of the First Respondents business then the Deed of Company Arrangement will
immediately fail and cease to operate which will be to the detriment of the creditors of the First
Respondent.
3. On the hearing of the notice of motion, upon an undertaking being given by Mr Eustace to secure
and maintain the goods in good working order but subject to fair wear and tear and to continue
current insurance, all claims for relief were stood over pending a trial; an order was made pursuant
to s.440D(1)(b) of the Law giving leave to Roder to proceed with this action notwithstanding Mr
Eustaces administration of Rosedown; and directions were given to prepare the matter for trial,
including directions as to pleadings and the filing of affidavit evidence.
4. The statement of claim was filed on 13 December 1993. Thereafter numerous delays occurred,
times limited for procedural steps were not met, and time was lost whilst applications of security for
costs and for the transfer of the proceedings to another registry were dealt with. In the meantime it
seems (from statements made from the bar table during the trial) that the creditors passed a
resolution under s.439C(c) requiring Rosedown to enter into the proposed Deed of Company
Arrangement, and that the moratorium period was at some later stage extended from 31 March
1994 to 31 March 1995. Upon the execution of the Deed the administration of Rosedown came to an
end: s.435C(2). The rights and duties of the creditors thereafter were governed by Div.10 of Part 3.5A
(ss.444A to 445) and by the terms of the Deed.
5. In the preparation and presentation of their cases the parties have given little attention to the
provisions of Part 5.3A, and the evidence is silent about events that have occurred in the
administration after 9 November 1993, and under the Deed of Company Arrangement. It will be
necessary to return to the provisions of Part 5.3A in detail later in these reasons. At this point,
however, it should be noted that whilst the meeting of creditors convened under s.439A could have
resolved that the administrator of the Deed be someone other than the administrator of the
company: see s.444A(2), it appears from the conduct of these proceedings that this did not happen.
It is implicit in affidavits read at trial that Mr Eustace is the administrator of the Deed.
6. In the statement of claim it was alleged that Rosedown in breach of contract failed to assign
certain moneys to Roder, failed to pay interest due on the installments and failed to pay DM 266,000
and interest of DM 9,975 due on 30 November 1993 (the latter payments falling due after the
commencement of the administration and these proceedings) (para.9); that in the circumstances
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Rosedown had repudiated the contract and Roder had accepted the repudiation thereby
determining the contract (para.10); that in the premises Roder was entitled to immediate possession
of the goods (para.11); and that in October 1993 Roder requested Rosedown to deliver up the goods
and further requested Mr Eustaces consent to it retaking possession which requests were refused
(para.12). It was pleaded that in consequence of the breaches of contract by Rosedown, and in
consequence of the respondents refusal to give up possession of the goods, Roder suffered loss and
damage. Particulars of the loss and damage were not pleaded but it was said that particulars would
be given prior to trial (paras.13 and 14). The relief sought was that claimed in the application.
7. The claim for damages was made without further indication of the nature or legal basis for that
claim or against which of the respondents it was made.
8. Defences were filed by Rosedown on 11 April 1994 and by Mr Eustace on 1 July 1994. These were
amended at trial when a counter claim was also pleaded by both respondents. It was pleaded in the
statement of claim and admitted by the respondents that Mr Eustace was on 6 October 1993
appointed as administrator of Rosedown. This is the only reference in the pleadings to his standing in
the proceedings. He could not be a party to the counter claim in that capacity as the administration
had ended before the counter claim was filed. Presumably he is a party as administrator of the Deed
of Company Arrangement.
9. By the defences the allegations relating to the terms for retention of title, for payment, and for
interest were either denied or not admitted.
10. Further it was pleaded that if there were a term as to retention of title then
(i) at the time when the term became part of the contract, property in the goods had already
passed to Rosedown;
(ia) prior to then, no such term had been agreed, or alternatively the term was too vague or
unclear to be of any contractual effect;
(ii) in any event, the engrafting of such a retention of title term into the contract constituted
the creation by Rosedown of a charge over its property, since property had already passed to
Rosedown;
(iii) such charge was never registered in compliance with s.263(1) of the Law or s.201(1) of the
Companies (Victoria) Code; and
(iv) such charge is void against Mr Eustace under s.266(1) of the Law. Repudiation of the
contract by Rosedown was denied, as was Roders entitlement to possession. The allegations
of loss and damage were denied. Reliance on s.440B of the Law was pleaded. That section
provides that a charge is not enforceable on property of a company during the administration
of a company except with the consent of the administrator or with the leave of the Court.
11. Finally it was pleaded that if it is held that the applicant is entitled to the return of the contract
goods then the respondents or either of them are entitled to the return of the moneys paid to Roder
in respect of the goods (pleaded to be a deposit of DM 66,500, and an installment of DM 72,318.75,
although the evidence, such as it is, suggests the installment was DM 66,500: see Ex.A1 p.42) upon a
consideration that has totally failed, and that such moneys should be set off against the damages
claimed. The counter claim was for the return of these moneys in the event that it is held that Roder
is entitled to the return of the goods.
12. As will appear later in these reasons, the contract for the sale of the goods is one to which the
United Nations Convention on Contracts for the International Sale of Goods (the Convention)
applies. The provisions of the Convention govern the rights and obligations of the parties arising from
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the contract. The pleadings, and the claims for relief in the statement of claim and in the counter
claim, are expressed in the language and concepts of the common law, not in those of the
Convention. Counsel made only passing reference to the Convention at trial. Upon consideration of
the case I have concluded that the issues to be addressed, in the event that it is held that the
contract of sale included a valid and effective retention of title term, are somewhat different to
those stated in the pleadings. I shall return to this topic after resolving the disputed questions of fact.
13. The affidavits filed by the parties before trial concentrated solely on the events and documents
that evidenced or recorded the transaction for the sale of the goods, and to aspects of German law.
No attention was given in the affidavits to the claim for loss and damage alleged by Roder, or to the
effect of Part 3.5A of the Law on the rights and obligations of the parties in the event that Roder
established the alleged retention of title term. The affidavits dealt with the issue of liability and not
the issue of damages or other consequential relief. The Court was informed that Roder had assumed
that the trial was to resolve the liability issue, and that damages and consequential orders would be
considered at a later date - hence no attempt had been made to give particulars of loss and damage
prior to trial. The Court was informed that very shortly before trial counsel for the respondents
informed Roder that the respondents wished to have all aspects of the case, including that of
damages, resolved at the one trial. In his opening counsel for Roder argued that consideration of
damages and other relief should be stood over for further enquiry after liability had been resolved
because the assessment of Roders loss would, in part, involve a determination of the value of the
goods on their eventual return. It was said that the claim for damages included a claim for damages
against Mr Eustace personally in tort for the wrongful failure to give up possession of the goods
when requested in October 1993. Counsel was not precise whether the claim against Mr Eustace was
one in detinue (cf Strand Electric and Engineering Co. Ltd v Brisford Entertainments Ltd (1952) 1 All
ER 796) or in conversion (cf Clough Mill Ltd v Martin (1984) 3 All ER 982) but gave most emphasis to a
claim in conversion. The assessment of damages in either case, counsel submitted, would, in
practical terms, involve assessing the difference in the value of the goods at October 1993 and when
they are returned, and also a consideration of rental value as Rosedown, under Mr Eustaces
administration, has continued to use the goods in its business. As discussion developed between
counsel and the Court it became plain that neither side had worked through the implications of the
provisions of Part 5.3A of the Law, and they (especially counsel for Roder) were not able at that time
to present other than the case on liability.
14. In these circumstances I propose to decide the disputed questions of fact raised by the pleadings,
to discuss a number of the provisions of the Convention and Part 5.3A of the Law, and then to stand
the matter over for further consideration. Was there a retention of title term in the contract?
15. It is common ground that the applicant, a German company, at all material times carried on
business in Germany at Budingen. It is one of the major manufacturers and suppliers in the world of
large tent halls and party marquees. Rosedown is a company incorporated in Victoria. It is the trustee
of the G S Tucker Family Trust which traded as Geoff Tuckers Hire and Catering from premises in
Dandenong, Victoria. The business has been in operation for many years, and is one of the largest
hire companies in Australia specialising in major events such as the Australian Grand Prix and the
Moomba and other large festivals. The goods, the subject of these proceedings, included aluminium
tent profiles and covers for five very large tents, extra gable infills and other accessories. It is
admitted in the pleadings that Rosedown agreed to buy the goods from Roder. There was no dispute
at trial that the purchase price was to be paid as follows:
. on placing the order - DM 66,500
. 30 November 1992 - DM 133,000
. 30 March 1993 - DM 66,500 and interest DM 1,496.25
. 30 November 1993 - DM 133,000 and interest DM 9,975
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. 30 March 1994 - DM 66,500 and interest DM 7,481.25

. 30 November 1994 - DM 143,602 and interest DM 23,694.22.
16. Further there was no dispute that the goods were ultimately supplied ex works from Budingen
on 27 and 28 August 1992 whence they were freighted overland to Rotterdam where they were
loaded on board ship on 3 September 1992. They were delivered to Rosedown in Australia on about
3 October 1992. The tentage was urgently required in Australia to fulfil contractual commitments of
Rosedown at the Adelaide Grand Prix in November 1992.
17. It was also common ground that the deposit of DM 66,500 was paid by Rosedown to Roder on 20
August 1992. Rosedown was unable to pay the next installment of DM 133,000 due on 30 November
1992. Rosedown had hoped to do so from rental received from the Grand Prix, but money
earmarked for that purpose had apparently been used to pay freight and import duty on the goods.
That installment was deferred to 30 November 1993 with the intent that following the 1993 Grand
Prix Rosedown would pay two installments totalling DM 266,000. As already noted, an administrator
of the company was appointed prior to that date.
18. On the contentious issue concerning retention of title the applicant read affidavits from Mr Jamie
Watts, the Australian agent of Roder; from Ms Erna Charlotte Mayer, an interpreter who translated
invoices and shipping documents from the German language to the English language; from Michael
John Fielding who at material times was the business manager of Rosedown responsible for its day to
day management and administration under the supervision of the managing director, Geoffrey
Stewart Tucker (Mr Tucker); and from Dr Thomas Hoene, a German lawyer specialising in
commercial and corporate law in Germany. The respondents read affidavits from Mr Tucker; from Mr
Eustace, and from Mr Nicholas Giasoumi, a chartered accountant in the employ of Mr Eustace.
19. The parties were agreed that the contract for the sale of the goods was one to which the
Convention applied. That Convention has become part of the law of Australia, and, relevantly for the
purposes of this case, part of the law of Victoria by virtue of the Sale of Goods (Vienna Convention)
Act 1987 (Vic.). The Convention applies to contracts for the sale of goods between parties whose
places of business are in different contracting States (Art.1). Both Germany and Australia are
contracting States. Dr Hoenes affidavit expresses his opinion upon the application of the Convention
to the facts of this case as disclosed to him in correspondence and affidavit material most of which
was introduced into evidence at trial. However insofar as the contract is governed by the
Convention, which is now part of the municipal law of Australia, the meaning of that law, and its
application to the facts, is to be determined by this Court. It is not a matter for expert evidence. The
Convention is not to be treated as a foreign law which requires proof as a fact.
20. However the Convention governs only the formation of the contract of sale and the rights and
obligations of the seller and buyer arising from such a contract; in particular, the Convention is not
concerned with the effect which the contract may have on the property in the goods sold: Art.4.
Article 7 (2) provides that: Questions concerning matters governed by this Convention which are not
expressly settled in it are to be settled in conformity with the general principles on which it is based
or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of
private international law.
21. Under Article 18 an acceptance of an offer becomes effective at the moment the indication of the
assent reaches the offerer, and under Article 24 a declaration of acceptance or other indication of
intention reaches the addressee when it is made orally to him or delivered by any other means to
him personally, to his place of business or mailing address. Relevantly in the present case the offerer
was Roder, and it is common ground between the parties that the acceptance occurred in Germany,
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and that the contract of sale was made in Germany. The parties accepted that it was relevant
therefore to receive evidence of German law insofar as it dealt with the effect which the contract
may have on the property in the goods sold.
22. According to the opinion of Dr Hoene the property law effect of a retention of title agreement is
determined, as are all property related transactions and relationships, according to German private
international law by the lex rei sitae, i.e. the law of the place in which the relevant property is
situated. Dr Hoene continues: The property law effect of agreements of the parties is, therefore,
determined by German law for as long as the items sold are in Germany. According to German
private international law the property law effect is to be assessed under Australian law when the
goods are in Australia. It is unclear which law applies to agreements which are entered into during
the transportation of goods. The overriding view in the literature is that the law of the destination
applies (in this case Australia)...(numerous references to authority are cited). If an item is brought to
another country following agreement on retention of title the validity of the retention of title
agreement is determined initially by the law of the country in which the item purchased was located
at the time the retention of title agreement was entered into. If under German law a retention of
title agreement had been entered into when the item arrives in the other country the law of the
other countries (sic) determines the continuing existence of retention of title agreement and the
content and performance of this agreement... Under German law, the property law effect of the
retention of title is that the transfer of title...takes effect on condition precedent that the purchase
price be paid in full. This means that the title only passes to the buyer when the purchase price has
been paid in full to the seller...
23. Under German law, title to the goods would not pass under a retention of title clause to the
purchaser until payment. However once the goods arrived in Australia the property law effect of the
agreements reached between the parties is to be determined by Australian law.
24. Under Australian law, the validity of retention of title clauses - aside questions of ambiguity and
uncertainty - is recognised, and, generally speaking, they operate so that title does not pass until the
payment requirement of the condition relating to retention of title is fulfilled: Aluminium Industrie
Vaassen BV v Romalpa Aluminium Limited (1976) 1 WLR 676, Armour and Another v Thyssen
Edelstahlwerke AG (1991) 2 AC 339, and The Goods Act 1958 (Vic.) s.24, but see Prof. Di Everett,
Romalpa Clauses: The Fundamental Flaw (1994) 68 ALJ 404. 25. Whether a term as to retention of
title was agreed between Roder and Rosedown, and the content of that term are questions of fact,
but ones to be determined having regard to certain further provisions of the Convention, and in
particular:
Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are
to be interpreted according to his intent where the other party knew or could not have been unaware
what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to
be interpreted according to the understanding that a reasonable person of the same kind as the other
party would have had in the same circumstances.
(3) ...
Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any
other requirement as to form. It may be proved by any means, including witnesses.
Article 15 (1) An offer becomes effective when it reaches the offeree.
(2) ...

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Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an
acceptance. Silence or inactivity does not in itself amount to acceptance.
(2) ...
(3) ...
Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties.
(2) ...

26. Both Mr Fielding and Mr Tucker were cross-examined on their affidavits. Mr Fieldings affidavit
explains at length the course of negotiations with Roder, and the extensive correspondence that took
place over several months leading up to the dispatch of the goods from the Roder works. He says
that the negotiations between Roder and Rosedown, which were mainly conducted by him on behalf
of Rosedown, took place throughout on the clear understanding that property in the goods would
not pass until payment in full had occurred. Rosedown was in dire financial straits and he in
collaboration with Mr Tucker, at times made representations to Australian financiers which were
inconsistent with a retention of title clause, and in certain of his correspondence with Roder he
sought to evade the issue of the retention of title clause. Nevertheless he maintains that it was
clearly understood throughout the discussions with Roder that there would be a term as to retention
of title and, moreover, Mr Tucker was fully aware of this fact as negotiations progressed. Mr Tucker
knew that the goods could not be obtained except on that condition as Rosedown was in no position
otherwise to finance the purchase. There was difficulty raising funds even for the deposit. When the
deposit was belatedly paid on 20 August 1992 Roder required, by letter dated 20 August 1992,
promissory notes that had been sent sometime before for signature for the balance of the purchase
price and a signed declaration for the ownership.
Mr Fielding thereupon prepared a document in the following terms:
Mr Heinz Roder GMBH
Dear Heinz, This is to certify that the goods you are shipping to me now will remain as your ownership
until full payment is made. I will be bringing the stock into my books as each category of Structure is
paid for. To help me, could you do a split up of the whole order giving me the price of each size category
and fax that back to me next week.
Yours sincerely, Geoff Tuckers Hire and Catering Geoff Tucker

