[1918] A.C. 157 (P.C.)
Mail Paul Todd (author of these notes): toddpn2@cf.ac.uk
These notes were last updated 02 Mar 99.
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Facts and issues
The case concerned a shipment from a German to a Dutch company during the First World War. The cargo was seized by the British Government as Prize. If the goods had still been German owned the seizure would have been lawful, and Prize law prevents property passing from enemy to neutral at sea. The Dutch company had paid for the goods, and therefore had to show that property had passed on shipment.
The issue was when property passed under a contract which though described as c.i.f., had more of the characteristics of an f.o.b. contract (only cost and charterparty freight - not insurance - being included in the price). As Lord Parker observed at pp. 163-164:
"This ... is not an ordinary c.i.f. contract. The insurance is separately provided for and the premium is not included in the price, and, although the price includes freight, it is only the freight under the charterparty which the buyer is to take over. If the right to cancel that charterparty arises and the option to do so is exercised, the buyer has the responsibility of finding another ship to take the intended cargo. He has to pay any excess of freight over the chartered freight; also he has to pay the storage for the nitrate until loaded on another vessel. As the sum included for freight in the price is a mere matter of calculation and would be payable separately by the buyer and deducted from the price, the price is really for cost only, and the contract has far more of the characteristics of a contract f.o.b. Taltal than it has of a contract c.i.f. European port."
Bills of lading were taken to sellers’ order, and payment was not due until 90 days after sight; the sellers’ bank held on to them until payment.
Held
In these circumstances Lord Parker of Waddington held that property in the goods had passed with risk on shipment, so the seizure was unlawful. He said (at p. 171) that where
"the seller deals with the bill of lading only to secure the contract price, and not with the intention of withdrawing the goods from the contract [as in Wait v. Baker], he does nothing inconsistent with an intention to pass the property, and therefore the property may pass either forthwith subject to the seller's lien or conditionally on performance by the buyer of his part of the contract".
He also said that where the seller was sufficiently protected by the lien the inference that property would pass only conditionally upon payment by the buyer was necessarily weak, and easily rebutted.
The issue was when property passed under a contract which though described as c.i.f., had more of the characteristics of an f.o.b. contract. Bills of lading were taken to sellers’ order, and payment was not due until 90 days after sight, the sellers’ bank held on to them until payment. In these circumstances Lord Parker of Waddington held that property passed with risk on shipment.
He said (at p. 171) that where "the seller deals with the bill of lading only to secure the contract price, and not with the intention of withdrawing the goods from the contract, he does nothing inconsistent with an intention to pass the property, and therefore the property may pass either forthwith subject to the seller's lien or conditionally on performance by the buyer of his part of the contract". He also said that where the seller was sufficiently protected by the lien the inference that property would pass only conditionally upon payment by the buyer was necessarily weak, and easily rebutted.
In The Kronprinsessan Margareta, The Parchim was regarded as turning on its own facts - in that case the bill of lading was reserved to the buyer’s order, but possession was retained by the seller. In The Parchim it was taken to seller's order, but there was no presumption of retention of title. But note that the bills were not actually retained by the seller in The Parchim, but by a bank.
For c.i.f. contracts at any rate, the notion that the seller is adequately protected by the lien has not generally found favour, as this is thought not to accord banks adequate protection under a documentary credit - see further Smyth (Ross T.) v. Bailey.
1. Risk passes on shipment, and there is an assumption (Sale of Goods Act, s. 20, above) that risk passes with property. Lord Parker clearly regarded the incidence of risk as of some importance, but in fact the presumption was being operated in reverse in The Parchim, to conclude that property passed with risk.
2. For c.i.f. contracts at any rate, the notion that the seller is adequately protected by the lien has not generally found favour, as this is thought not to accord banks adequate protection under a documentary credit - see further Smyth (Ross T.) v. Bailey.
3. The bill of lading was not in fact retained as security against payment (nor was there a documentary credit in The Parchim). It does not follow that the same assumptions should be drawn where it is, or where more modern forms of financing the transaction are adopted.
4. It should probably not be assumed that The Parchim is of general application. In The Kronprinsessan Margareta, The Parchim was regarded as turning on its own facts - in that case the bill of lading was reserved to the buyer’s order, but possession was retained by the seller. In The Parchim it was taken to seller's order, but there was no presumption of retention of title. But note that the bills were not actually retained by the seller in The Parchim, but by a bank.
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Mail Paul Todd : toddpn2@cf.ac.uk
This page was last updated on 02 Mar 99.