27. Mr Fielding says that the document was signed by Mr Tucker along with the promissory notes
which had been with Rosedown since mid-July 1992. The above document was then faxed to Roder,
and a copy together with the promissory notes were posted. It will be necessary to say more about
the terms of the documents dated 21 August 1992, and about the terms of a subsequent retention of
title clause that was signed in September 1992.
28. Mr Tucker on the other hand, in his evidence, says that he was not informed on any occasion
prior to 20 August 1992 that a term for the retention of title by Roder was under discussion. Insofar
as correspondence prior to that date made reference to such a term he said that the correspondence
had not been brought to his attention. He says a letter written by Rosedown on 10 June 1992, early
in the negotiations, which included the sentence I am also happy for you to treat the stock as rental
stock (and therefore you maintain ownership) until I complete my payments although purportedly
under his hand, was not signed by him. He also denied that he had signed the document dated 21
August 1992. The effect of his evidence is that he at no time authorised such a term. (His evidence,
and the respondents case, overlooks the fact that Mr Fielding was acting in the course of his
employment and within his apparent authority as business manager when he was dealing with
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Roder). He says that he became aware of Roders requirement for retention of title first on 20 August
1992 when he saw the letter from Roder requesting a certificate to that effect but denies that he
authorised or gave such a certificate until he signed one in September 1992. In relation to that
certificate he disputes signing it on 2 September 1992, the day on which Mr Fielding says it was
signed by Mr Tucker and faxed to Roder. Mr Tucker claims that it was signed on about 14 September
1992, the day on which Rosedown posted the original of the document back to Roder - a date well
after the goods had left Germany.
29. Mr Tucker concludes his affidavit by saying that he considers Mr Fielding was conducting his own
negotiations for his own purposes with Roder and without keeping Mr Tucker informed. Precisely
what those purposes might have been is not identified. The inference from his affidavit and his crossexamination is that Mr Fielding had forged Mr Tuckers signatures to the letter of 10 June 1992 and
to the document of 21 August 1992. When cross-examined as to his reason for asserting that the
signatures to those documents were not his, he observed that they were signed Geoff Tucker
whereas he signed documents G S Tucker. When it was pointed out to him that there were several
other letters written to Roder whose authenticity he had not questioned in his affidavit that were
signed Geoff Tucker he then disputed their authenticity and said that he did not think the
signatures were his. The nature of the letters and his evidence about them makes it highly
improbable that the documents were not signed by him, and it appeared to me that he was making
up explanations as he went along which he perceived to be supportive of his case. The high water
mark of the improbability of these denials came when he denied that a signature, Geoff Tucker,
was his on a letter to Rosedowns bank manager, and on another to Mr Heinz Roder written after Mr
Fielding had ceased his employment with Rosedown.
30. Having seen and heard Mr Fielding and Mr Tucker cross-examined on their affidavits I have no
hesitation in rejecting the evidence of Mr Tucker where it conflicts with that of Mr Fielding, and
accepting the account of events given by Mr Fielding in his affidavit. As I have already indicated, Mr
Fielding acknowledged that at times misrepresentations of a serious nature had been made to
Australian financiers and that he participated in the making of those representations. In substance it
was represented to financiers that the goods to be supplied by Roder would become the property of
Rosedown on delivery so that they could immediately be charged to secure other loans. I have
therefore scrutinised with care the evidence of Mr Fielding before accepting it. The frank
explanations he gave for his conduct, and the support which his story broadly receives from the
written documents persuade me that I should accept his evidence notwithstanding his participation
in the making of false representations.
31. Caution has also been necessary as Mr Fielding discloses in his affidavit that in about September
1993 he was engaged by Roder to find an agent to assist Roder in its business matters, in recovering
moneys that were still owed to it by another company in Australia, and to assist in cleaning up the
Rosedown matter if any such opportunity arose. What this expression means was not explored in
cross-examination, nor was it seriously suggested that Mr Fieldings evidence was coloured by this
agreement in respect of which he had received a lump sum payment of $4,000 sometime before his
affidavit was prepared.
32. In deference to the submissions of counsel for the respondents that the Court should find that
Mr Fieldings evidence should not be accepted it is necessary to consider the evidence in further
detail.
33. Mr Fielding by profession is an accountant but in recent years he has worked predominantly in
the entertainment industry. From 1988 to 1992 he was employed by a company, Trade Structures
Pty Ltd (Trade Structures), as business manager. That company had a business similar to that of
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Rosedown, and was involved in leasing tent structures to the Adelaide Grand Prix prior to 1992. The
company fell on hard times and was unable to pay extensive debts due to creditors, including Roder
who had supplied Trade Structures with tentage. When Trade Structures ran into difficulties an
agreement was reached between that company and Rosedown that structures owned by Trade
Structures would be transferred to Rosedown for a monthly fee, and at about the same time, March
1992, Mr Fielding commenced employment with Rosedown.
34. The proposed arrangement with Trade Structures fell through, and it was necessary for
Rosedown to obtain tent structures from other sources to fulfil its Grand Prix commitments. It was
decided that Mr Tucker would visit the three major tent manufacturers each of whom is in Europe,
and Mr Fielding was involved in making arrangements, particularly with Roder, for Mr Tuckers visit.
Mr Tucker was overseas from 16 to 27 May 1992. Before Mr Tucker left Mr Fielding said to him
words to the effect: ...Given my dealings with Roder at Trade Structures I can probably arrange for
Roder to sell you the structures on the basis of payments being made over time whereas I think the
others will want their money upfront. Mr Tucker - OK. Mr Fielding - I will speak to Roder before you
go and get some prices from him to see whats possible. I can probably get a terms deal but Roder
will want to retain ownership until the terms deal was settled given what happened with Trade
Structures.
35. Mr Tucker denies that this conversation occurred. I find that it did.
36. Shortly after the conversation Mr Fielding spoke with Mr Heinz Roder by telephone seeking
prices, and a series of communications followed by fax between them commencing on about 20 April
1992.
37. When Mr Tucker went overseas he took with him two other employees of Rosedown and a
financial adviser to the company. Whilst Mr Tucker was overseas he telephoned Mr Fielding and
asked him to telephone Mr Roder and negotiate a deal with him. At this time Roder had given a
quote for specified items. Mr Tucker denies that he had this conversation or that there would have
been any reason for it as he had a financial adviser with him. However he acknowledged in his crossexamination that he left the negotiations with Roder generally to Mr Fielding and authorised him
after his return to Australia to conduct the negotiations with Mr Roder. I find that the conversation
occurred as Mr Fielding says, and that in the following conversation Mr Fielding was acting within the
scope of his authority. As requested Mr Fielding telephoned Mr Roder and a conversation to the
following effect occurred: Mr Fielding - You know the type of structure that we want and we would
like to deal with you. Mr Roder - I dont want the Trade Structures experience to be repeated. If
Rosedown fails I have to be protected and I have to get the structures back. Mr Fielding - Thats fine
Heinz, you can retain ownership of the structures until you have been paid in full. Mr Roder - Good,
you give to me the proposed payment terms and we will take it from there.
38. Mr Fielding reported that conversation to Mr Tucker in Europe including that Mr Roder would
extend time for payment only if he retained ownership of the structures until paid in full. Mr Tucker
said Thats OK.
39. Upon Mr Tuckers return to Australia correspondence occurred between the two companies
wherein Rosedown negotiated the purchase of particular structures at a favourable price and
according to a schedule of deferred payments. The opening letter on 10 June 1992 contained the
statement already referred to that Roder could maintain ownership until Rosedown completed its
payments. By 23 June 1992 the point had been reached where Roder wrote a lengthy confirmation
of order letter detailing product, and stating price, delivery dates, and a schedule for payments and
interest charges. Then followed further correspondence in which the product to be acquired was
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varied, as was the overall price and payment schedule. On 13 July 1992 Roder wrote confirming the
variations, enclosing five promissory notes for the five deferred payments, and asking for the initial
payment of DM 66,500 due on placement of the order. In none of the correspondence following the
letter of 10 June 1992 is any reference made to a term that Roder would retain title until payment in
full. It is argued on the respondents behalf that this indicates that no such term was contemplated. I
accept Mr Fieldings evidence that the term was assumed throughout his dealings with Mr Roder,
and that he purposely omitted to refer again to it in his correspondence as he hoped that the failure
to mention it might later prove to Rosedowns advantage.
40. Rosedown was at first unable to raise the deposit payment. By fax dated 21 July 1992 Roder
made it plain that the goods would not be delivered until the deposit was paid. Beneficial Finance
Corporation Limited and Rosedowns bankers were approached, and in both instances the
representations already referred to were made to the effect that Rosedown would obtain property in
the goods on delivery which could then be used as security for a further advance. I accept Mr
Fieldings evidence that these misrepresentations were made with Mr Tuckers knowledge as part of
an attempt to keep Rosedown afloat, and that the making of them does not evidence a belief by Mr
Fielding that the representations were true.
41. In the course of endeavouring to obtain finance from Beneficial Finance Corporation Limited Mr
Fielding asked Roder if it would send a separate invoice for one of the tent structures (it being
Rosedowns intention that the invoice would then be used as the basis for a lease transaction to raise
the invoice price to fund the deposit). At first Roder refused but under considerable pressure from
Mr Fielding in communications to an employee of Roder (who, it appears, may have been a clerical
or secretarial assistant to Mr Roder.) Roder then agreed to split the purchase between two invoices,
one for one structure to the value of DM42,300 and the other for the balance of the goods. It is
contended that the fact that Roder was prepared to do this indicates that it did not intend there to
be a retention of title clause. I do not accept this submission. The interpretation I place on the
evidence is that Roder did not understand the purpose of the request.
42. As events turned out Beneficial Finance Corporation Limited refused to enter into a lease
agreement until the invoiced goods had arrived in Australia.
43. So dismal did the prospect of obtaining the deposit appear that on 3 August 1992 it was
suggested to Roder by Messrs Fielding and Tucker that Roder might consider purchasing a majority
share in Rosedown, a suggestion which Roder promptly rejected. I find nothing in the
communications which occurred on that day which throw any doubt on Mr Fieldings evidence that it
was clearly understood that there would be a term as to retention of title if the goods were supplied
pursuant to the order then awaiting the deposit payment.
44. On 6 August 1992, as the deposit had still not been paid, Roder sent a fax to Rosedown in the
following terms:
Dear Geoff, dear Michael, you know we have produced the structures for your company in day - and
nightshifts, because the delivery was very urgent and we wanted to fulfill (sic) this first order from you
in time.
1. We have made a refinancial deal with our bank which includs (sic) the fact that we have to show the
agreed prepayment from your side.
2. To have the prepayment and the promisery (sic) note as well as a declaration from your side that the
goods stay in our owner ship untill (sic) the whole purchase price is paid, is condition for the refinancing
deal.

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3. We regret that we cannot ship the goods as long as we do not have the prepayment and the papers
from you.
4. Once again we are not very happy to make this experience. I do not hope that the various warnings
we got from Australia do now become reality.
5. In case you could not fulfill our agreement we would have to inform the context you have asked us to
go in touch with Kind regards, Roder Zelt-Und Hallenkonstruktionen GmbH Heinz Roder.

A fair interpretation of Mr Tuckers affidavit (para.16 and 17) is that he was unaware of this letter at
the time. However in his cross-examination he conceded reading the letter on about 6 August 1992,
and said: You do not mean by that in your affidavit that you had not received and read the letter of
6 August that we have just been talking of?---What I was saying is that there was no papers to - there
has always been talk, no papers have been signed on declaration of ownership, because I was still of
the belief that as the goods were leased, they would be released. Well, having received that
communication, were you then clear in your mind that Roder required a declaration of ownership?--I believe so. Mr Tucker had earlier said that Mr Fielding had led him to believe that once the goods
were in Australia they could be leased to finance companies to raise money to pay the later
installments . I accept Mr Fieldings evidence that Mr Tucker was fully aware of the nature of that
scheme and was not, as he would have it, an innocent victim of someone elses dishonest proposal.
But even accepting that Mr Tucker genuinely held the belief he asserts, it nevertheless involves the
proposition that on delivery Roder retained title to the goods, and would do so unless and until
goods were released for the purposes of being leased to a financier. Moreover the answer to the
last of the above questions indicates that by 6 August 1992 Mr Tucker was aware of the requirement
of Roder.
45. Counsel for the respondents argued that the reference to a refinancial deal in this letter
indicates that the question of retention of title had arisen for the first time at that stage in
consequence of the requirements of Roders financier. I do not accept this submission. The letter
does not state when the refinancial deal was made. It is reasonable to assume that for an order of
this size some financial accommodation had to be arranged by Roder before manufacture
commenced. I interpret the letter as an explanation for Roders position, including the rejection of
the offer to purchase a majority interest in Rosedown. Of the three conditions for the refinancing
deal stated in paragraph 2 of the letter, the two other than the retention of title term were clearly
specified in the letter of 13 July 1992, i.e. the requirement for promissory notes and the deposit
payment. The proper inference is that the refinancing deal referred to was one already arranged at
that time, and not something of very recent origin.
46. Between 6 and 20 August 1992 Mr Tucker persuaded Rosedowns banker to extend further credit
to the company to enable the deposit to be paid, and that occurred by bank draft on 20 August 1992.
Then followed the request for the promissory notes and declaration of ownership which led to Mr
Tucker signing the document dated 21 August 1992 set out earlier in these reasons. The opening
sentence of that letter is crystal clear This is to certify that the goods you are shipping to me now
will remain as your ownership until full payment is made. In the context of the events that had
happened there can be no doubt as to the goods to which this certificate refers. However it is argued
by counsel for the respondents that the next two sentences of the letter indicate that what was
intended was not a condition retaining ownership until payment in full, but a staged retention
clause whereby property would pass in one structure after another as amounts equal to the
purchase price thereof were paid. Mr Fielding gave evidence that he was endeavouring to
manoeuvre a situation where Roder could be persuaded later that the condition had that meaning.
However given the earlier communications between the parties, on a fair reading of the letter Roder
could not have been aware that it was the intent of Rosedown to agree only to a staged retention
clause. Indeed that was not the real intention of Rosedown at the time. Rather, it was Rosedowns
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intention to convey the appearance that it had agreed to the condition required by Roder. The
understanding of a reasonable person in the position of Roder on reading the letter would be that
the condition demanded by it had been fulfilled: see Convention, Article 8(1) and 8(2). In further
support of this conclusion, no steps were ever taken by Roder to comply with the request that the
whole order be split up with separate pricings for each size category, and no further request was
made for such a division by Rosedown.
47. It was also suggested by counsel for the respondents that the fact that when the goods were
shipped a few days later three invoices were issued indicates that Roder was complying with the
staged retention clause proposal. However a consideration of the invoices in conjunction with the
shipping documents makes it clear that there were three invoices because there were three separate
containers each of which required a separate bill of lading and shipping documents. The invoices
then issued for each shipment do not contain a split up of the order or parts thereof to give a price
for each size category as requested in the letter of 21 August 1992.
48. On 25 August 1992, four days after the certificate of 21 August 1992 had been faxed to Roder,
Roder forwarded a document described in Roders covering letter as a declaration of the property
of the tents you have purchased to Rosedown and asked that Mr Tucker sign it. The document read
as follows:
P R O P E R T Y = = = = = = = = Notwithstanding delivery and the passing of risk in the goods, or any
other provision of these Conditions, property in the contract goods shall not pass to the Buyer until the
Seller has received in cash or cleared funds payment in full for the price of the contract goods and all
other goods agreed to be sold by the Seller to the Buyer for which payment is then due. Until such time
as property in the contract goods passes to the Buyer, the Buyer shall hold the goods as the Sellers
fiduciary agent and bailee, and shall keep the goods separate from those of the Buyer and third parties
and shall properly store, protect, insure and identify the same as the Sellers property and as against the
Sellers invoices. Until that time the Buyer shall be entitled to resell or use the contract goods in the
ordinary course of its business but shall account to the Seller for the proceeds of sale or otherwise
thereof and shall keep such proceeds separate from any monies or property of the Buyer and third
parties. Until such time as the property in the contract goods passes to the Buyer, the Seller shall be
entitled at any time to require the Buyer to redeliver up the goods to the Seller and, if the Buyer fails to
do so forthwith, to enter upon any premises of the Buyer or any third party where the goods are stored
and to repossess the same. Budingen, 25. August 1992

On 27 August 1992 Mr Fielding sent the following fax to Roder: We have looked at the document
you sent regarding the ownership of the goods and we have no basic problems with the wording.
However, the last paragraph seems to be a bit onerous in that you could claim all the goods back
even though we had kept to all the terms of the agreement. I know that is not your intention and you
certainly wouldnt do that to us, but could you redraft the last paragraph so that we are not
potentially placed in that situation. On 1 September 1992 Roder replied as follows: Thank you very
much for your fax of 27th August 1992. The property agreement is based on a proposal of our lawyer
in England. He had worded this agreement. We have asked him about your inquiry but he told us
that this right to take the goods back is only given in case that you fail to pay the partial amounts
which we have agreed, so he does not see any problem on your side to sign that. In case we would
take this right without you have given us a reason in not paying the due amounts, we would be
responsable (sic) for all damages and losses on your side. So we ask you kindly to sign this agreement
and send it back.
49. The receipt of this reply caused Mr Fielding to have Mr Tucker sign the certificate which, as I have
found, was completed and returned by fax to Roder on 2 September 1992 with the following
covering note from Mr Fielding on behalf of Rosedown: Thank you for your fax dated 1st
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September, 1992 and with your assurance that the property will never be claimed back providing we
stick to the terms of the agreement the original agreement has now been signed and posted back to
you. Legal effect of the term/s as to retention of title
50. In my opinion, if the new clause signed on 2 September 1992 had not been proposed by Roder
there would be no room for doubt that the contract for the sale of the goods was subject to a valid
and effective term for the retention of title. In my opinion there was no lack of clarity in the
circumstances as to the meaning and intent of the term first anticipated in discussions in May 1993
between Mr Fielding and Mr Roder; then stated in writing on 10 June 1992; stated again in the fax of
6 August 1992; and finally formally confirmed in writing in the document signed on 21 August 1992
that the goods will remain as your ownership until full payment is made. As the term simply
conveyed, ownership, that is property in the goods (see Clough Mill Ltd v Martin at 986 e-f),
remained with Roder until the purchase price of DM 609,102 was paid in full. I reject the allegation
that the term was too vague or unclear in its form or application to be of any contractual effect:
Armour and Anor v Thyssen Edelstahlwerke AG at 352-353. As property in the goods did not pass to
Rosedown before the term was agreed no question of the retention of title clause being a charge
arises: Armour and Anor v Thyssen Edelstahlwerke AG, and Clough Mill Ltd v Martin.
51. The new clause signed on 2 September 1992, drafted by the English solicitor, was probably
extracted from a reputable precedent for trading terms between a manufacturer and dealer in goods
(cf the retention clauses considered in Compaq Computer Ltd v Abercorn Group Ltd (t/a Osiris) and
Others (1993) BCLC 602 at 609-610 and Modelboard Ltd v Outer Box Ltd (in liq.) (1993) BCLC 623 at
626-627), but the terms in the second sentence of the second paragraph were inappropriate to the
present situation where the goods were not supplied for the purpose of resale, and moreover the
condition in the first paragraph went beyond that which had been agreed by providing for the
retention of ownership until payment in full for ...all other goods agreed to be sold by the Seller to
the Buyer for which payment is then due.
52. Does the signing of this new clause alter the position which would otherwise have existed? I think
not. If property had not passed before 2 September 1992 because of the term confirmed in writing in
the document dated 21 August 1992, a modification of the contract (see Art.29(1)) in the terms
stated in the first paragraph of the new clause would not alter the situation that property remained
with Roder and would do so until the condition as to payment was fulfilled.
53. The modification contained in the second sentence of the second paragraph of the new clause,
although inappropriate insofar as it deals with resale, nonetheless is there and cannot be ignored.
Counsel for the respondents argues that the second sentence as it purports to operate on the
proceeds of sale (and possibly also on rental proceeds) constitutes a charge that required
registration, and seeks support for that submission from Compaq Computers Ltd v Abercorn Group
Ltd. It is argued that as one part of the new clause constitutes a charge the failure to register that
charge means that the clause in its entirety is void as against Mr Eustace under s.266(1) of the Law.
In my opinion it is not necessary to decide whether the second sentence of the second paragraph
constitutes a charge over proceeds of sale or use as Roder is not seeking to enforce that term. In
Compaq Computers Ltd v Abercorn Group the plaintiff supplier was claiming the proceeds of sale of
the goods, not the goods themselves. Even though Mummery J held that the provision in the dealer
agreement under which the plaintiff made its claim to the proceeds of sale was to be construed as a
charge, at 614 he held that on the true construction of the dealer agreement, whilst the goods
remained unsold in the hands of the dealer, the plaintiff retained full legal and beneficial ownership
of them, and that the relevant provisions of the retention of title clause, which were similar to the
first paragraph of the present new clause, did not confer a charge on the goods in favour of the
plaintiff. Similarly in Clough Mill v Martin each member of the Court of Appeal held that the first
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sentence of the clause under consideration, which dealt with the goods whilst they remained in the
identifiable form in which they were originally supplied, was a valid and enforceable retention of title
clause, and not a charge, even if a later sentence of the clause constituted a charge over
manufactured items which incorporated the goods supplied: see p.990d-e, 991a-b, 993d and 994e.
Even if the second sentence of the second paragraph of the new clause constitutes a charge, the
failure to register that charge is of no relevance in the circumstances of this case.
54. The term for the retention of title in the goods which Roder now seeks to enforce was not a
charge and is not void as against Mr Eustace under s.266(1) of the Law. It remains necessary however
to consider how the provisions of the Convention and of Part 5.3A of the Law effects the
enforcement of the rights and remedies following from the ownership retained by Roder after the
appointment of the administrator on 6 October 1993. Avoidance and remedies under the Convention
and Part 5.3A
55. Whilst Roder alleges, and the respondents deny, that the contract of sale was repudiated by
Rosedown, and that Roder has accepted the said repudiation, these common law concepts and the
common law remedies which could follow upon the acceptance of a repudiation of the contract by
Rosedown are replaced by the provisions of the Convention. Relevantly the Convention provides:
Article 25 A breach of contract committed by one of the parties is fundamental if it results in such
detriment to the other party as substantially to deprive him of what he is entitled to expect under the
contract...
Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other
party. ...
Article 53 The buyer must pay the price for the goods and take delivery of them as required by the
contract and this Convention. ...
Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention,
the seller may:
(a) exercise the rights provided in articles 62 to 65;
(b) claim damages as provided in articles 74 to 77.
(2) The seller is not deprived of any right he may have to claim damages by exercising his right to other
remedies.
(3) ... ...
Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the
buyer of his obligations.
(2) Unless the seller has received notice from the buyer that he will not perform within the period so
fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the
seller is not deprived thereby of any right he may have to claim damages for delay in performance.
Article 64 (1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract; or...

Immediately prior to 6 October 1993 Rosedown was in continuing breach of the contract of sale in
that interest payments were overdue. An amount of DM 1,496.25 had become payable on 30 March
1993. The other overdue interest payments related to interest payable under a further variation of
the contract made on about 10 May 1993 when Roder agreed to extend until 30 November 1993 the
time for payment of DM 133,000 originally payable on 30 November 1992. It was agreed that
interest calculated at the rate of 13 % p.a. would be paid on that sum, the first payment for a six
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month period becoming due in late May 1993, and thereafter interest was to be paid quarterly, i.e. in
August 1993 and the final payment with the installment of DM 133,000 on 30 November 1993. No
demand had been made for these payments, and a letter from Roder to Rosedown dated 27
September 1993 made no reference to these overdue payments. Further, Rosedown had not at 6
October 1993 assigned income expected to be received from the November 1993 Grand Prix to
Roder, but that was something that could be done effectively after 6 October 1993. I am not satisfied
that these breaches of contract, in the absence of notice to perform under Art. 63, constituted
fundamental breaches that would justify avoidance of the contract of sale immediately prior to 6
October 1993. In any event no declaration of avoidance had been notified to Rosedown before 6
October 1993.
56. The contract of sale remained on foot when the administrator was appointed.
57. The object of Part 5.3A of the Law is stated in s.435A:
435A The object of this Part is to provide for the business, property and affairs of an insolvent company
to be administered in a way that: (a) maximises the chances of the company, or as much as possible of
its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence - results in a better return
for the companys creditors and members than would result from an immediate winding up of the
company.

In furtherance of that object upon the appointment of an administrator under s.436A, and in the
relatively short interim period whilst the company remains under administration (which in this case
came to an end when the Deed of Company Arrangement was executed) the Law in Div.6 of Part
5.3A seeks to prevent creditors, secured and unsecured, from resorting to legal proceedings or selfhelp measures to enforce their rights against the company. Thus the company cannot be wound up
during that period: s.440A. Generally, charges are unenforceable: s.440B; and owners and lessors
cannot recover property used by the company: s.440C (but see Div.7). Proceedings in court against
the company or in relation to any of its property cannot be begun or proceeded with except with the
administrators written consent or with the leave of the court: s.440D(1), and the administrator is
not liable for damages if he refuses consent: s.440E. Enforcement processes in relation to the
company are generally suspended: s.440F.
58. Whilst the provisions of Part 5.3A control the circumstances in which the property of the
company may be recovered or taken by other parties, they do not freeze or suspend the exercise of
every right held by a creditor. The provisions operate only according to their terms, and rights which
are not modified or suspended may be exercised as if the administration had not occurred. Whilst
s.440C curtailed Roders right to recover the goods from Rosedown during the administration, in my
opinion none of the provisions of the Law prevented Roder from notifying a declaration of avoidance
of the contract. See also s.441J. In my opinion the appointment of an administrator by Rosedown
constituted a fundamental breach of the contract within the meaning of Article 25 which would
justify Roder notifying a declaration of avoidance. The resolution of the directors making that
appointment amounted to an acknowledgment by them that the company was insolvent or was
likely to become so. That fact, and the placement of the company under administration, in the
circumstances of this case, resulted in such detriment to Roder as substantially to deprive it of what
it was entitled to expect under the contract. The denial by Mr Eustace as agent for Rosedown (see
s.437B) of the term as to retention of title also amounted to a fundamental breach of the contract.
59. The pleadings give no indication of the act which is said to constitute the acceptance of
the...repudiation. Whatever that act was, assuming there was one, it would probably constitute
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notification of a declaration of avoidance. I do not think the correspondence between Roder and
Rosedown, and their solicitors, in October and early November 1993 can be construed as a
declaration of avoidance. The correspondence concerns Roders claim to possession of the goods - a
claim which could have been made pursuant to the contract and not only as a consequence of
avoidance: see Clough Mill Ltd v Martin at 988. As I have earlier observed, the evidence led by the
parties hardly touches on the administration, and does not deal at all with events after 9 November
1993. If there were no earlier notification of a declaration of avoidance I consider the filing of the
statement of claim should be so construed as it makes it plain that Roder at that time treated the
contract as at an end. The statement of claim was filed on 13 December 1993. The evidence does not
disclose whether this was during or after the period when Rosedown was under administration.
Whilst Rosedown was under administration Roders rights to possession of the goods whether
pursuant to the contract or on avoidance were suspended by s.440C. No action can lie against either
Mr Eustace (see s.440E) or Rosedown in respect of the refusal to deliver up the goods during this
period. That refusal was not unlawful. It was a refusal sanctioned by the Law. The only redress open
to Roder was to apply to court for leave to take possession (which it did), and if it were thought
necessary to apply for leave to bring proceedings for declaratory relief (which it also did).
60. Upon the administration coming to an end when the Deed of Company Arrangement was
executed, the protections afforded to the property of Rosedown under Div.6 of Part 5.3A came to an
end. A new legal regime then came into force, being that governed by Div.10 of Part 5.3A (ss.444A to
445). The rights and obligations of creditors and the company under a deed of company arrangement
are likely to be quite different: cf Commissioner of Taxation v B and G Plant Hire Pty Ltd and Others
(1994) 14 ACSR 283 at 290.
61. I have already noted the power of the creditors to resolve that the administrator of a deed may
be someone other than the administrator of the company. Other provisions of Div.10 of direct
relevance are: 444D(1) A deed of company arrangement binds all creditors of the company, so far as
concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i). (The
day specified in the Deed is 6 October 1993) (2) Subsection (1) does not prevent a secured creditor
from realising or otherwise dealing with the security, except so far as: (a) the deed so provides in
relation to a secured creditor who voted in favour of the resolution of creditors because of which the
company executed the deed; or (b) the Court orders under subsection 444F(2). (3) Subsection (1)
does not affect a right that an owner or
lessor of property has in relation to that property, except so far as:
(a) the deed so provides in relation to an owner or lessor of property who voted in favour of the
resolution of creditors because of which the company executed the deed; or
(b) the Court orders under subsection 444F(4).
444E
(1) Until a deed of company arrangement terminates, this section applies to a person bound by the
deed.
(2) ...
(3) The person cannot:
(a) begin or proceed with a proceeding against the company or in relation to any of its property; or
(b) begin or proceed with enforcement process in relation to property of the company; except:
(c) with the leave of the Court; and
(d) in accordance with such terms (if any) as the Court imposes.
(4) In subsection (3): property in relation to the company, includes property used or occupied by, or in
the possession of, the company.
444F

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(1) This section applies where:

(a) it is proposed that a company execute a deed of company arrangement; or
(b) a company has executed such a deed.
(2) ...
(3) ...
(4) The Court may order the owner or lessor of property that is used or occupied by, or is in the
possession of, the company not to take possession of the property or otherwise recover it. (5) The Court
may only make an order under subsection (4) if satisfied that: (a) for the owner or lessor to take
possession of the property or otherwise recover it would have a material adverse effect on achieving
the purposes of the deed; and
(b) having regard to:
(i) the terms of the deed; and
(ii) the terms of the order; and
(iii) any other relevant mater; the interests of the owner or lessor will be adequately protected.
(6) An order under this section may be made subject to conditions.
(7) An order under this section may only be made on the application of:
(a) if paragraph (1)(a) applies - the administrator of the company; or
(b) if paragraph (1)(b) applies - the deeds administrator.

62. In J and B Records Ltd v Brashs Pty Ltd (1995) 15 ACLC 458 Hodgson J in the Supreme Court of
New South Wales considered whether a supplier of goods under a retention of title clause to a
company that was later placed under administration, and then executed a deed of company
arrangement, required leave to begin or proceed with an action under s.444E(3). The supplier argued
that leave was unnecessary as it was the owner of the goods within s.444D(3), that such an owner
was not bound by the deed in respect of its claim as owner under s.444D(1), and s.444E only applied
to persons so bound. His Honour said at 466:
...I have come to the view that s.444D(2) and (3) do not have the effect of removing the requirement
for secured creditors and owners or lessors to obtain the leave of the court under s.444E(3) in respect of
court proceedings to enforce their rights as secured creditors or owners or lessors, where those persons
are creditors with claims arising on or before the day specified in the deed, and where these claims are
associated with the security or property. There is some force in the submission...that this would have
the result of setting up a scheme which, to some extent, would encourage self-help and resort to extracurial enforcement or recovery procedures, which is somewhat contrary to the trend of legislation and
judicial decisions in recent times. However, I think the preferable view is that those three sections were
intended to set up something of a code relating to court proceedings in relation to matters concerning
claims arising on or before the day specified in the deed; so that the court which is overseeing the
administration of the deed will have general control of such proceedings, either by way of applications
for leave under s.444E, or applications for orders limiting actions by owners or secured creditors under
s.444F. In deciding whether to give leave under s.444E to a secured creditor or owner, and if so on what
conditions, a court will have regard to the circumstance that under s.444F a secured creditor or owner
will be restrained from extra-curial action only if the court is satisfied their interests will be adequately
protected.

With those conclusions I respectfully agree. In the particular circumstances of that case leave was
held to be unnecessary as the cause of action was based on an undertaking given by the
administrators after the day specified in the deed. In the present case however, the essential rights
which Roder seeks to enforce are its rights as owner of the goods, rights that existed before 6
October 1993. For the purposes of s.444E(3), insofar as remedies are now sought against Rosedown
(e.g. for declaratory relief, delivery up and damages for wrongful detention) this action is obviously a
proceeding against the company. Insofar as additional or other relief is sought against Mr Eustace
this action is one in relation to any of its property: see s.444E(4). So a precondition to the pursuit of
this action is leave under s.444E(3). The action has throughout been prosecuted on the footing that
the leave to proceed given under s.440D(1)(b) on 9 November 1993 fulfils this condition. No point to
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the contrary has been taken by the respondents in their pleadings or otherwise. In my opinion the
leave given under s.440D(1)(b) only authorised the prosecution of the action against the company
whilst under administration, and against Mr Eustace as administrator of the company. When the
administration came to an end, s.444E(3) then came into operation so as to require a further grant of
leave. That further leave was required is readily explained by at least two considerations. First, the
administrator of the deed may not be the administrator of the company: s.444A(2). Secondly,
different considerations will apply in many cases when considering the merits of the enforcement of
the proposed claims. For example in the present case one claim made in the proceedings at the time
of the order on 9 November 1993 was a claim under s.440C. At 9 November 1993 there appeared an
urgent need to address the entitlement of the owner (if Roder could establish ownership) to recover
its depreciating goods as no adequate recompense was offered by the administrator for the
continued use of the goods, and no other provision of the Law appeared to offer an avenue for
ordering recompense to Roder during the continuance of the administration (s.443B(2) was of
doubtful application, the contract of sale not providing for any rent or other periodic payment to
recompense for actual use of the goods). However once the administration ended, so did the
restrictions imposed by s.440C. Then s.444F came into operation. Under s.444F the owner of goods
in the possession of the company is not prevented from recovering them unless the court so orders
under s.444F(4) on application of the appropriate administrator (s.444F(7)), and such an order may
only be made if the court is satisfied as required by s.444F(5). As Hodgson J observed in J and B
Records Ltd v Brashs Pty Ltd (supra) the provisions of s.444F will be a consideration in deciding
whether to give leave under s.444E(3).
63. The absence of an order giving leave to proceed is a matter which Roder must now address. As
the case has been conducted throughout on the footing that the requisite leave had been obtained,
and as there has been no application under s.444F(4) or offer of recompense for the continuing use
of the goods, it may be appropriate to grant leave nunc pro tunc from the day after the
administration of Rosedown came to an end (see s.447A). I will hear the parties on this question.
64. Subject to the question of leave, Roder is entitled to enforce the rights and obligations which
arose on the avoidance of the contract under the Convention. So too is Rosedown. Relevantly the
Convention provides, first as damages:
Article 74 Damages for breach of contract by one party consist of a sum equal to the loss, including loss
of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the
loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the
contract, in the light of the facts and matters of which he then knew or ought to have known, as a
possible consequence of the breach of contract.
Article 75 If the contract is avoided and if, in a reasonable manner and within a reasonable time after
avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party
claiming damages may recover the difference between the contract price and the price in the substitute
transaction as well as any further damages recoverable under article 74.
Article 76 (1) If the contract is avoided and there is a current price for the goods, the party claiming
damages may, if he has not made a purchase or resale under article 75, recover the difference between
the price fixed by the contract and the current price at the time of avoidance as well as any further
damages recoverable under article 74. If, however, the party claiming damages has avoided the contract
after taking over the goods, the current price at the time of such taking over shall be applied instead of
the current price at the time of avoidance. (2) ...

and secondly as to restitution:

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Article 81 (1) Avoidance of the contract releases both parties from their obligations under it subject to
any damages which may be due... (2) A party who has performed the contract either wholly or in part
may claim restitution from the other party of whatever the first party has supplied or paid under the
contract. If both parties are bound to make restitution, they must do so concurrently.
Article 84 (1) If the seller is bound to refund the price, he must also pay interest on it, from the date on
which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived
from the goods or part of them: (a) if he must make restitution of the goods or part of them;...

There is no evidence before the Court which enables the application of these provisions to be further
discussed. I note that immediately upon his appointment as administrator Mr Eustace obtained an
auction realisation valuation of the plant and equipment of Rosedown, and that may be of some
assistance to the parties in the application of Article 76 should that be appropriate.
65. Roder complains that its loss and damages are ongoing, and will continue until the goods are
returned. As Roder cannot resell the goods for the purpose of Article 75, nor make restitution as
required by Article 81, until the goods are returned, the appropriate date at which to assess the net
result of applying the above Articles could be the date of return of the goods. In the unlikely event
that the net result were in favour of Rosedown, there would be no practical point in Roder pursuing
a claim against Mr Eustace. 66. On the other hand if the net result is in favour of Roder, Roder will
obviously wish to obtain judgment against Rosedown and Mr Eustace in respect of their respective
liabilities - unless the fortunes of Rosedown have now so improved that Roder is content to await
payment by the company of its entitlement assessed under the Convention.
67. It is necessary therefore to consider the liability of Rosedown and of Mr Eustace for the refusal to
return the goods to Roder. I have already indicated that Mr Eustace incurred no liability for the
refusal to return the goods whilst Rosedown was under administration. However, when he became
the administrator of the Deed he lost the protection of ss.440C and 440E.
68. By s.444A(5) the Deed is taken to include the prescribed provisions, except so far as it provides
otherwise. By Regulation 5.3A.06 the prescribed provisions are those set out in Schedule 8A.
Paragraph 1 of Schedule 8A provides that in exercising the powers conferred by the Deed and in
carrying out the duties arising under it, the administrator (of the deed) is taken to act as agent for
and on behalf of the company; and under paragraph 2(a) the administrator has the power to enter
upon and take possession of the property of the company. A draft of the Deed (the only evidence of
its terms before the Court) did not otherwise provide. The affidavit evidence of Mr Eustace read at
trial indicates that in his capacity as administrator of the Deed, and agent of Rosedown, he has
denied Roders claim for possession and delivery up, and has defended these proceedings. In the
result Roder has established that the contract of sale included a valid term for the retention of title
until payment in full; that it is the owner of the goods; and that, absent an order under s.444F(4), it
has been entitled to immediate possession of the goods from the time when the Deed of Company
Arrangement was executed. Both Mr Eustace personally and Rosedown are liable to Roder for the
tort of conversion for interfering with the possessory rights of Roder. The tort is committed by an
agent even where the agent acts in good faith without any intention to commit a wrong: J G Fleming,
The Law of Torts 8th Ed. at 56, and even though he does not act on his own account or for his
personal benefit: Salmond and Heuston on the Law of Torts, 20th Ed. 111. See generally Bowstead on
Agency 15th Ed. at 386 and 495 ff. The conventional measure of damages for conversion is the value
of the goods at the date of the wrong: McGregor on Damages 15th Ed. paras. 1298 ff - in this case
the value of the goods at the date when the Deed was executed. In addition Roder would be entitled
to interest under the Federal Court of Australia Act 1976 (Cth), s.51A from that date. If the value of
the goods at that date and interest thereafter is allowed, it is difficult to follow how Roder would
have any additional right to compensation for rental value from that date. If the goods are now
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returned, credit will have to be allowed for their present value. The judgment for damages for
conversion, when assessed, will be entered jointly and severally against both Rosedown and Mr
Eustace. If the loss and damage of Roder against Rosedown under the Convention provisions is
assessed at the date of return of the goods there is likely to be some overlap between the judgment
entered against Rosedown on that cause of action, and the judgments entered for conversion. Roder
cannot recover more than its full loss. It cannot recover its loss in full under a judgment entered
against one respondent, and then recover further moneys under a judgment against the other
respondent. So if Rosedown is able to discharge the judgment against it that will also satisfy the
judgment against Mr Eustace. If not, Mr Eustace will remain liable to discharge the judgment against
him.
69. I publish these reasons and my associate will communicate with the parties to arrange a
convenient time to relist the matter.

FRUSTRATION

SECTION IV. EXEMPTIONS

Article 79
(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was
due to an impediment beyond his control and that he could not reasonably be expected to have
taken the impediment into account at the time of the conclusion of the contract or to have avoided
or overcome it or its consequences.
(2) If the partys failure is due to the failure by a third person whom he has engaged to perform the
whole or a part of the contract, that party is exempt from liability only if:
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were
applied to him.
(3) The exemption provided by this article has effect for the period during which the impediment
exists.
(4) The party who fails to perform must give notice to the other party of the impediment and its
effect on his ability to perform. If the notice is not received by the other party within a reasonable
time after the party who fails to perform knew or ought to have known of the impediment, he is
liable for damages resulting from such non-receipt.
(5) Nothing in this article prevents either party from exercising any right other than to claim damages
under this Convention.
Article 80
A party may not rely on a failure of the other party to perform, to the extent that such failure was
caused by the first partys act or omission.

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MALAYSIA DAIRY INDUSTRIES PTE LTD V DAIREX HOLLAND BV, RECHTBANKS-HERTOGENBOSCH,

9981
HA ZA 95-2299, NETHERLANDS, 2 OCTOBER 1998

A Dutch seller and a buyer from Singapore concluded several contracts for the sale of milk
powder. In order to satisfy a Singaporean ban on food imports polluted by radioactivity, the
parties agreed that the milk powder was to contain less than a certain percentage of
radioactivity, which they thought would be accepted as non-polluted by the authorities of
Singapore. After conclusion of the contracts the seller encountered difficulties in finding the
required goods, and did not deliver them to the buyer. The buyer commenced an action for
damages.
The Court stated that according to private international law rules, Dutch law and
therefore CISG was applicable (Art. 1(1)(b) CISG). As to the one contract which incorporated
the standard terms of the trade concerned (MPC conditions), the Court held that CISG was
also applicable since the standard terms contained a choice of law clause in favour of the
law of the Netherlands, a contracting State.
As to the sellers allegation that the contracts were invalid, the Court held that this
question was not governed by CISG (Art. 4 CISG) and denied the invalidity under the
otherwise applicable domestic law (Dutch law).
The Court further rejected the sellers defence that it had the right to withheld
performance under Art. 71(1)(b) CISG because it could not be proved that the buyer would
not perform a substantial part of its obligations to take delivery and pay the price. On the
contrary, the buyer was ready to take delivery in the free trade zone in case the authorities
of Singapore would consider that the radioactivity was too high and to open a letter of credit
in order to guarantee payment.
Finally, the Court held that the seller could not rely on Art. 79 CISG alleging that the
Singaporean regulations were to be considered an impediment exempting the seller from
performance, as the seller was well aware of such regulations before conclusion of the
contract and therefore took the risk of not being able to supply conforming goods.
The buyer was awarded damages for breach of contract by the seller.

BUNDESGERICHTSHOF, VIII ZR 121/98, GERMANY, 24 MARCH 1999 (VINE WAX CASE)

An Austrian owner of a vine nursery (the buyer) was in a longstanding business relationship
with a German company (the seller) for the purchase of a special kind of wax, which it
regularly used in order to prevent excessive drying out and limit danger of infection. As in
the past, the buyer asked the seller to send an offer concerning ca. 5000 kg. black vinewax.
The wax was neither received nor inspected by the seller before delivery. It was delivered to
the buyer in its original packaging directly from a third party, which the sellers supplier had
entrusted with the production. The buyer partly used the delivered wax on its own vines
fields and partly sold it on to other vine nurseries. After a large quantity of plants treated
with the wax had suffered severe damage, the buyer complained thereof to the seller, then
filed an action for damages. The seller objected, inter alia, that the vines had been damaged
by a cause beyond its control.
While the first instance court rejected the claim, on appeal the judgment was
reversed in the buyers favor. The seller appealed to the Supreme Court.
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The Supreme Court confirmed the lower instance decisions as to the existence of a
lack of conformity of the goods under Art. 35(2)(a) CISG, since the wax did not meet the
industry standards that were known to and applied by both parties.
As to the sellers claim that the buyer had used part of the wax for a purpose other
than that intended, i.e. for treatment of young vines, the Court remanded the case to the
lower courts in order to ascertain the facts. If this were indeed the case, there would be no
causal connection between the lack of conformity and the damage and consequently no
liability of the seller concerning young vine fields.
The Court rejected the contention that the seller had not produced the wax itself and
therefore it should not be liable for its lack of conformity. In reaching this conclusion, the
Court avoided to decide expressly whether Art. 79 CISG covers all possible cases of nonperformance, or whether its application has to be excluded for lack of conformity.
In any event, Art. 79 CISG was not considered applicable because the seller did not
prove that the impediment lay beyond its control. Art. 79 CISG does not alter the contracts
distribution of risks, by which the seller is obliged to deliver (conforming) goods. According
to Art. 79(2) CISG, the seller has to bear the risk of a lack of conformity deriving from its own
suppliers non-performance, unless it brings evidence that the impediment did not lie in its
and its suppliers control. This was not proved in the case at hand, nor had the seller
successfully excluded liability through its standard terms, both because they were not part
of the contract, and because such a general exclusion would be invalid according to German
domestic law.
The Court moreover observed that the sellers failure to inspect the goods before
delivery was of no consequence (contrary to the lower courts opinion), because its
obligation is to be construed as a warranty and does not depend on fault.
Finally the Court held that the lower instance court should have dealt with the issue
of mitigation of damages by the buyer (Art. 77 CISG), and should not have remanded it to
separate proceedings concerning the amount of the claim. In the Courts opinion this is
supported by the German domestic law rules on contributory negligence, which are
applicable notwithstanding the principle of autonomous interpretation of CISG (Art. 7(1)
CISG), since the issue is a procedural one. Art. 77 CISG must be considered ex officio and
may lead to exclude the sellers liability altogether. The case was thus remanded to the
appellate court for decision on the alleged buyers failure to mitigate damages by not
stopping to use the wax as soon as it became aware of its damaging effects.

VITAL BERRY MARKETING NV V DIRA-FROST NV, RECHTBANK VAN KOOPHANDEL, HASSELT

AR 1849/94, BELGIUM, 2 MAY 1995

A Chilean company (the seller) concluded a contract with a Belgian buyer for the delivery of
frozen raspberries. The contract provided that the buyer should pay through letter of credit.
Failing the required opening of the letter of credit, the seller did not proceed to ship the
goods. The buyer itself asked for a delay in the delivery and requested the company which
had acted as mediator to negotiate with the seller for a lower price, alleging a significant
drop in the world market price for the purchased goods. After further communications
between the parties, the seller refused to accept a reduced price, declared the contract
avoided and commenced an action to recover damages.
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The Court held that the contract was governed by CISG, as the parties at trial
expressly agreed on CISG as the applicable law.
The buyer alleged that the contract had been modified by agreement between the
parties regarding the amount of the price. The Court held that as Chile had made a
declaration pursuant to Art. 96 CISG and being the sellers place of business in Chile, in
accordance with Art. 12 CISG the contract had to be modified in writing. No written
modification agreement, however, had been produced by the parties.
The Court further held that the significant drop in the market price of the purchased
goods after the conclusion of the contract did not constitute a case of force majeure
exempting the buyer for non-performance under Art. 79 CISG. Fluctuations of prices are
foreseeable events in international trade and far from rendering the performance
impossible they result in an economic loss well included in the normal risk of commercial
activities.
The seller had therefore a right to avoid the contract and was also granted damages,
including the expenses incurred in storing the undelivered frozen goods and lost profits. The
Court determined the amount of lost profits ex aequo et bono, taking into account the
probability of a cover sale by the seller at a price significantly lower than the one agreed
upon in the contract.

BREACH, CANCELLATION AND REMEDIES

SECTION III. REMEDIES FOR BREACH OF CONTRACT BY THE SELLER

CHAPTER I. GENERAL PROVISIONS

Article 25
A breach of contract committed by one of the parties is fundamental if it results in such detriment to
the other party as substantially to deprive him of what he is entitled to expect under the contract,
unless the party in breach did not foresee and a reasonable person of the same kind in the same
circumstances would not have foreseen such a result.
Article 26
A declaration of avoidance of the contract is effective only if made by notice to the other party.
Article 27
Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other
communication is given or made by a party in accordance with this Part and by means appropriate in
the circumstances, a delay or error in the transmission of the communication or its failure to arrive
does not deprive that party of the right to rely on the communication.
Article 28
If, in accordance with the provisions of this Convention, one party is entitled to require performance
of any obligation by the other party, a court is not bound to enter a judgment for specific
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performance unless the court would do so under its own law in respect of similar contracts of sale
not governed by this Convention.
Article 29
(1) A contract may be modified or terminated by the mere agreement of the parties.
(2) A contract in writing which contains a provision requiring any modification or termination by
agreement to be in writing may not be otherwise modified or terminated by agreement. However, a
party may be precluded by his conduct from asserting such a provision to the extent that the other
party has relied on that conduct.

Article 45
(1) If the seller fails to perform any of his obligations under the contract or this Convention, the
buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to
other remedies.
(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer
resorts to a remedy for breach of contract.
Article 46
(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted
to a remedy which is inconsistent with this requirement.
(2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods
only if the lack of conformity constitutes a fundamental breach of contract and a request for
substitute goods is made either in conjunction with notice given under article 39 or within a
reasonable time thereafter.
(3) If the goods do not conform with the contract, the buyer may require the seller to remedy the
lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A
request for repair must be made either in conjunction with notice given under article 39 or within a
reasonable time thereafter.
Article 47
(1) The buyer may fix an additional period of time of reasonable length for performance by the seller
of his obligations.
(2) Unless the buyer has received notice from the seller that he will not perform within the period so
fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However,
the buyer is not deprived thereby of any right he may have to claim damages for delay in
performance.
Article 48
(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense
any failure to perform his obligations, if he can do so without unreasonable delay and without
causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of
expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided
for in this Convention.
(2) If the seller requests the buyer to make known whether he will accept performance and the buyer
does not comply with the request within a reasonable time, the seller may perform within the time
133

indicated in his request. The buyer may not, during that period of time, resort to any remedy which is
inconsistent with performance by the seller.
(3) A notice by the seller that he will perform within a specified period of time is assumed to include
a request, under the preceding paragraph, that the buyer make known his decision.
(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless
received by the buyer.
Article 49
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of
time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not
deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare
the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has
been made;
(b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with
paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations
within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with
paragraph (2) of article 48, or after the buyer has declared that he will not accept performance.
Article 50
If the goods do not conform with the contract and whether or not the price has already been paid,
the buyer may reduce the price in the same proportion as the value that the goods actually delivered
had at the time of the delivery bears to the value that conforming goods would have had at that
time. However, if the seller remedies any failure to perform his obligations in accordance with article
37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those
articles, the buyer may not reduce the price.
Article 51
(1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in
conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which
does not conform.
(2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery
completely or in conformity with the contract amounts to a fundamental breach of the contract.
Article 52
(1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take
delivery.
(2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer
may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or
part of the excess quantity, he must pay for it at the contract rate.

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SECTION III. REMEDIES FOR BREACH OF CONTRACT BY THE BUYER

Article 61
(1) If the buyer fails to perform any of his obligations under the contract or this Convention, the
seller may:
(a) exercise the rights provided in articles 62 to 65;
(b) claim damages as provided in articles 74 to 77.
(2) The seller is not deprived of any right he may have to claim damages by exercising his right to
other remedies.
(3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller
resorts to a remedy for breach of contract.
Article 62
The seller may require the buyer to pay the price, take delivery or perform his other obligations,
unless the seller has resorted to a remedy which is inconsistent with this requirement.
Article 63
(1) The seller may fix an additional period of time of reasonable length for performance by the buyer
of his obligations.
(2) Unless the seller has received notice from the buyer that he will not perform within the period so
fixed, the seller may not, during that period, resort to any remedy for breach of contract. However,
the seller is not deprived thereby of any right he may have to claim damages for delay in
performance.
Article 64
(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with
paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if
he declares that he will not do so within the period so fixed.
(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the
contract avoided unless he does so:
(a) in respect of late performance by the buyer, before the seller has become aware that
performance has been rendered; or
(b) in respect of any breach other than late performance by the buyer, within a reasonable time:
(i) after the seller knew or ought to have known of the breach; or
(ii) after the expiration of any additional period of time fixed by the seller in accordance with
paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations
within such an additional period.
Article 65
(1) If under the contract the buyer is to specify the form, measurement or other features of the
goods and he fails to make such specification either on the date agreed upon or within a reasonable
time after receipt of a request from the seller, the seller may, without prejudice to any other rights
he may have, make the specification himself in accordance with the requirements of the buyer that
may be known to him.
(2) If the seller makes the specification himself, he must inform the buyer of the details thereof and
must fix a reasonable time within which the buyer may make a different specification. If, after receipt
of such a communication, the buyer fails to do so within the time so fixed, the specification made by
the seller is binding.
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CHAPTER V. PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER
SECTION I. ANTICIPATORY BREACH AND INSTALMENT CONTRACTS
Article 71
(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it
becomes apparent that the other party will not perform a substantial part of his obligations as a
result of:
(a) a serious deficiency in his ability to perform or in his creditworthiness; or
(b) his conduct in preparing to perform or in performing the contract.
(2) If the seller has already dispatched the goods before the grounds described in the preceding
paragraph become evident, he may prevent the handing over of the goods to the buyer even though
the buyer holds a document which entitles him to obtain them. The present paragraph relates only
to the rights in the goods as between the buyer and the seller.
(3) A party suspending performance, whether before or after dispatch of the goods, must
immediately give notice of the suspension to the other party and must continue with performance if
the other party provides adequate assurance of his performance.
Article 72
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a
fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to
the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he
will not perform his obligations.
Article 73
(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform
any of his obligations in respect of any instalment constitutes a fundamental breach of contract with
respect to that instalment, the other party may declare the contract avoided with respect to that
instalment.
(2) If one partys failure to perform any of his obligations in respect of any instalment gives the other
party good grounds to conclude that a fundamental breach of contract will occur with respect to
future instalments, he may declare the contract avoided for the future, provided that he does so
within a reasonable time.
(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time,
declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their
interdependence, those deliveries could not be used for the purpose contemplated by the parties at
the time of the conclusion of the contract.
SECTION II. DAMAGES
Article 74
Damages for breach of contract by one party consist of a sum equal to the loss, including loss of
profit, suffered by the other party as a consequence of the breach. Such damages may not exceed
the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of
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the contract, in the light of the facts and matters of which he then knew or ought to have known, as
a possible consequence of the breach of contract.
Article 75
If the contract is avoided and if, in a reasonable manner and within a reasonable time after
avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party
claiming damages may recover the difference between the contract price and the price in the
substitute transaction as well as any further damages recoverable under article 74.
Article 76
(1) If the contract is avoided and there is a current price for the goods, the party claiming damages
may, if he has not made a purchase or resale under article 75, recover the difference between the
price fixed by the contract and the current price at the time of avoidance as well as any further
damages recoverable under article 74. If, however, the party claiming damages has avoided the
contract after taking over the goods, the current price at the time of such taking over shall be applied
instead of the current price at the time of avoidance.
(2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place
where delivery of the goods should have been made or, if there is no current price at that place, the
price at such other place as serves as a reasonable substitute, making due allowance for differences
in the cost of transporting the goods.
Article 77
A party who relies on a breach of contract must take such measures as are reasonable in the
circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to
take such measures, the party in breach may claim a reduction in the damages in the amount by
which the loss should have been mitigated.
SECTION III. INTEREST
Article 78
If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to
interest on it, without prejudice to any claim for damages recoverable under article 74.

SECTION V. EFFECTS OF AVOIDANCE

Article 81
(1) Avoidance of the contract releases both parties from their obligations under it, subject to any
damages which may be due. Avoidance does not affect any provision of the contract for the
settlement of disputes or any other provision of the contract governing the rights and obligations of
the parties consequent upon the avoidance of the contract.
(2) A party who has performed the contract either wholly or in part may claim restitution from the
other party of whatever the first party has supplied or paid under the contract. If both parties are
bound to make restitution, they must do so concurrently.
Article 82
(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver
substitute goods if it is impossible for him to make restitution of the goods substantially in the
condition in which he received them.
(2) The preceding paragraph does not apply:
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(a) if the impossibility of making restitution of the goods or of making restitution of the goods
substantially in the condition in which the buyer received them is not due to his act or omission;
(b) if the goods or part of the goods have perished or deteriorated as a result of the examination
provided for in article 38; or
(c) if the goods or part of the goods have been sold in the normal course of business or have been
consumed or transformed by the buyer in the course of normal use before he discovered or ought to
have discovered the lack of conformity.
Article 83
A buyer who has lost the right to declare the contract avoided or to require the seller to deliver
substitute goods in accordance with article 82 retains all other remedies under the contract and this
Convention.
Article 84
(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which
the price was paid.
(2) The buyer must account to the seller for all benefits which he has derived from the goods or part
of them:
(a) if he must make restitution of the goods or part of them; or
(b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of
all or part of the goods substantially in the condition in which he received them, but he has
nevertheless declared the contract avoided or required the seller to deliver substitute goods.
SECTION VI. PRESERVATION OF THE GOODS
Article 85
If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of
the goods are to be made concurrently, if he fails to pay the price, and the seller is either in
possession of the goods or otherwise able to control their disposition, the seller must take such steps
as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has
been reimbursed his reasonable expenses by the buyer.
Article 86
(1) If the buyer has received the goods and intends to exercise any right under the contract or this
Convention to reject them, he must take such steps to preserve them as are reasonable in the
circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by
the seller.
(2) If goods dispatched to the buyer have been placed at his disposal at their destination and he
exercises the right to reject them, he must take possession of them on behalf of the seller, provided
that this can be done without payment of the price and without unreasonable inconvenience or
unreasonable expense. This provision does not apply if the seller or a person authorized to take
charge of the goods on his behalf is present at the destination. If the buyer takes possession of the
goods under this paragraph, his rights and obligations are governed by the preceding paragraph.
Article 87
A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third
person at the expense of the other party provided that the expense incurred is not unreasonable.
Article 88
(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by
any appropriate means if there has been an unreasonable delay by the other party in taking
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possession of the goods or in taking them back or in paying the price or the cost of preservation,
provided that reasonable notice of the intention to sell has been given to the other party.
(2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable
expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take
reasonable measures to sell them. To the extent possible he must give notice to the other party of
his intention to sell.
(3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to
the reasonable expenses of preserving the goods and of selling them. He must account to the other
party for the balance.
PART IV. FINAL PROVISIONS [not included]

EGO FRUITS SARL V LA VERJA, COUR DAPPEL DE GRENOBLE, CHAMBRE COMMERCIALE,

RG 97008146, FRANCE, 4 FEBRUARY 1999
A Spanish seller and a French buyer concluded a contract for the sale of pure orange juice to be
delivered by installments, May through December. After the contract was concluded, the parties
agreed on a reduction of the price and that part of the goods be delivered at an earlier date, namely,
the end of August. On September 2, the buyer proposed that the taking of delivery be postponed
until September 11. The seller replied on September 3 and 5, stating that, since the buyer had failed
in taking delivery by the end of August, the orange juice had been concentrated to preserve it, so
that the seller was unable to deliver pure orange juice after August. A dispute arose between the
parties as the buyer refused to pay the price for the goods delivered before August alleging that,
from September through December, it had to purchase pure orange juice in replacement at a higher
price. The court of first instance held that the seller was entitled to payment of the purchase price.
The buyer appealed.
The Court of Appeals held that the sellers reply of September 3 amounted to a declaration
of avoidance (termination) of the contract. However, the seller was not entitled to avoid (terminate)
the contract on the ground of Art. 64(1)(a) CISG, as the buyers breach in taking delivery of the goods
by the end of August did not amount to a fundamental breach of contract under Art. 25 CISG.
In this connection, the Court held that the buyer had agreed on the sellers request that the
goods be taken in delivery by the end of August simply to obtain a reduction of the purchase price.
However, before its reply of September 5, the seller had never advised the buyer that the pure
orange juice was unstable and needed to be concentrated after August. Moreover, the buyer had
purchased pure orange juice of the same season even in the December substitute transaction.
Therefore, the buyer could not foresee that a few days delay in taking delivery of the goods could
result in a substantial detriment to the seller and thus in a fundamental breach of the contract (Art.
25 CISG). In the case at hand, the seller should have fixed an additional period of time to the buyer
for taking delivery (Art. 63 CISG). Having failed to do so, the seller was not entitled to avoid
(terminate) the contract.
The Court further held that, as the seller had refused to deliver the goods so that the buyer
had had to buy goods in replacement, the buyer was entitled to damages under Art. 74 CISG. In the
case at hand, the difference between the contract price and the price in the substitute transaction
(Art. 75 CISG). However, according to the Court, the amount which the buyer was entitled to be paid
as damages had to be partially compensated (set-off) against the lower amount to be paid by the
buyer as purchase price for the goods received before the contract was avoided (terminated).

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SHUTTLE PACKAGING SYSTEMS V JACOB TSONAKIS INA SA 2001 U.S. DISTRICT COURT (MICHIGAN)
RICHARD ALAN ENSLEN, United States District Judge: Plaintiffs Verified Complaint alleges that on
November 1, 2000, it agreed to a purchase agreement with Defendants. Plaintiff alleges that under
the purchase agreement Defendants were required to supply thermoforming line equipment for the
manufacture of plastic gardening pots together with the technology and assistance to use the
equipment. The equipment included a double line having an annual output capacity of 1,800,000
lbs. and a trade gallon line having an annual output capacity of 3,270,000 lbs. The aggregate
purchase price for the equipment was $ 1,200,000 for the double line and $ 1,800,000 for the trade
gallon line. The Contract also included other terms relating to payment schedules, non-competition,
warranties, notices, expenses, interest, and an integration clause. The non-competition term did not
include the specific terms for non-competition, but required the further execution of a noncompetition agreement. Although it was not alleged in the Complaint, the Court notes for
clarification sake that, based on other exhibits filed by the parties and their briefing, the trade gallon
line was intended to manufacture 2.5 liter pots and the double line was intended to manufacture 11
centimeter pots on one line and 4 inch pots on the other line.
According to the Complaint, on November 2, 2000, the parties entered into a noncompetition agreement which contained various covenants of the seller not to engage in selling its
equipment and processes within the Restricted Area, not to disclose its technical manufacturing
processes to others, and not to disclose or use trade information and customer lists of the buyer. The
non-competition agreement contained no covenants for the buyer, but listed the payment of the
purchase price under the purchase agreement as the consideration. The Restricted Area was
defined as any jurisdiction throughout the world where the Company is, or in which Seller has
reason to know the Company expects to engage in, the Business. The jurisdictions included in the
Restricted Area as of the date of this Agreement are listed on Schedule I hereto. No Schedule I was
attached to the document. Plaintiff interprets the Restricted Area as North America. The noncompetition agreement also stated that it was to be interpreted and enforced in accordance with the
laws of the State of Michigan.
Plaintiffs Complaint is stated in three state law counts, each premised on diversity
jurisdiction. Count One alleges breach of the non-competition agreement and specifically that
Defendants are soliciting customers of Plaintiff in North America for the purpose of selling
equipment subject to the agreement. Count Two alleges breach of the purchase agreement and
more specifically both that Defendants have not provided all of the services required under the
agreement and that the equipment has not performed as promised. Count Three alleges a breach of
warranty as to the equipment in that the equipment was not in good working order, did not
manufacture to the contract specifications and failed to meet industry standards for manufacturing.
Count One is pertinent to the request for Preliminary Injunction since it includes the request that the
Court temporarily and permanently enjoin violation of the non-competition agreement.
Defendants have also answered the Complaint. The Answer contests most of the factual
allegations, but admits jurisdiction and venue. The Answer also contends that Defendant INA Plastics
has dissolved and is no longer in business. Plaintiff, during hearing, further clarified that jurisdiction
was proper in that Plaintiff had only one member, Calvin Diller, who is a citizen of Michigan.
To begin this discussion, the Court must make an initial and preliminary assessment of the
likely source of law to be applied to this controversy. The Courts preliminary assessment is that this
controversy is governed by the United Nations Convention on Contracts for the International Sale of
Goods (CISG), 19 I.L.M. 671 (May 1980), with one exception. The exception is the legal question of
the enforcement of the non-competition agreement, which is governed by Michigan law under the
parties forum selection clause. This assessment is based on the several pertinent facts. The United
States and Greece are signatories to the Convention. The goods sold in this case are commercial
goods of the type subject to the Convention. While the purchase agreement does not specify the
application of any body of law as to the purchase, the non-competition agreement specifies the
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application of Michigan law, but only as to the enforcement of the non-competition agreement. Also,
given the law cited by the parties, they are in apparent agreement as to this choice of law.
With this backdrop, the Court must assess whether Defendants now have a legal right to
compete for this business in North America. Defendants make several arguments in opposition to the
Motion. One argument made by Defendants is that the non-competition agreement is ineffective
because of lack of consideration for the agreement. This argument fails. First of all, the noncompetition agreement was made part and parcel with the purchase agreement and assumed that
the consideration for the non-competition agreement was the consideration for the purchase
agreement. Second, under the Convention, a contract for the sale of goods may be modified without
consideration for the modification. See CSIG, Art. 29; Michael Van Alstine, 37 Va. J. Int. Law 1 & n.47
(Fall 1996) (reaching this conclusion based on the U.N. Secretariats Commentary on the Draft
Convention, U.N. Doc. A/Conf. 97/5 (1979)).
Another argument made by Defendant is that the non-competition agreement is
unenforceable because the document failed to specify the jurisdictions in which seller was required
not to compete. This argument is not apt in the context of the Convention and the facts of this case.
Although the meaning of the non-competition agreement was confused because the parties never
attached the schedule describing the extent of the restrictions, the parties subsequent conduct and
discussions revealed an intent to apply this restriction to the United States market. Furthermore,
given the wording of the Convention, federal courts have determined that international sales
agreements under the Convention are not subject to the parol evidence rule and are to be
interpreted based on the subjective intent of the parties based on their prior and subsequent
statements and conduct. CSIG, Articles 8 and 9; MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova
d Agostino, S.p.A., 144 F.3d 1384, 1387-1391 (11th Cir. 1998). In this case, the statements and
conduct of the parties reveal an intent to require Defendants not to compete as to the United States
market. As such, the failure to specify the precise jurisdiction does not render the agreement invalid.
Defendants final argument is that the Plaintiff committed the first material breach of
the contract and, as such, Defendants are no longer bound by the terms of the non-competition
agreement. Defendants also make a related argument that because Plaintiff delayed in complaining
about the performance of the equipment, it is not entitled to suspend payment of money owed
under the purchase agreement.
This related argument concerns Articles 38 and 39 of the Convention, which require the
buyer to examine the goods . . . within as short a period as is practicable in the circumstances and
which further state the buyer loses the right to rely on a lack of conformity of the goods if he does
not give notice to the seller specifying the nature of the lack of conformity within a reasonable time
. Article 39 also provides a two-year time period as the outer limit of time for a buyer to notify the
seller of a lack of conformity (unless the goods are subject to a longer contractual period of
guarantee).
This related argument fails. The wording of the Convention reveals an intent that buyers
examine goods promptly and give notice of defects to sellers promptly. However, it is also clear from
the statute that on occasion it will not be practicable to require notification in a matter of a few
weeks. For this reason, the outer limit of two years is set for the purpose of barring late notices. In
this case, there was ample reason for a delayed notification. The machinery was complicated,
unique, delivered in installments and subject to training and on-going repairs. The Plaintiffs
employees lacked the expertise to inspect the goods and needed to rely on Defendants engineers
even to use the equipment. It is also wrong to say, in light of this record, that notification did not
occur until July 6, 2001. Long before the July 6 correspondence, there was a steady stream of
correspondence between the parties relating to the functioning of the equipment which may have
constituted sufficient notice of the complaints. The international cases cited by Defendants are not
apposite to this discussion because they concern the inspection of simple goods and not complicated
machinery like that involved in this case.
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Nevertheless, the Court does accept Defendants contention that the Plaintiffs non-payment
of progress payments on the machinery did constitute a fundamental breach of contract. Article 25
of the Convention defines a fundamental breach of contract as one which results in such
detriment to the other party as substantially to deprive him of what he is entitled to expect under
the contract. . . . See Delchi Carrier v. Rotorex Corp., 71 F.3d 1024, 1028 (2nd Cir. 1995) (discussing
definition). This is a significant definition in that Article 64 provides the seller a right to declare the
contract avoided due to a fundamental breach of contract. The Convention affords the buyer a
right to avoid the contract under Article 49 for a fundamental breach. It likewise affords both buyer
and seller the right to suspend or avoid an installment contract due to fundamental breach under
Articles 71-73. Article 64 is also specifically worded to give the implication that non-payment of the
purchase price is the most significant form of a fundamental breach by a buyer, since, as to a serious
non-payment, no additional notifications are required for avoidance of the contract.
In this case, the buyer has had some legitimate complaints concerning the machinery
throughout the delivery and training process. However, on the whole, the Court concludes that the
evidence submitted best supports the proposition that these complaints did not constitute either a
fundamental or even a substantial breach of the contract by the seller. This is particularly true since
the context for this dispute namely, the machinery has been successfully operated with
Defendants assistance and Plaintiff is a cash-strapped business raising performance questions only
after formal inquiries have been made as to non-payment tends to show that complaints about
performance were opportunistic and not genuine in character. On the other hand, the Court
determines that it is likely that non-payment of the large sums due for the performance payments
was a fundamental breach of contract and that it excused Defendants performance of noncompetition obligations under the purchase agreement and non-competition agreement. As such,
the Court concludes that Plaintiff is unlikely to succeed on the merits.
[Order denying the Motion for Preliminary Injunction.]

DELCHI CARRIER SPA V ROTOREX CORP (1995) 71 F3D 1024

HOWARD G. MUNSON, SR. J.:
I. FINDINGS OF FACT
1. Plaintiff Delchi Carrier, SpA (Delchi) is an Italian corporation with its principal place of business
located in Villasanta, Italy.
2. Defendant Rotorex Corporation (Rotorex) is a New York corporation with its principal place of
business located in Frederick, Maryland.
3. In January 1988, Delchi and Rotorex entered into a contract under which Rotorex agreed to sell
10,800 Rotorex model K39A593A compressors, to be delivered in three installments by May 15,
1988.
4. Delchi informed Rotorex that Delchi was ordering the Rotorex compressors for use in the
production of Delchis Ariele line of portable room air conditioners to be sold in the summer of
1988.
5. In preparation for producing Arieles using Rotorex compressors, Delchi spent 39,000,000 lire for
special tooling.
6. Delchi also spent 27,129,822 lire to acquire special insulation materials and tubing for use in
Arieles to be produced with Rotorex compressors.
7. On March 26, 1988, Rotorex sent a first sea shipment of 2,438 compressors to Delchi, and shortly
thereafter received $ 188,923.46 in the form of letters of credit from Delchi in payment for the
shipment.
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8. Rotorexs first shipment of compressors reached Delchis facility in Villasanta, Italy on April 20,
1988.
9. Delchi incurred expenses in the amount of 18,877,520 lire related to customs and inland shipment
of the first lot of 2,438 Rotorex compressors from the port of entry at Genoa, Italy to Delchis
Villasanta, Italy factory.
10. On or about May 9, 1988 Rotorex shipped a second installment of 1,680 compressors to Delchi,
and shortly thereafter received from Delchi $ 129,985.60 in the form of letters of credit for the
second shipment.
11. While Rotorexs second installment of compressors was en route to Italy, Delchi discovered that
the Rotorex compressors from the first lot were nonconforming, and therefore rejected the
compressors and cancelled the contract.
12. In an attempt to cure the defect in Rotorexs compressors, Delchi spent 1,790,991 lire to ship
substitute Rotorex grommets to its Villasanta plant, of which 1,309,851 lire was unreimbursed.
13. Delchi workers spent 790.5 man hours inserting special Rotorex grommets for Rotorex
compressors from May 3 to May 10, 1988, at a cost of 15,874,030 lire (20,081 lire/hour).
14. In a further attempt to cure the defect, Delchi paid for shipment of additional Rotorex
connectors, at a net cost of 183,170 lire.
15. In its efforts to cure the defect in the Rotorex compressors, Delchi spent 11,687,142 lire for
inspection and testing of Rotorex compressors above what normally was expected (582 additional
hours at 20,081 lire/hour).
16. After abandoning its unsuccessful attempts to cure the defective Rotorex compressors, Delchi
incurred expenses of 11,096,400 lire storing the rejected compressors contained in Rotorexs first
shipment.
17. When Rotorexs second installment of compressors arrived in Genoa in May 1988, Delchi held the
second installment in storage, thereby incurring expenses. Although Delchi failed to establish the
precise cost of storage of the second shipment of Rotorex compressors, 2,103,683 lire is a reasonable
estimate of Delchis expense. That figure represents the difference between the total cost of
shipping, customs and incidental expenses attributable to the first shipment of Rotorex compressors, and the total expenses of the second shipment, including shipping, customs, incidental
expenses, and storage.
18. Because it had no compressors with which to manufacture Arieles, Delchis assembly line shut
down from May 16 to May 19, 1988, costing Delchi 22,144,322 in unproductive assembly worker
wages (1,102.75 hours at 20,081 lire/hour).
19. Delchi was unable to obtain substitute compressors from other sources in time for the 1988
selling season for Arieles, and thus suffered a loss in the volume of Arieles it was able to manufacture
for the 1988 selling season.
20. Delchi was able to expedite shipment of previously ordered Sanyo compressors, thereby filling
part of the void left by Rotorexs breach. Delchi paid 519,845,665 lire for accelerated air shipment of
previously ordered Sanyo compressors.
21. Sea shipment of the Sanyo compressors would have cost 15,540,000 lire.
22. Delchi spent 2,016,000 lire to modify the electrical panels of Arieles for use with the substitute
Sanyo compressors.
23. Delchi sold 22,999 Ariele units in 1988.
24. As of April 12, 1988, Delchi reasonably could have planned for delivery of 17,536 Sanyo
compressors by August 1, 1988 (7,936 already shipped plus 9,600 ordered for sea shipment by June
30, 1988). Additionally, Delchi expected 10,800 compressors from Rotorex before August 1, 1988,
and therefore expected a total of 27,616 compressors by August 1, 1988.
25. Delchi received only 19,216 compressors by August 1, 1988, 8,400 fewer than it reasonably
expected.
26. Delchis 1988 cost to manufacture one Ariele unit with a Rotorex compressor was 478,783 lire.
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27. Delchis average 1988 gross unit sales price to Carrier-affiliated companies in European countries
other than Italy was 654,644 lire. Delchi paid no commission on orders from Carrier affiliates
throughout Europe. Thus Delchis expected profit on a sale of one Ariele unit to a Carrier-affiliated
European company was 175,861 lire (654,644 lire average sale price minus 478,783 lire
manufacturing cost).
28. As a result of Rotorexs breach of contract, Delchi was unable to fill orders for 2,395 units from
Carrier-affiliated companies throughout Europe, representing 421,187,095 lire in lost profit.
29. Delchis average 1988 gross unit sales price to White-Westinghouse, a German company
unaffiliated with Carrier, was 799,876 lire. Delchi paid White-Westinghouse a royalty of 799 lire per
unit on its 1988 sales. Thus Delchis expected profit on a sale of one Ariele unit to WhiteWestinghouse was 313,102 lire (799,876 sale price minus 478,783 lire manufacturing cost, minus
7,991 royalty).
30. As a result of Rotorexs breach of contract, Delchi was unable to fill orders for 100 units from
White-Westinghouse, representing 31,310,200 lire in lost profit. Although White-Westinghouse
originally ordered 500 units, of which only 250 units were delivered, Rotorex was not responsible for
150 of the unfilled orders, as Delchi had cancelled those orders before discovering Rotorexs breach.
31. Delchis average 1988 gross unit sales price for White-Westinghouse brand Ariele units in Italy
was 1,033,769 lire per unit. The average commission paid by Delchi on the sale of one WhiteWestinghouse unit in Italy was 93,039 lire, and the average commercial and financial costs associated
with the sale of one White-Westinghouse brand unit was 23,260 lire. In addition, Delchi paid
royalties on 1988 sales of White-Westinghouse brand units of 9,407 lire per unit. Thus Delchis
average profit on a sale of one White-Westinghouse brand Ariele unit in Italy was 429,280 lire
(1,033,769 sale price minus 478,783 manufacturing cost, minus 93,039 average commission, minus
23,260 commercial/financial cost, minus 9,407 royalty).
32. Delchis average 1988 gross unit sales price for Delchi brand Ariele units in Italy was 1,035,814
lire. The average commission paid by Delchi on the sale of one Delchi brand unit was 93,230 lire, and
the average commercial and financial costs associated with the sale of one Delchi brand unit was
23,308 lire. Thus Delchis average profit on a sale of one Delchi brand Ariele unit in Italy was 440,493
lire (1,035,814 sale price minus 478,783 manufacturing cost, minus 93,230 average commission,
minus 23,308 average commercial/financial cost).
33. As a result of Rotorexs breach of contract, Delchi was unable to fill orders for 1,257 orders from
Italian agents. Of those orders, 604 were for Delchi brand Arieles, representing 266,057,772 lire in
lost profit, and 653 were for White-Westinghouse brand Arieles, representing 280,319,840 lire in
lost profit. The 1,257 lost sales represent 546,377,612 lire in lost profit.
34. The exchange rate on April 20, 1988 was 1,238 lire per one dollar.
II. CONCLUSIONS OF LAW
1. The court has jurisdiction over this action pursuant to 28 U.S.C. 1332.
2. The governing law of the instant case is the United Nations Convention on Contracts for the
International Sale of Goods (UNCCISG), UN Doc. A/Conf./97/18 Annex I (Apr. 10, 1980), GAOR, 33d
Session, Supp. 35 (A/35/35) at 217; 52 Fed. Reg. 40, 6262-6280 (Mar. 2, 1987), article 1(1)(a);
codified at 15 U.S.C. Appendix (West Supp. 1991); Filanto, S.p.A. v. Chilewich Intl Corp., 789 F. Supp.
1229, 1237 (S.D.N.Y. 1992); Orbisphere Corp. v. United States, 13 C.I.T. 866, 726 F. Supp. 1344, 1355
n.7 (Ct. Intl Trade 1989).
3. Rotorex breached its contract with Delchi by failing to supply 10,800 conforming compressors.
4. Under UNCCISG, Delchi is entitled to collect monetary damages for Rotorexs breach in a sum
equal to the loss, including loss of profit, although not in excess of the amount reasonably
envisioned by the parties. UNCCISG, art. 74. This provision seeks to provide the injured party with the
benefit of the bargain, including both its expectation interest and its reliance expenditures. See
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Jeffrey S. Sutton, Measuring Damages Under the United Nations Convention on the International
Sale of Goods, 50 OHIO ST. L.J. 737, 742-43 (1989) (analyzing intent of Convention drafters).
A. CONSEQUENTIAL DAMAGES
i. PLAINTIFFS ATTEMPTS TO REMEDY NONCONFORMITY
5. Delchi is entitled to recover damages incurred as a result of its attempts to remedy the
nonconformity of Rotorexs compressors. These were not anticipated costs of production, but were
costs that would not have been incurred without Rotorexs breach. Further, such damages were a
foreseeable result of Rotorexs breach. Hence Delchi is entitled to recover:
a. 183,170 lire for unreimbursed expenses relating to the shipment of connectors;
b. 1,309,851 lire for unreimbursed expenses relating to the shipment of substitute Rotorex
grommets;
c. 15,874,030 lire for labor costs relating to replacing original, problematic grommets with
substitutes;
d. 11,687,142 lire for extraordinary reinspection and testing of units after installation of the
substitute grommets and connectors.
ii. EXPEDITED SHIPMENT OF SANYO COMPRESSORS
6. Once Delchis attempts to remedy the nonconformity failed, it was entitled to expedite shipment
of previously ordered Sanyo compressors to mitigate its damages. Indeed, UNCCISG requires such
mitigation. UNCCISG, article 77 (A party who relies on a breach of contract must take such measures
as are reasonable in the circumstances to mitigate the loss.). The shipment of previously ordered
Sanyo compressors did not constitute cover under UNCCISG article 75, because the Sanyo units were
previously ordered, and hence can not be said to have replaced the nonconforming Rotorex
compressors. Nonetheless, Delchis action in expediting shipment of Sanyo compressors was both
commercially reasonable and reasonably foreseeable, and therefore Delchi is entitled to recover
504,305,665 lire as the net cost of early delivery of Sanyo compressors (519,845,665 lire for air
shipment less 15,540,000 lire expected cost for ocean shipment).
iii. HANDLING AND STORAGE OF REJECTED COMPRESSORS
7. Delchi is further entitled to collect costs incurred for handling and storage of nonconforming
compressors, including 11,096,400 lire related to Rotorexs first shipment. Further, although Delchi
failed to establish the precise cost of storage of second shipment of Rotorex compressors, the court
holds that Delchi is entitled to 2,103,683 lire as a reasonable expense for that purpose. Thus, Delchi
is entitled to recover 13,200,083 lire for expenses incurred for handling and storage of Rotorexs
nonconforming compressors.
iv. LOST PROFIT
8. UNCCISG permits recovery of lost profit resulting from a diminished volume of sales. JOHN
HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES 415 (2d ed. 1991); Sutton, supra, at 747-48.
9. In conformity with the common law, see RESTATEMENT (SECOND) OF CONTRACTS 331; 5
ARTHUR CORBIN, CORBIN ON CONTRACTS 1020 (1951), and with the law of New York, see Merlite
Indus., Inc. v. Valassis Inserts, Inc., 12 F.3d 373, 376 (2d Cir. 1993), to recover a claim for lost profit
under UNCCISG, a party must provide the finder of fact with sufficient evidence to estimate the
amount of damages with reasonable certainty.
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10. Delchi proved with sufficient certainty that it incurred, as a foreseeable and direct result of
Rotorexs breach, the following lost profit damages:
a. 421,187,095 lire from lost sales of 2,395 Arieles to Carrier-affiliated companies throughout
Europe;
b. 31,310,200 lire from lost sales of 100 Arieles to White-Westinghouse Company;
c. 266,057,772 from lost sales of 604 Delchi Brand Arieles in Italy, and 280,319,840 from lost
sales of 653 White-Westinghouse brand Arieles in Italy, for a total of 546,377,612 lire in lost
profit from lost sales in Italy.
11. Delchi did not prove with sufficient certainty any lost sales from indicated orders in Italy.
Delchis claim of 4,000 additional lost sales in Italy is supported only by the speculative testimony of
Italian sales agents Renato Comolla, Georgia Viale, Luigi DiBlase, and Angelo Calaciura, who averred
that they would have ordered more Arieles had they been available. The number of additional units
they might have ordered, although specified in Delchis Post-Trial Brief, Doc. 74, at 26-29, is not in
evidence, as the court sustained Rotorexs timely objections to the speculative nature of such
testimony. Delchi provides no documentation of additional lost sales in Italy, and no evidence that if
any such lost sales did exist, that Delchis inability to fill those orders was directly attributable to
Rotorexs breach. Delchi can not recover on its claim for additional lost profits in Italy because the
amount of damages, if any, can not be established with reasonable certainty.
B. COST OF PRODUCTION
12. Delchi is not entitled to recover expenses related to the anticipated cost of production of Ariele
units with Rotorex compressors, because those costs are accounted for in Delchis recovery on its
lost profits claim. Those fixed costs for which Delchi may not recover include:
a. 18,877,520 lire claimed for expenses incurred by Delchi in shipping, customs and incidentals
relating to the first shipment of Rotorex compressors;
b. The cost of shipping, customs, and incidentals relating to the second shipment of Rotorex
compressors;
c. 22,144,322 lire for production line employees down time from May 16-19, 1988;
d. 27,129,822 lire for obsolete insulation materials and tubing purchased for use with only
Rotorex compressors;
e. 39,000,000 lire for obsolete tooling purchased exclusively for production of units with
Rotorex compressors.
13. Delchi is not entitled to recover 2,016,000 lire for modification of electrical panels for use with
substitute Sanyo compressors. Delchi failed to prove that this cost was directly attributable to
Rotorexs breach, and that the cost was not part of the regular cost of production of units with Sanyo
compressors.
C. PRE-JUDGMENT INTEREST
14. Delchi is entitled to prejudgment interest pursuant to UNCCISG Article 78. Because Article 78
does not specify the rate of interest to be applied, the court in its discretion awards Delchi
prejudgment interest at the United States Treasury Bill rate as set forth in 28 U.S.C. 1961(a).
D. CONVERSION TO DOLLARS
15. The parties do not dispute that the exchange rate in effect on April 20, 1988 is appropriate for
converting damages from lire to dollars. This is in conformity with the New York breach-day rule,
under which damages sustained in foreign currencies are converted as the rate of exchange
prevailing on the date of breach. Middle East Banking v. State Street Bank Intl, 821 F.2d 897, 902-03
(2d Cir. 1987). Thus damages shall be converted at the rate of 1,238 lire per one dollar. Plaintiffs
146

total compensable damages equal 1,545,434,848 lire, or 1,248,331.87 dollars in principal, plus
interest.
III. CONCLUSION
In consideration of the testimony and exhibits presented in this case on May 23 through May 27,
1994, and in consideration of plaintiffs and Rotorexs post-trial memoranda, defendant Rotorex
Corporation is liable to plaintiff Delchi Carrier SpA in the amount of $ 1,248,331.87 in principal, in
satisfaction of Rotorexs breach of contract. In addition, defendant Rotorex Corporation must pay
plaintiff prejudgment interest at the United States Treasury Bill rate, as set forth in 28 U.S.C.
1961(a). The parties are directed to submit to the court within fifteen days of their receipt of this
Memorandum-Decision and Order documentation setting forth the proper calculation of
prejudgment interest. Upon receipt of that documentation, the court will direct that judgment be
entered.

DOWNS INVESTMENTS V PERWAJA STEEL [2001] QCA 433

[1] DAVIES JA: I agree with the reasons for judgment of Williams JA and with the orders he proposes.
[2] WILLIAMS JA: This is an appeal from Ambrose J who concluded that the respondent was entitled
to recover from the appellant a total of US $1,280,347.80 for damages including interest. The claim
arose out of a contract between the parties in terms of which the respondent agreed to sell scrap
metal to the appellant. As the respondent was in Australia and the appellant in Malaysia it was held
that the United Nations Convention on Contracts for the International Sale of Goods, made relevant
by the Sale of Goods (Vienna Convention) Act 1986, applied to the transaction. The learned trial
judge held on the evidence that the appellant had fundamentally breached the contract and
assessed damages pursuant to Articles 74 and 75 of the Convention. From that decision the appellant
has appealed on a variety of grounds.
[3] The first matter that must be considered is the appellants contention that in fairness the
respondent was not entitled to a judgment based on the Convention. As is evident from the
appellants outline and counsels oral argument this issue incorporates grounds 1-9 inclusive in the
notice of appeal.
[4] The proceedings were commenced in 1996 and the trial commenced on 29 May 2000. Virtually all
of the interlocutory steps, including the pleadings, had been completed under the Rules of the
Supreme Court. In accordance with Order 22 rr 1 and 14, the pleadings as they stood at the
commencement of the trial alleged only matters of fact. There is ample authority in cases decided on
those rules or their equivalent that a party could at trial rely on any legal consequences which
properly flowed from the material facts pleaded. One of the changes brought about by the Uniform
Civil Procedure Rules, which commenced on 1 July 1999, was that a party was obliged if a claim or
defence under an Act is relied on to identify the specific provisions under the Act: r 149(e).
[5] In the respondents pleadings, as they stood at the first day of trial, there was no reference either
to the Sale of Goods Act 1896 (the Act) or the Convention. Arguably the material facts pleaded by
the respondent could have supported a claim either under the Act or the Convention. In para 32 of
the defence it was alleged that s 51(3) of the Act was the prevailing law; thus the appellant was
contending that damages, if any, should be assessed pursuant to that provision of the Act. That
contention was not admitted by the respondent in its reply: para 7.
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[6] In the course of his opening, counsel for the respondent (record 37) said:
Weve prepared a document which summarises the claim. Theres some figures put in brackets which
are negatives but the first item is the difference between the contract price and the market value at the
date of termination. Your Honour, the claim is framed that way and weve kept it that way partly
because the defence asserts that the correct measure of loss is as set out in s 51 of the Sale of Goods
Act which provides for that assessment of loss. Another view of it would be that in fact the correct value
of loss is the actual difference between the contract price and the resale prices. That would be another
view of the loss. But as it turns out, the differences arent terribly significant so weve left it on the
simple base that the defence pleaded was appropriate.

The difference between the contract price and the resale price was essentially the formula provided
in Article 75 of the Convention. One of the arguments addressed to this Court by counsel for the
appellant was that because that statement was made the respondent was precluded at trial, and
now, from contending that the assessment of damages should be made on any basis other than that
set out in s 51 of the Act. Indeed the submission went so far as to contend that the respondent was
precluded (the term estopped was even used) from relying at all on the Convention.
[7] At the start of day 3 of the trial, before the respondent had closed its case, its counsel asked for
and was granted leave to amend the statement of claim. That application was not opposed by
counsel for the appellant. The statement of claim as so amended became that which appears in the
record book as the Fourth Amended Statement of Claim. Some amendment was made to para 19,
and a new para 19AA was inserted; after the amendment those paragraphs were in these terms:
19. By reason of the Defendants repudiation, the Plaintiff was left with the said 30,000 metric tonnes
of scrap metal which had a market value of about USD 148.50 (for delivery CNF FO into Asian ports) at
that date, falling to USD 143.50 by about late September 1996 and being no more than USD 143.50 at all
material times thereafter. Particulars of the market values are shown on exhibits RKJG 3 and RKJG 6
to Mr Gullivers statement, exhibit 15.
19AA. The plaintiff resold the (approx) 30,000 tonnes of scrap by
(a) a contract in early October 1996 with Pernas Trading Sdn Bhd (exhibit 1, Part B no. 14) at the price of
USD 143.50 per tonne (for delivery into Penang CNF FO) under which (i) 25,100 tonnes were sold and,
(ii) the Plaintiffs CNF FO costs were the same (so far as an estimate allows) as the estimated CNF FO
costs per tonne which it would have incurred for the sale and delivery of 25,100 of the (about) 30,000
tonnes to be delivered under the Perwaja contract.
(b) As to the balance of about 5,000 tonnes, under one or more of the three contracts with BHP in late
August, September and October 1996 (exhibit 1, Part B nos. 15, 16, 17) at a price of AUD 156.75 per
tonne, under which the nett return to the Plaintiff was equivalent to that provided by a price of USD
143.50 per tonne (for delivery in Kemaman CNF FO).

[8] At the time of seeking leave to make those amendments counsel for the respondent said (record
195):
One of the issues in the case, one of the legal issues will be whether damages are to be assessed as at
the date of termination, or repudiation, or whether theyre to be assessed as at the date of expected
delivery or whether they are to be assessed with reference to the contracts in para [19AA] ... we are
trying to cover all the possible legal bases. In relation to para [19AA] this is where the cost exercise
particularly arises. We have done all the figures in costs which include, to put it broadly, the freight
costs, CNF FO for delivery into an Asian port. So were seeking always [to] compare the price under the
Perwaja contract which was on that basis with the price under the Pernas contract which was on a

148

similar basis and that requires, of course, to prove ... that the estimated costs on CNF FO basis on the
Pernas contract were, as far as one can tell, much the same as what they would have been under the
Perwaja contract.

Paragraph 19AA is directly relevant to a claim based on Article 75.

[9] Counsels addresses began on day 6 of the trial. In the course of the address by counsel for the
respondent reference was made to the Convention and in particular to Articles 74 and 75 thereof
relating to the calculation of damages. In submissions in reply counsel for the appellant contended
that the respondent was estopped by its conduct of the trial from relying on the Convention. The
learned trial judge reserved his decision.
[10] Some 44 days later the learned trial judge had the matter re-listed and indicated that the
applicability of the Convention had emerged as an important consideration. The learned trial judge
on that occasion invited counsel for the appellant to call any additional evidence that would
overcome any prejudice that might otherwise be occasioned to the appellant because it arguably
only became obvious at a late stage in the trial that the Convention was an important consideration.
There was at that stage no need for the respondent to formally amend its statement of claim. I do
not find it necessary to recount in any greater detail what was said on that occasion by those
present. It is sufficient to record that the appellant stated it might reopen its case if the respondent
amended its pleading but ultimately decided that no additional evidence would be called. However
supplementary written submissions dealing with the Convention were given to the trial judge.
[11] It is in those circumstances that the issue as to the fairness of the trial was raised as a ground of
appeal. Counsel for the appellant still maintains that there should have been a ruling that the
respondent was precluded from relying on the Convention given the pleadings and the course the
trial took.
[12] As at the first day of trial the pleadings of the respondent could not be criticised. They were in
accord with the Rules which applied at the time they were drawn. Within the applicable law the
respondent would have been entitled to submit, at the end of the trial, that the Convention applied
to the facts as pleaded and proved, and that any assessment of damages should be made in
accordance with the provisions thereof The appellant could not have complained of that.
[13] The amendment made on the third day of trial was, in the overall context, relatively minor, but it
was made at a time when the UCPR applied. It is clearly arguable that Rule 149(e) required the
respondent to include some reference to the Convention if it was relying on a claim thereunder. But
even if that was so, as was the position under the Rules of Court, a plaintiff would not ordinarily be
prevented from recovery where all essential facts were established merely because there was an
omission to refer to a statutory provision or some error was made in referring to a statutory
provision. Given the statements quoted above made by counsel for the respondent in the course of
opening and at the time of seeking leave to make the amendments, it must have been obvious that
the respondents case included a contention that damages should be assessed on some basis other
than that set out in s 51(3) of the Act. That should have put the appellant on notice that the
respondents case was based, at least in the alternative, on propositions not included in s 51(3). It is
not as if the appellant and its legal advisers were not aware of the Convention. Counsel for the
appellant conceded that the Convention had been considered some two years prior to the hearing
and been put back on the shelf because it wasnt relevant to the case.
[14] The basis of liability pleaded by the respondent was that it had elected to terminate the contract
because of fundamental breach by the appellant. That case was in no way affected by the issue
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whether the Convention applied or not; the evidence and findings would have been precisely the
same. Any difference between Article 25 and the common law was not material given the facts of
this case. The only possible difference between the Act and Convention for present purposes is with
respect to the calculation of damages. Articles 74 and 75 provide for a basis of assessment which is
different from that specified in s 51(3) of the Act. Pursuant to the latter Article there has to be a
substitute transaction which results in the resale of the goods in a reasonable manner and within
a reasonable time after avoidance. There was evidence relevant to such matters led by the
respondent at trial. It was with those provisions in mind that the amendments to the statement of
claim were made after the trial began. If counsel for the appellant failed to cross-examine broadly
enough on such issues, or if the appellant failed to lead relevant evidence, because of a failure to
appreciate the significance of those matters, that could have been the subject of further evidence
consequent upon the learned trial judge giving the appellant the opportunity of reopening its case.
That offer was not taken up. Ultimately the learned trial judge held on the evidence that there was a
substitute transaction entered into in a reasonable manner and within a reasonable time after
avoidance and it is difficult to see how those findings could be upset by the calling of further
evidence.
[15] The trial was vigorously contested on a number of issues and a lot of documentary evidence was
placed before the court. I cannot see that there was anything unfair about the trial because of the
alleged belated concentration on the Convention.
[16] In all the circumstances I am not satisfied that the appellant has made out a case that the
decision should be set aside on the ground of unfairness. The appellant did not suffer any
irremediable prejudice. Further, I cannot see that anything was said or done by the respondent, or its
counsel, in the course of the trial which would preclude it from relying on the Convention.
[17] Grounds 3 to 9 inclusive in the notice of appeal raise in various ways the issue whether the
respondent proved the appellants liability pursuant to the Convention. Article 64(1) relevantly
provides that the seller may declare the contract avoided if the failure by the buyer to perform any
of its obligations under the contract or the Convention amounts to a fundamental breach of
contract; that expression is defined in Article 25. Essentially a breach will be fundamental if it
deprives a party of what he is entitled to expect under the contract. Much of the appellants case in
this regard depended on whether or not time remained of the essence. Before the issue so raised
can be determined it is necessary to set out the terms of the contract and record certain events
which occurred that are relevant to the question whether or not the appellant was in fundamental
breach.
[18] At the outset it should be recorded that the learned trial judge found no reason to question the
reliability of either Mr Anderson or Mr Teo whose evidence was either supported by or consistent
with contemporaneous notes and correspondence. He went on to say: I prefer the evidence of
Anderson and Teo to that of Datuk Abu and Yunus. Anderson was manager of the respondent, Teo
that companys agent in Malaysia, Datuk Abu the person who replaced Wan Ghani as the managing
director of the appellant, and Yunus a member of the new management team of the appellant after
about July 1996.
[19] The relevant contract was made on 7 May 1996. It was negotiated between Anderson and
Rohani Basir, the purchasing officer of the appellant at the material time. The duly executed contract
is to be found at record 503. In broad terms it provided for the sale by the respondent to the
appellant of approximately 30,000 tonnes (plus/minus 10% at sellers option) of heavy melting scrap
at a price of USD 164.00 per tonne to be delivered at Kemaman, Malaysia. Also at the sellers option
5,000 tonnes of shredded scrap could be included in the goods supplied. The contract provided that
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the buyer had the right to inspect material at any time prior to loading and during loading. Shipment
was to be from any Australian ports during July 1996.
[20] The contract provided that vessel details and descriptions were to be submitted by the
respondent to the appellant for its approval prior to charter party acceptance. However, the learned
trial judge accepted evidence that it was agreed between the parties that the respondent need not
formally comply with that requirement. As they had done business on a number of occasions
previously, it was agreed that the respondent knew the appellants requirements with respect to the
standard of ship which was to be used to carry the scrap metal to Kemaman.
[21] The contract expressly provided that payment was to be by Irrevocable Letter of Credit to be
established by 1 July. Any disputes were to be settled by the laws prevailing in Brisbane. The other
terms of the agreement need not be quoted.
[22] The copy of the agreement executed by Wan Ghani and bearing Andersons signature was
returned by fax under the hand of Basir on 21 May 1996. The learned trial judge found that on the
same day the appellant stated in a letter to the respondent that it was prepared to agree to the
respondents request that the Letter of Credit be valid for two months provided that the respondent
bore the charges for the additional month. On that basis the letter said that the Letter of Credit
would be established from 8 June 1996 and be valid for two months.
[23] At the request of the respondent the establishment of the Letter of Credit was delayed until July
or upon nomination of the vessel to carry the goods. Then by letter of 2 July 1996 the respondent
requested a further delay in the timing of the shipment from July to August 1996. The learned trial
judge found that those variations were agreed to by Wan Ghani on behalf of the appellant during a
visit to Australia. That appears to have been in July 1996. On 18 July the respondent sent a fax to the
appellant setting out a proposed loading schedule from 19 August to 10 September and requesting
that the Letter of Credit issue on 1 August expiring on 30 September. The appellant replied by letter
of 22 July stating that it would establish L/C as per your request once you have confirmed the vessel
of the contract.
[24] I now turn to how those matters were dealt with in the pleadings. After setting out the terms of
the agreement the respondent alleged in para 5 of its Statement of Claim that there was implied
from the express terms of the contract a provision that time was of the essence of the appellants
obligation to issue the Letter of Credit. That allegation was admitted in para 1 of the defence of the
appellant. In para 7 of the Statement of Claim the respondent alleged the variation of the original
terms of the contract by postponing the last date for the issue of the letter of credit from 1 July to 1
August 1996 and agreeing that the appellant would establish the Letter of Credit when the
respondent confirmed the vessel to ship the scrap metal. It was then alleged in para 8 that time
remained of the essence of the appellants obligation to establish the Letter of Credit. Those
allegations were dealt with in para 7 of the defence which included in subpara (c) an allegation that
time was of the essence of the contract as relevantly varied. There was also a general allegation in
para 3(b)(ii) of the defence that time was of the essence with respect to the obligations of each party
to the contract.
[25] In July the respondent entered into a charter agreement with respect to the vessel Dooyang
Winner. On 31 July 1996 the respondent advised the appellant of all relevant details with respect to
the vessel and giving a loading program commencing 8 August, concluding 29 August, with an
estimated time of arrival in Kemaman of 10 September. The defence admitted receipt of that detail.

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[26] The sending of those details on 31 July 1996 meant that the respondent had complied with all
preliminary matters and in accordance with the appellants letter of 22 July the Letter of Credit was
to be established immediately, that is, by 1 August. That was not done and on 5 August the solicitor
for the respondent wrote to the appellant setting out those matters and then stating:
We are now instructed to request you to establish the Letter of Credit for the full price of US
$4,920,000 by the close of business on Wednesday 7th August, 1996 as the vessel will commence
loading on 8th August, 1996. Should you fail to establish the Letter of Credit by then, our clients will
deem it that you do not wish to honour your obligations under the Agreement and have repudiated the
Agreement and in such an event they will take action to dispose of the said steel scrap, cancel the
charter of the vessel, if possible, and revert to you for any damages which they may sustain herein.

The reply from the appellants solicitors, dated 7 August 1996, was materially in these terms:
As your client is probably aware our client is now under different (interim) management and
transactions are still under review. The new management team is still studying this matter. In the
meantime our client makes no admission of liability.

The solicitors for the respondent replied as follows:

As you may know, our clients have enjoyed a good business relationship with your clients for over a
period of several years. It has been unfortunate that the shipment of scrap metal in question has been
delayed, however, our clients cannot wait indefinitely for the shipment of the cargo as that would
attract substantial expense. In view of the foregoing kindly revert by 12 noon of Friday the 9th of August
1996 as to whether your clients are prepared to honour the contract in question.

The reply from the appellants solicitors to that was dated 9 August 1996, and was in these terms:
Unfortunately, we are unable to obtain any positive instructions from Perwaja Steel Sdn Bhd within this
short time. We understand that the board is meeting some time later this month.

That then resulted in the respondents letter of 9 August 1996, materially in these terms:
2. Our clients regret that as at the date hereof your clients have failed, refused and/or otherwise
neglected to establish the requisite Irrevocable Letter of Credit in respect of the above contract in
question between our respective clients and are therefore in breach of the same.
3. Our clients are unable to wait indefinitely for your clients to establish the said Letter of Credit as our
clients will incur substantial loss and damage and will be put to enormous expense if they were to do so.
4. Furthermore, despite our clients repeated requests, your clients have still not indicated in any way
whatsoever that your clients intend to honour their obligations under the said contract.
5. By reason of the foregoing, your clients have demonstrated an intention no longer to be bound by
their obligations under the said contract and have thereby repudiated the same, which repudiation our
clients hereby accept.

There was no reply to that letter until the fax of 15 August. It merely said:
Though our clients note, the contents of your letter, our clients do not admit any liability. Nor do they
agree with your views and conclusions.

Against that background it is necessary to consider the findings as to the change in management
personnel of the appellant and the new managements attitude to the contract.
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[27] The learned trial judge found that prior to 10 July 1996 the respondent had become aware
through newspaper articles that the management structure of the appellant was to be changed. On
or about 24 July Teo called on Yunus to congratulate him on his appointment to the new
management and mentioned the contract in question in the course of discussion. Yunus replied that
he had no idea of the existence of such a contract and was surprised to hear of one. When Teo next
spoke to Yunus on 26 July he handed him copies of the contract, purchase order and other relevant
correspondence. Again Yunus affected surprise at that information. On 29 or 30 July Anderson and
Teo together visited Datuk Abu and Yunus. There was discussion of the signed contract, purchase
order and other correspondence but Yunus kept reiterating that he had no knowledge of the
particular contract. Datuk Abu said he was very sorry that this was not part of the hand-over notes
between the previous management and that which he headed and said that had he known that there
was this outstanding contract he would have asked the officials from the Ministry of Finance to issue
the Letter of Credit. He also said he would have to ask the executive committee that was running
the company for permission to issue the Letter of Credit. Anderson informed Datuk Abu that the
respondent had already arranged for a ship and that it was not possible to cancel that charter. He
stated that if the Letter of Credit did not issue the respondent would suffer significant loss. The
learned trial judge found that Datuk Abu responded by saying: Since you have already committed to
a vessel perhaps you could ship the cargo first and we will pay you later or alternatively sell the
shipment to another company. ... if you do it this way in future Perwaja will buy scrap metal from
you under the new management. Anderson said he could not accede to that request, mentioning
the drop in prices since the contract was made. Datuk Abu suggested Anderson and Teo come back
later because the decision was not his to make, the decision had to be made by the committee.
[28] There was a further meeting between Anderson and Teo on behalf of the respondent and Yunus
and Datuk Abu on behalf of the appellant on 31 July. The latter said that he had not been able to get
the committee to approve the Letter of Credit but he might still be able to help and suggested he be
telephoned on 2 August. Anderson and Teo again pointed out that the vessel had been chartered
and that the respondent stood to suffer significant losses if the Letter of Credit did not issue.
[29] There was a meeting of the executive committee on 2 August 1996 and the Minutes form part of
the evidence. Those Minutes record in relation to the transaction in question that the Management
is authorised to re-negotiate and recommend appropriate action in relation to the supply of scrap
initiated on 22 July 1996. The learned trial judge found that on the evening of 2 August Teo had a
conversation with Datuk Abu in the course of which the latter said that he had brought the matter to
the attention of the executive committee and one of the committee members objected that the
committee could not proceed with the issuing of a Letter of Credit because the contract had not
been made during the tenure of office of the present management. Datuk Abu informed Teo that he
would try again on 22 August when the board next met. Significantly at no stage up to 15 August
did the appellant allege that the respondent was in any way in breach of its obligations under the
contract.
[30] Based on those findings of fact the learned trial judge reached the following conclusions in the
course of his judgment:
The refusal to establish a timely Letter of Credit was clearly a fundamental breach within the meaning
of Article 25 and Article 64(1)(a) of the Convention. ... In my view the refusal by Perwaja to establish the
Letter of Credit at a time when the Dooyang Winner was standing by at Bells Bay in Tasmania to
commence loading the scrap steel so that it might complete its loading program either as advised on 18
July 1996 or as subsequently advised on 31 July 1996 was a clear breach by Perwaja of an essential term
of the contract as varied.

153

...
Whatever may be the explanation for the avowal of Mr Yunus that he had no knowledge of the contract
between Perwaja and Wanless there is no doubt that on 24 July 1996 Mr Teo advised him of its
existence. On 26 July 1996 Mr Teo handed to Mr Yunus copies of all documents, purchase orders, etc.
relating to that contract. He was then also advised that the shipment of the scrap steel the subject of
the contract was so to speak actually on the way.
Thereafter in my view the evidence indicates a simple procrastination on the part of Perwaja to meet its
contractual obligation. There is nothing in the evidence to suggest that the appropriate arrangements
for the issue of the letter of credit could not have been made within a day or so. Indeed, Rohani Basir
had undertaken to do that once you have confirmed the vessel of this contract.
...
In my view Perwaja by the officers who succeeded Rohani Basir and Wan Ghani in its management
clearly evinced an intention not to meet Perwajas contractual obligation. It is clear when one reads the
Payment clause and the letter from Wanless to Perwaja of 18 July 1996 that the provision of the letter
of credit prior to the commencement of loading of the shipment to Perwaja of scrap metal was an
essential term of the contract. It is clear in my view that Perwaja indicated that it did not intend to
comply with that requirement. It is equally clear from the resolution of the committee meeting of 2
August 1996 that Perwaja proposed instead of meeting its contractual obligations with Wanless to
embark upon a renegotiation of that contract - presumably in the light of the fall in the current market
value of scrap steel.
...
In my judgment Wanless was entitled to avoid the contract and to recover the loss it suffered as a
consequence of Perwajas repudiation and/or non-compliance with an essential term of its contract
with Wanless.

In my view all of those conclusions were clearly open on the findings of basic fact made by the
learned trial judge. The establishment of a Letter of Credit prior to shipment was essential from the
respondents perspective. Failure to meet that obligation deprived the respondent of what it was
entitled to expect under the contract, and entitled the respondent to rescind the contract. (cf. Trans
Trust S.P.R.L. v Danubian Trading Company Ltd [1952] 2 QB 297 at 301-302 and 305-306 and Ian
Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130 at 139-144). But the findings went even further. On the
findings the appellant had no intention of meeting its obligations under the contract; that also
entitled the respondent to rescind the contract.
[31] Much of the attack mounted by counsel for the appellant on those findings is dependent upon
the proposition that as at 1 August 1996 time had ceased to be of the essence of the contract. That
to my mind is at odds with the assertion in the defence that with respect to the obligations of each
party time was of the essence; and the further admission that time remained of the essence after the
initial time-frame was varied. In any event commercial commonsense would require the Letter of
Credit to be established before shipment commenced and at least to that limited extent
(disregarding the admissions in the pleadings) there would be imputed to the parties an intention
that time was of the essence.
[32] The next attack on the reasoning in the judgment was based on Article 63 of the Convention; it
was submitted that the time-frame fixed by the letters of 5 August and 8 August was too short.
Paragraph (1) of that Article provides: The seller may fix an additional period of time of reasonable
length for performance by the buyer of his obligations. Article 64(1)(b) then provides that if the
154

buyer does not, within the additional period of time so fixed, perform its obligation the seller may
declare the contract avoided.
[33] It is difficult to see the relevance of Article 63 if time was of the essence. If that were so, when
the letters of 5 and 8 August were written the appellant was already in fundamental breach of its
obligations by not establishing the Letter of Credit. But in any event the appellant had been under
notice throughout July, and in particular from and after 27 July, that it would have to establish the
Letter of Credit on 1 August provided that by then details of the ship had been given by the
respondent. In those circumstances the times set by the letters of 5 and 8 August for extended
compliance with the obligation were not unreasonable.
[34] There is also nothing in the argument that the respondent could not terminate the contract
because it had not afforded the appellant the opportunity of examining the goods before payment:
Article 58(3). That matter is sufficiently addressed in the reasons for judgment of the learned trial
judge.
[35] Counsel for the appellant also endeavoured to make something out of the use by the learned
trial judge of the term repudiation in his reasons for judgment. In my view it is clear from reading
his reasons as a whole that he was equating repudiation with fundamental breach of contract, the
term used in the Convention. (cf. per Deane and Dawson JJ in Laurinda Pty Ltd v Capalaba Park
Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658.) When one has regard to Article 64(1) and Article
72 it is clear that the Convention adopts, at least to some extent, the common law concept of
repudiation.
[36] Clearly in the passages quoted above the learned trial judge concluded that the failure to
establish the Letter of Credit amounted to a fundamental breach of contract and the respondent in
consequence declared the contract avoided by its letter of 9 August.
[37] Ground 13 in the notice of appeal challenges the finding of fact made by the learned trial judge
that at all material times the respondent had the capacity to meet its contractual obligations - that is,
it had on hand sufficient scrap of required quality to meet its contractual obligations. In so finding
the learned trial judge said he had no hesitation in accepting the evidence of Mr Anderson to that
effect. Anderson had been cross-examined at some length on the issue and the finding was
dependent to a not insignificant degree upon the acceptance of him as a credible witness. In
consequence the appellant faces significant hurdles in seeking to establish this ground of appeal.
[38] Counsel for the respondent relies on (and inferentially so did the learned trial judge) the fact
that the chartered vessel was en route to commence loading at the first port on 8 August 1996. That
strongly supports the oral evidence of Anderson that sufficient scrap was readily available to satisfy
the respondents contractual obligations. Apparently some of the respondents records relating to
available stock had been destroyed in a flash flood at its premises, but there was other documentary
material tending to confirm the existence of stock in question. That is also supported by the fact that
the respondent entered into substitute transactions involving the sale of 30,000 tonnes of scrap of a
description which would have satisfied its obligations under this contract.
[39] I am not satisfied that the appellant has made out a case for setting aside the finding by the
learned trial judge that the respondent had the ability to complete this contract.
[40] That leaves for consideration the grounds relating to the calculation of the quantum of damages.
A number of submissions were made in that regard.
155

[41] As already noted the learned trial judge assessed damages pursuant to Articles 74 and 75 of the
Convention; they are in the following terms:
74. Damages for breach of contract by one party consist of a sum equal to the loss, including loss of
profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the
loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the
contract, in the light of the facts and matters of which he then knew or ought to have known, as a
possible consequence of the breach of contract.
75. If the contract is avoided and if, in a reasonable manner and within a reasonable time after
avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party
claiming damages may recover the difference between the contract price and the price in the substitute
transaction as well as any further damages recoverable under Article 74.

It should also be noted that Article 76 provides that if the contract has been avoided and there is no
resale pursuant to a substitute transaction the seller may ... recover the difference between the
price fixed by the contract and the current price at the time of avoidance as well as any further
damages recoverable under Article 74. That, of course, mirrors s 53(1) of the Act.
[42] It is necessary to quote findings made by the learned trial judge with respect to the calculation
of damages:
It is clear on the evidence that Wanless sold 25,100 tonnes of the metal it was holding to fulfil its
contract with Perwaja to Pernas at the then market rate of US $143.50 per ton for delivery at Penang in
Malaysia. It was necessary for Wanless to charter another vessel called M V Handy Light at
approximately the same cost per tonne to ship that material as the cost of chartering the Dooyang
Winner which was unsuitable for that port. In any event I accept that the subcharter of the Dooyang
Winner as soon as possible was a reasonable step to minimise the damage incurred by Wanless in
having such a large vessel standing by at the expense of Wanless and not being used for the purpose of
shipping its scrap steel to Perwaja.
...
In my view the resale of the scrap to Pernas clearly satisfies the requirement of Article 75. The M V
Handy Light called at the same ports to load scrap metal as was the intention for Dooyang Winner
except that it avoided calling at Bell Bay in Tasmania because the sale to Pernas was 5,000 tonnes less
than that under the contract with Perwaja.
In my view the sale to Pernas was effected within a reasonable time being within two months of
Wanless acceptance of Perwajas repudiation of its contract. It is clear from the material that Wanless
acted as quickly as possible in seeking a market for the scrap metal it had held for Perwaja ...
In my view it is clear on the whole of the evidence that the substitute sale to Pernas on 8 October 1996
was effected within a reasonable time of the termination by Wanless of its contract with Perwaja. The
sale to Pernas was at the then market value on approximately the same freight terms as had been
negotiated with the owners of Dooyang Winner and involved a shipment to Penang also in Malaysia.
The difference in freight costs on the evidence was minimal.
...
Wanless sold a further 5,000 tonnes to BHP by contracts made in August, September and October 1996
at a price of AU $156.75 per ton, i.e. AU $783,750. The unchallenged evidence of Mr Anderson is that
BHP purchased the steel at a price which on its estimates would give Wanless the same nett return as if
it had sold the scrap steel in Asia ...

156

...
It is not disputed by Perwaja that Wanless suffered a nett loss of US $343,163.47 as a result of
chartering and re-chartering the Dooyang Winner.
This loss was clearly incurred as a consequence of Perwajas breach of its obligation to establish the
appropriate letter of credit. The incurring of a loss of this kind was clearly foreseeable and Perwaja must
have known that its failure to establish a letter of credit as promised would result in Wanless being left
with a chartered vessel at hand which could not be used for the purpose for which it had been
chartered.
In my view once Wanless accepted Perwajas repudiation of its obligations under the contract and
terminated that contract it promptly took all steps reasonably necessary to mitigate the damages it
suffered as a consequence of Perwajas repudiation.

The appellant challenges the finding that the Pernas contract was effected within a reasonable time.
The evidence established that negotiations between the respondent and that company commenced
on or about 12 August 1996 but the contract was not entered into until 8 October 1996. The
evidence establishes that the price for scrap was dropping during that period. The respondent is
criticised for not entering into a binding contract at an earlier point of time given the falling market;
but one can readily understand, with the market price falling, that Pernas would not have been
overly eager to enter into a contract such as suggested by the appellant.
[43] The evidence of Anderson was that the respondent was very keen to offload the scrap once the
contract was avoided in order to resolve that companys cash flow problems; they were keen to
convert the scrap on hand into cash. The difficulty testified to by Anderson was that buyers were
reluctant to commit themselves on a falling market.
[44] Counsel for the appellant also submitted that in order to constitute a substitute transaction
for the purposes of Article 75 the goods the subject of each contract had to be precisely the same.
Counsel was asked from the bench during argument whether that meant that if the contract was for
the supply of coal the substitute transaction had to involve the same precisely identified lumps of
coal; the response, as it had to be if there was substance in the submission, was that if the
transaction did not involve precisely the same lumps of coal it was not a substitute transaction for
purposes of the Convention. This argument was relevant on the facts of this case because in
performing the Pernas contract the respondent utilised some scrap that had been processed after 23
September 1996. As already noted the scrap sold to Pernas did not involve any from Tasmania which
would have been involved in the supply to the appellant.
[45] The goods in question were not sold as specific goods, but rather by weight or measure. The
obligation to supply scrap pursuant to the contract entered into in May with the appellant could
have been satisfied by collecting scrap from anywhere for delivery to the appellant provided it met
the general description of the scrap referred to in the contract. In other words the goods the subject
of this contract were, as submitted by counsel for the respondent, fungibles. That term is used to
define goods of which every particle or unit is indistinguishable from, or at least commercially
equivalent to, every other particle or unit, e.g. grain, flour or oil (Benjamins Sale of Goods 2nd ed.
para 117). The scrap metal here was clearly of that kind. Counsel for the respondent referred in
argument to two United States Court of Appeal decisions, on a comparable statutory provision to
Article 75, to the effect that where fungibles are involved a seller is able to use substitute goods for
the purposes of the resale so long as the sale is commercially reasonable (the decision of the Sixth
Circuit of United States Court of Appeal in Firwood Manufacturing Company Inc v General Tire Inc,
157

unreported, 16 September 1996, and Apex Oil Co v Belcher Co of New York Inc (1988) 855F. 2d 997 at
1005).
[46] There is no justification for limiting the operation of Article 75 to contracts involving the sale of
specific goods. The fact that some of the scrap sold to Pernas would not have been included in the
scrap sold to the appellant if that contract had been completed does not mean that the sale to
Pernas was not a substitute transaction for purposes of Article 75.
[47] Counsel for the appellant also contended that the sale to BHP was not a substitute transaction
because it was on different terms. There was an important distinction between the sale to the
appellant and the sale to BHP; one was for delivery in a foreign country, the other was purely a
domestic transaction. But it is clear that the BHP contract price was fixed so as to return to the
respondent the same nett amount as if it had sold the scrap metal to a company in Malaysia. The
Article does not require the substitute transaction to be on exactly the same terms. What is
important is that the damages recovered may not exceed the loss which the party in breach ought to
have foreseen. That was accommodated in this particular case.
[48] The remaining contentious issue revolved around what were described as the consequential
losses. Article 74 reflects the common law derived from Robinson v Harman [1848] 1 Ex 850; 154 ER
363 and Hadley v Baxendale [1854] 9 Ex 341; 156 ER 145. As a basic proposition a party is entitled to
recover no more than the nett benefit that it would have received had the contract been performed.
[49] The quantum in issue is the loss suffered by the respondent on the charter party with respect to
the Dooyang Winner. As already noted the respondent sub-chartered that vessel in order to
mitigate its loss, and had to charter a different vessel in order to deliver the scrap pursuant to the
Pernas contract. The appellant sought to categorise the loss in question as a reliance loss covered
by the decision of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. I
accept the argument for the respondent that the loss on the charter party is not a claim for reliance
loss, but rather a claim for loss suffered as a consequence of the fundamental breach of contract by
the appellant. The loss in question would not have been sustained except for the fundamental
breach by the appellant. Such a loss may be recovered under Article 74.
[50] Again, counsel for the respondent relied on American authority, if authority be needed (Delchi v
Rotorex (1995) 71 F3d 1024). I can see no error in the calculation of damages made by the learned
trial judge.
[51] It follows that the appeal should be dismissed with costs.
[52] BYRNE J: I agree with Williams JA.

BUNDESGERICHTSHOF, GERMANY, VIII ZR 100/11, 26 SEPTEMBER 2012 (CLAY CASE)

Facts of the case:
1. [Seller], having its place of business in Germany, is engaged in the extraction and distribution of
mineral raw materials. On the basis of a longstanding business relationship, [Sellers] legal
predecessors (in the following uniformly referred to as: [Seller]) delivered ground clay (kaolinite)
named Aardappelbescheidingsklei A 01 (Potato Separation Clay A 01) for the grading of potatoes to
[Buyer], who has its place of business in the Netherlands. During the grading process the potatoes
transit through a clay-water bath; where potatoes of lower starch content, because of their lower
158

specific weight, are separated from potatoes with higher starch content needed for food processing.
[Buyer] then sells all potatoes with lower starch content together with the waste peel of the
potatoes with higher starch content to feed producers for use as animal feed.
2. In 1999 it was discovered that clay extracted from clay pits in Westerwald contained high levels of
natural dioxin, including the clay extracted from [Sellers} clay pit R. Following this, [Seller] was
prohibited by administrative order to market its ground clay for the purpose of using it as an
additive in the production of feed. Between July and October 2004 [Seller] delivered
Aardappelbescheidingsklei A 01 extracted from the clay pit R to [Buyer]. [Buyer] used this clay as
described to separate potatoes and delivered the sorted potatoes together with the waste peel to
animal feed producers. In Autumn 2004 elevated dioxin levels were detected in milk and milk
products of Dutch production and an examination conducted in the beginning of November 2004 of
the clay on [Buyers] premises delivered by [Seller] showed dioxin levels far above the limit
admissible in kaolinite clay and in other additives accepted in animal feed as binders, anti-caking
agents and coagulants. [Buyer], in whose potato products elevated dioxin levels were not measured,
notified [Seller] and complained about the high dioxin levels in the clay on 4 November 2004.
3. The district court has dismissed the action for declaration that [Seller] has to compensate [Buyer]
and its insurance company for any current and future damage resulting from the delivery of clay
containing dioxin to [Buyer] in the year 2004. Upon [Buyers] appeal on questions of fact, the
appellate court granted the claim with the restriction that [Sellers] duty to compensate cannot
exceed the financial loss that [Buyer] would have suffered if [Buyer] had taken appropriate measures
to keep the dioxin from getting into the animal feed in excessive amounts from the clay. With their
appeals on questions of law admitted by the appellate court [Buyer] further pursues its claim for
declaratory relief and [Seller] continues to pursue its motion to dismiss the claim.
Reasons of the decision:
4. The appeal on questions of law by [Buyer] is partially successful; [Sellers] appeal on questions of
law is unsuccessful.
I.
5. The appellate court (Appellate Court of Koblenz, CISG-online Nr. 2301) essentially stated the
following reasons for its decision:
6. In accordance with the United Nations Convention on Contracts for the International Sale of Goods
(CISG) applicable to the contractual relationship, [Seller] was, in principle, liable for damage caused
to [Buyer] by delivering clay containing dioxin. However, it could be left open, if the delivered clay
as it was undisputed between the parties before the court of first instance might have been easily
washed off the separated potatoes or if this was not the case pursuant to the new factual allegations
of [Seller] in the appellate proceedings. Neither the question whether the delivered clay was an
admissible additive for the purpose of grading the potatoes and therefore a conforming delivery
under Art. 35 CISG, nor the question, important for the examination pursuant to Art. 38 CISG, if the
lack of conformity relates to facts of which [Buyer] knew or could not have been unaware in the
meaning of Art. 40 CISG were considered decisive. In any case [Seller] was liable under Art. 45 CISG
for a breach of the obligation to warn [Buyer] about the dioxin content in the delivered clay, which
follows from the principle of good faith under Art. 7(1) CISG.
7. The appellate court further held that [Seller] had breached this warning obligation, which is an
obligation that exists besides the obligation to deliver conforming goods, if the seller realizes based
159

on his own expertise that the goods are not fit for the envisaged purpose. Based on the official
examination conducted in 1999 [Seller] had known that the clay extracted from the pit R and
delivered to [Buyer], which according to the contractual nomination of the goods was to be used for
food production, contained critical levels of dioxin. [Buyer], as [Seller] had known, had been unaware
of this fact. Although [Buyer] should have known that clay from Germany could contain dioxin, it
could not have been aware that the particular clay delivered to it from this specific clay pit was
seriously contaminated with dioxin. In light of the generally known health risks associated with dioxin
and the fact that the clay containing dioxin was supposed to come in contact with potatoes, [Seller]
should have disclosed their superior knowledge to [Buyer]
8. In its further reasoning the appellate court found that [Seller] could not rely on [Buyer] discovering
the high dioxin level without indication by [Seller]. While in its own interest [Buyer] should have
examined the clay with regards to a possible dioxin contamination, [Seller] nevertheless had to
envisage that such examination may not take place or may not be conducted with sufficient care.
This is especially so, because [Buyer] could only have discovered the dioxin content of the delivered
clay by conducting relatively complex laboratory tests while [Seller] already had had secure
knowledge which it could have communicated by simple notice without. [Seller] could also not rely
on the potatoes being thoroughly washed after grading by [Buyer] to free them from dioxin residues.
[Seller] rather had to consider that [Buyer], in ignorance of the dioxin contamination would not
pursue the cleaning with sufficient care.
9. According to the appellate court, [Seller] was also not excused by the fact that the danger
emanating from the delivered clay only actualized in the waste for animal feed and not in the
potatoes for human consumption in [Buyers] production. In this respect, it did not matter whether
the dioxin contamination later discovered in milk products was caused by the clay residues on the
potato peels or, as alleged by [Seller], by [Buyers] giving the additional clay-water bath to the animal
feed production because [Seller] had known that the delivered clay was to be used for the grading of
potatoes in the context of food production. [Seller] further could have realized that the waste was
not destroyed but used to make a profit, with use as animal feed having been one of the most
probable, which did not allow for inadmissible dioxin levels.
10. The appellate court further reasoned that the damages payable according to Art. 45(1)(b) CISG
were neither excluded under Art. 79 CISG nor was [Buyer] barred from invoking [Sellers] breach of
their obligation to warn pursuant to Art. 80 CISG. [Buyer] had not contributed to this breach of
obligation, since it was neither obliged to ask [Seller] whether the goods possibly contained dioxin
nor to inform [Seller] that the production waste would be resold without prior cleaning. In its own
interest, it would have been sufficient for [Buyer] to examine the clay after delivery with regards to
dioxin without prior notice to [Seller]. In any event, Art. 80 CISG would not come into play because
[Seller] was found responsible for the main reason for breach of contract.
11. However, the appellate court found that the compensatory damages under Art. 74 CISG and
foreseeable by [Seller] was to be reduced pursuant to Art. 77 CISG to the extent that [Buyer] had
failed to take measures appropriate in light of the circumstances to mitigate the damage. It had to be
taken into account that [Buyer], before using the clay, had not verified if any danger would result
from use for the food to be processed and the animal feed to be produced. If [Buyer] knew about the
discovery of high levels of dioxin in clay from German production in 1999 with the consequence of
lack of fitness for animal feed production, [Buyer] would have been responsible to take protective
measures against the contamination of not only the food produced but also of the waste destined to
be used as animal feed. If [Buyer] did not know of this possibility, it was nevertheless to blame for
not having been informed about the potential danger related to the use of the potato separation clay
with help of the generally available sources of information. Especially as a food producer [Buyers]
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product responsibility entailed the obligation to be and remain informed about questions of food
safety and disposal and reuse of waste.
12. The appellate court found that, in order to comply with this obligation to be and remain
informed, [Buyer] should have verified that the clay delivered by [Seller] was not dangerous. To this
effect [Buyer] should have asked [Seller] for additional information on the innocuousness of the clay
since the information received did not concern the dioxin content of the clay and further that
[Buyer], on its own accountability, should have undertaken sample tests to control the clay with
regards to a potential disrespect of the admissible maximum dioxin level which would have been
possible without much effort according to the expert evidence heard. The appellate court rejected
[Buyers] argument that this would have been unusual in its branch of trade as being an insufficient
excuse.
13. According to this reasoning, [Buyer] could not successfully request compensation for the damage
that occurred because of the unexamined use of the clay containing dioxin and the contamination of
animal feed caused thereby. These damages would only have been granted if [Buyer] had met its
obligation to mitigate the damage for example by disposal of the potato separation clay.
14. The appellate court further rejected any claims based on culpa in contrahendo or tort besides the
claim based on Art. 45 CISG. The CISG was considered to be exhaustive in this regard and to
supersede national law.
II.
15. These findings do not withstand the test of legal review in all points.
16. According to the applicable United Nations Convention on Contracts for the International Sale of
Goods (Art. 1(1)(a) CISG, Art. 3(2) sentence 1 EGBGB) [Seller] has to pay damages to [Buyer] under
Arts. 45(1)(b), 74 CISG. It breached the obligation to deliver goods in conformity with the contract
because the separation clay delivered did not meet the requirements of the contract in the meaning
of Art. 35(1) and (2)(a) CISG. However, [Buyer] is not entitled to the full amount of damages claimed,
because [Buyer] itself seriously dishonoured its responsibility with regards to the trading of
(pre)products for animal feed production and thereby contributed itself to the occurrence of the
damage.
17. 1. On the basis of its finding, the appellate court wrongly left the question of the conformity of
the delivered separation clay unanswered.
18.
a) However, the appellate court correctly found that the ground clay (kaolinite) ordered by
[Buyer], a food producer according to its denomination Aardappelbescheidingsklei A 01, without
any further concretisation or conditions with regards to the quality, had to be fit for the technical use
as separator for potatoes, and because of its foreseen use as additive in food processing the clay had
to comply with food legislation and regulations pursuant to Art. 35(1) and (2)(b) CISG. Given that,
according to the appellate courts unchallenged findings, it is common that potatoes sorted out as
unfit for food processing are used as animal feed together with the waste peel, the concurrent use of
the separation clay for the treatment of (pre-)products for animal feed production is a purpose which
also is an ordinary purpose under Art. 35(2)(a) CISG, next to the purpose stated in the name of the
product. Therefore the clay also had to comply with animal feed legislation and regulations.
19.
b) The appellate court wrongly assumed that this was [not] [1] the case because the clay could
have easily been fully and completely washed off after the potato grading process as submitted by
161

[Seller]. This reasoning restricts the requirements for the fitness for the ordinary purpose under Art.
35(2)(a) CISG too much in light of the limited usability connected to the dioxin contamination.
20.
aa) According to Art. 35(2)(a) CISG, except where the parties have agreed otherwise, the
goods only conform with the contract if they are fit for the purposes for which goods of the same
description would ordinarily be used. Therefore, the goods only meet the requirements of the
ordinary purpose under this provision if they generally fulfil the expectations which an average user
would have, based on an objective standard and common circumstances of use (Staudinger/Magnus,
BGB, revised edition 2005, Art. 35 CISG para. 18 with further references). The goods, in order to fulfil
these user expectations, do not have to be fit for all theoretically perceivable forms and possibilities
of use, but only for such uses, that suggest themselves in light of the material and technical
specificities of the goods and reasonable market expectation based thereon. If, however, such a selfsuggesting possibility of use is not covered by the uses and purposes for which the goods are
suitable, then the goods are not fit for the ordinary purpose under Art. 35(2)(a) CISG, unless the
seller revealed such limited usability (Achilles, Kommentar zum UN Kaufrechtsbereinkommen,
2000, Art. 35 para. 4; further Staudinger/Magnus, op. cit., Art. 35 para. 20; Piltz, Internationales
Kaufrecht, 2nd ed., para. 5-45; Krll in Krll/Mistelis/Viscasillas, UN convention on Contracts for the
International Sale of Goods, 2011, Art. 35 para. 69; Gruber in Mnchener Kommentar zum BGB, 6th
ed., Art. 35 CISG para. 16; all with further references).
21.
bb) This applies to the present dispute. Contrary to the view of the appellate court the
delivered clay failed to meet the market expectation already because of the extra effort related to its
use due to the necessity for final cleaning of the separated potatoes, which, even according to
[Seller], was indispensable due to the dioxin contamination. A user of potato separation clay of the
kind delivered may, as a rule, generally expect the clay to contain neither impurities nor additives
which are undesirable under food or animal feed law and for safe use would require additional
measures like a final washing process of the separated potatoes. In particular and contrary to
[Seller]s appeal, this additional cleaning requirement is not already mandatory under food or animal
feed law and thus not characteristic for the intended use. Rather, as confirmed by the listing under
number E 559 of the Annex to the Commission Regulation (EC) No 2439/1999 of 17 November 1999
on the conditions for the authorisation of additives belonging to the group binders, anti-caking
agents and coagulants in feedingstuffs (OJ L 297, 11), kaolinite clay is an additive generally
admissive in animal feed, as long as the stipulated limits for dioxin are not exceeded in the individual
case.
22. 2. [Buyer] did not lose the right to rely on a lack of conformity of the goods under Art. 39 CISG
because they did not give notice to [Seller] specifying the nature of the lack of conformity within a
reasonable time after they discovered it or ought to have discovered it.
23.
a) In a different context, the appellate court found that [Buyer] should have verified that the
clay was not dangerous and to that effect could have examined the clay with regards to its potential
to exceed the acceptable dioxin limits. Nevertheless, it may be left undecided whether [Buyer]
disrespected an obligation under Art. 38 et seq. CISG to examine the goods and to give notice of the
non-conformity, which only exists in the interest of the parties to clarify the non-conformity of the
goods as soon as possible and the claims derived (cf. Staudinger/Magnus, op. cit., Art. 39 para. 3;
Schwenzer in Schlechtriem/Schwenzer, Kommentar zum Einheitlichen UN-Kaufrecht, 5th ed., Art. 38
para. 4). This question may be left open because, in any case, [Seller], pursuant to Art. 40 CISG, is not
entitled to rely thereon because the dioxin contamination of the delivered clay and the
consequential additional necessity to clean the separated potatoes, which limits the fitness for the
ordinary purpose of the potato separation clay under Art. 32(2)(a) CISG, are facts of which [Seller]
could not have been unaware and which it did not disclose to [Buyer].
162

24.
b) The appellate court found, to this extent unchallenged by the appeal, that [Seller], because
of the tests conducted in 1999, had been aware of the considerable dioxin contamination of the clay
extracted from the pit R and also had known of [Buyers] unawareness of said dioxin contamination.
[Seller] should not have kept quiet about this dioxin contamination, as rightly concluded by the
appellate court. Rather, [Seller] should have disclosed this circumstance to [Buyer], giving [Buyer], if
it had nevertheless accepted the clay, the possibility to take appropriate safety measures like
washing of the separated potatoes after passing through the clay-water bath to avoid a
contamination of the derivative products by the dioxin, a measure sufficient according to [Sellers]
submissions.
25.
c) This finding is not undermined by the fact that [Seller], according to the appellate court,
was not expressly aware of the process followed by [Buyer] with regards to grading the potatoes in
the clay-water bath and the subsequent use of the potatoes and peels treated this way without
washing. To the contrary, this missing knowledge in particular with regards to [Buyers] safe use of
the delivered separation clay should have caused [Seller] to employ caution. For this reason, an
appropriate safety warning would have been warranted to prevent the realization of any danger by
the dioxin contaminated separation clay in the subsequent animal feed processing.
26. 3. Consequently, pursuant to Arts. 45(1)(b), 74(1) CISG, [Buyer] is to be compensated for any
existing and future damage caused by [Seller], who breached its obligation under Art. 35(2)(a) CISG
to deliver potato separation clay that meets the contractual requirements set out above under II 1 b
bb and thereby caused an unusual danger related to the use of the clay given the dioxin content that
ought not to have been anticipated by the common user (cf. Staudinger/Magnus, op. cit., Art. 35
CISG para. 18). However, the damages payable are to be reduced, because [Buyer] itself seriously
dishonoured its product responsibility with regards to the trading of pre-products for animal feed
production and thereby contributed itself to the damage due to the recourse claims caused by the
delivery of the non-conforming goods.
27.
a) As rightly held by the appellate court, [Buyer] was responsible to ensure by appropriate
means that the animal feed or the pre-products traded by it did not create any danger for the health
of humans or animals in the food chain. [Buyer] did not fulfill this duty.
28.
aa) [Buyer], according to the appellate courts findings, marketed the separated potatoes
and waste peels for use as animal feed without first ensuring the irreproachability of the clay as an
additive under the relevant animal feed regulations which the case required pursuant to food and
animal feed legislation and regulations (cf. Meyer in Meyer/Streinz, LFGB-BasisVO, 2007, Art. 17 to
Directive 178/2002/EG, paras. 21 et seq.; Wehlau, LFGB, 2010, Introduction to 58 paras. 72, 79 et
seq.). As rightly held by the appellate court, [Buyer] would have had reason for such prior assurance,
because the potential dioxin contamination of the clay delivered by [Seller] could not have remained
concealed, had [Buyer] taken sufficient care. Not only did the media report about this, also EUregulation in the field relevant to [Buyer]s business took up the issue of dioxin contamination of
kaolinite clay extracted in Germany (cf. recitals 1 and 8 of Commission Regulation (EC) No 2439/1999
as referred to above), which led, as [Seller] also mentions in its appeal, to a multitude of legislative
projects, measures and recommendation (e.g. Proposal for a Council Directive amending Council
Directive 1999/29/EC on the undesirable substances and products in animal nutrition of 28 August
2011, COM [2001] 493 final [O.J. C 332 E,242]; Commission Recommendation of 4 March 2002 on the
reduction of the presence of dioxins, furans and PCBs in feeding-stuffs and foodstuffs [O.J. L 67, 69];
recitals 5 and Art. 1 in conjunction with the Annex to Commission Directive 2003/57/EC of 17 June
2003 amending Directive 2002/ 32/EC of the European Parliament and of the Council on undesirable
substances in animal feed [O.J. L 151, 38]).
163

29.
bb) Without success [Buyer] argues in its appeal, that it had not had any reason to
undertake such examination of the delivered clay, because [Seller] provided a safety data sheet with
the toxilogical information non toxic, which [Buyer] considered to be a declaration that the clay
was free of dioxin and therefore harmless. The safety data sheet does not contain such declaration.
The safety data sheet contained information on dangerous substances to be provided pursuant to
section 14 of the Regulation on Dangerous Substances (GefStoffV) in the version of Art. 2 No. 8 of the
Regulation of 4 July 2002 (BGBl. I p. 2514), which already, in light of its purpose, did not allow the
drawing of any proper conclusions on the content of ingredients or impurities relevant under food
and animal feed law. The law on dangerous substances is different from the food and animal feed
law and not targeted at the safety of the food and food chain in view of the consumption of the
ingredients (cf. Weinmann/Thomas/Klein, GefStoffV, status 2003, section 2 comment 3.2.2 to No. 1).
It rather aims at avoiding dangers in the handling of such substances in the production or utilization
or other activities in their danger zone (cf. section 19 of the Law on Chemicals [ChemG] in the new
version of 20 June 2002 [BGBl. I p. 2090], sections 1, 2(2) GefStoffV). Consequently, the safety data
sheet served only the purpose of providing professional users with the data and recommendations of
use necessary for the handling and preparation of the substances, in order to enable them to take
appropriate measures for work place security and environment protection (Nr. 4(1) of the Technical
Rules on Dangerous Substances [TRGS] 220, published in Weinmann/Thomas/Klein, op.cit., part 2,
volume 2/1; Weinmann/Thomas/Klein, op. cit. 14 para. 2.5).
30.
b) To the extent of the influence of its own breach of a duty of care [Buyer] is not entitled to
rely of [Sellers] breach of duty by delivering non-conforming clay, which is why the claim for
damages is to be reduced accordingly.
31. However, contrary to the appellate courts reasoning, such reduction of the damages payable to
[Buyer] because of its contribution to the causing of the damage by the breach of a duty of care,
described above under section II 3(a)(aa) of this decision, cannot be based directly on Art. 77 CISG.
Under this provision, the party in breach may claim a reduction in the damages by the amount that
the loss should have been mitigated in cases where a party fails to take such reasonable measures to
mitigate the loss resulting from the breach of contract. However, the provision only applies to cases
where the party entitled to damages failed to take appropriate measures in order to mitigate the
damage caused by the other partys breach or to avoid causing the damage after learning of the
potential for damage (cf. Judgment of this Chamber of 24 March 1999 VIII ZR 121/98, BGHZ141,
129, 135 et seq.; Staudinger/Magnus, op. cit. Art. 77 paras. 5, 8, 11; Piltz, op. cit., para. 5-555).
Neither did the appellate court assert such knowledge of the potential for damage, which would
have required [Buyer] to intervene in the process by employing mitigating measures, nor is there any
other indication of it.
32. As rightly assumed by the appellate court, a reduction of the damages can also not be based on
Art. 80 CISG, according to which a party may not rely on a failure of the other party to perform, to
the extent that such failure was caused by the first partys act or omission. [Buyer] did not contribute
to [Seller]s breach of contract, which is to be seen in the delivery of non-conforming clay. [Buyer] did
not further specify the requirements for the clay to be delivered and did not expressly refer to the
necessity of an absence of dioxin is not a contribution to be taken into account, since it was just as
obvious to [Seller], that the clay ordered for the purpose described was not allowed to contain dioxin
and therefore did not warrant any mentioning.
33.
bb) It is not expressly settled in the CISG how to treat cases in which both parties to the
contract contributed to the damage by committing independent breaches of contract. Pursuant to
Art. 7(2) CISG, this question has to be answered in light of the general principles underlying Arts. 77
164

and 80 CISG. In case of dividable remedies, like damages, the respective partys contribution to the
damage has to be reasonably taken into account.
34.
(1) It is the general opinion that both provisions are an expression of the duty under
Art. 7(1) CISG to safeguard good faith in international trade (Staudinger/Magnus, op. cit., Art. 77
CISG para. 2, Art. 80 CISG para. 2; Schwenzer, op. cit., Art. 77 para. 1; Huber in Mnchener
Kommentar zum BGB, op. cit., Art. 77 CISG para. 1, Art. 80 CISG para. 2; Brunner, UN-Kaufrecht,
2004, Art. 77 para. 1, Art. 80 para. 1; Rathjen, RIW 1999, 561, 565). Thereby Art. 77 CISG is based on
the general underlying principle, that a damage, which could have reasonably been avoided, is not to
be compensated (Schwenzer, op. cit.; Staudinger/Magnus, op. cit., Art. 77 CISG para 2; Huber in
Mnchener Kommentar zum BGB, op. cit., Art. 77 CISG para. 1; Brunner, op. cit., Art. 77 para. 1),
while Art. 80 CISG is an expression of the bar on contradictory behavior, formulating the general
thought, that an obligee shall not benefit from its own damage causing behavior
(Staudinger/Magnus, op. cit., Art. 80 CISG para. 2; Brunner, op. cit., Art. 80 para. 1; Huber in
Mnchener Kommentar zum BGB, op. cit., Art. 80 CISG para. 1; Rathjen, op. cit). Moreover, both
provisions show (Art. 77 CISG: a reduction in the damages in the amount by which the loss should
have been mitigated; Art. 80 CISG: to the extent that such failure was caused by the first partys act
or omission.) that the consequence of the contribution to the damage by the obligee should not be
the loss of the claim, but that in case of mutual causing of the damage and dividable remedies like
damages the respective contributions to the damage have to be reasonably taken into account in the
assessment, weighing and balancing of interests (Schwenzer, op. cit., Art. 80 para. 7;
Staudinger/Magnus, op. cit., Art. 80 CISG para. 14; Huber in Mnchener Kommentar zum BGB, op.
cit., Art. 80 CISG para. 6; Atamer in Krll/Mistelis/Viscasillas, op. cit., Art. 80 para. 17, Rathjen, op.
cit.; all with further references).
35.
(2) In accordance with these general principles [Buyer]s damage here is to be
allocated in the way that [Buyer] has to bear half of the damage alone. This does not necessitate
further factual findings of the trial judge, enabling this Chamber to decide on the allocation itself,
since the appellate court already made the required findings regarding the parties individual
contributions to the damage and their respective weight and only mistakenly felt bound by the legal
consequence of Art. 77 CISG, as it was considered to apply directly, when granting [Buyer]
compensation limited to such damage that would also have occurred if [Buyer] had taken the
necessary steps to mitigate the damage.
36. When weighing and balancing the respective contributions as required, it is to be taken into
account to the disadvantage of [Seller] that the clay delivered by it not only was non-conforming as
described but also that [Seller] left [Buyer] in ignorance of the dioxin content known to [Seller] with
the serious consequence of increasing the risk of misuse by [Buyer]. On the other hand, it has to be
considered that [Buyer] itself failed to take any care with regards to the handling of the clay which
was made use of in animal feed although the danger of a dioxin contamination and the risks involved
could not have remained unknown to [Buyer]. Hence, both parties committed similarly serious
breaches of duty, independently contributing to the damage, which justifies an equal split of
damages, which is a question to be decided at this liability phase of the proceedings (cf. Judgement
of this Chamber of 24 March 1999 VIII ZR 121/98, op. cit.).
37. 4. The further question referred to the Chambers review by [Buyer]s appeal, whether and to
what extent national tort law applies with regards to the damages claimed in addition to the
remedies provided for the breach of contractual duties in the CISG (controversy portrayed in
Staudinger/Magnus, op. cit, Art. 5 CISG paras. 11 et seq.; Piltz, op. cit, paras. 2-139 et seq.; Ferrari in
Schlechtriem/Schwenzer, op. cit., Art. 5 para. 12, all with further references), does not have to be
decided. In the case at hand, this normative relationship does not need any analysis, because any
165

potential damages claim of [Buyer] based on tort would require the same allocation of damage as
described above based on section 254 BGB.
III.
38. Consequently, the appealed judgment cannot be upheld and is to be annulled (section 562(1)
ZPO). The dispute being ready for final decision with regards to the factual findings as shown, the
Chamber has to make a decision on the merits (section 563(1) sentence 1 ZPO). This leads, in revision
of the judgment of the court of first instance, to the allocation of the damage as declared.

166