QUEEN'S BENCH DIVISION [1954] 2 Q.B. 198.
Facts, held, Devlin J on the 3 varieties of f.o.b. contract, the 3 varieties, notes
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The cargo (a fire tender) was dropped and damaged by the negligence of the shipowner during loading. At this stage, before the goods had passed the ship's rail, they were still (or so it was supposed) the property of the seller. The seller sued the carrier, for the full value of the damage (£966), in the tort of negligence. The issue was whether the shipowner could claim the benefit of an exemption clause written into the contract of carriage by virtue of the Hague Rules, the effect of which was to limit his liability to £200. It was essentially a question of privity of contract, in effect whether the seller was party to the contract of carriage. The seller claimed that he was not, and that therefore he was not bound by the exemption clause.
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1. The shipowner was entitled to the benefit of the clause limiting liability to £200. The £200 limit was derived from the British Maritime Law Association's Agreement of Aug. 1, 1950, which is no longer in force, the limit under the Hague-Visby Rules being generally higher.
2. After discussion of the varieties of f.o.b. contract, that the buyer was shipper.
3. The Hague Rules, incorporating the clause, applied to the loading process. The sellers had argued that the Rules only applied once the goods were loaded, i.e., from ship's rail at loading to ship's rail at discharge. Devlin J. was unimpressed by this argument, observing that:
"Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship's rail."
Devlin J. held that, held that, at least where (as in the case itself) the shipowner had undertaken responsiblity for the entirety of the loading and discharging process, the Hague Rules should also apply to the entirety of the process. This aspect of the case is an interpretation of Art. 1(e) of the Rules, which remains unchanged under the revised Visby Rules. Thus the case is still an authority on this issue, even though the Hague Rules have been revised in other respects in the U.K.
On another aspect of the Hague Rules also discussed in Pyrene v Scindia, see The Coral.
4. Although the buyer was shipper, the seller was party to an implied contract with the carrier, even though he did not expressly make the contract of carriage. The reasoning adopted was that buyer, seller and carrier were all parties in a joint venture. Therefore the seller was bound by the exemption clause, despite not being expressly party to the contract of carriage. This aspect of the decision must be regarded with suspicion in the light of Midland Silicones Ltd. v. Scruttons Ltd.
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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. Ltd. v. Rosenberg & Sons, the buyer's duty is to nominate the ship, and the seller's to put the goods on board for account of the buyer and procure a bill of lading in terms usual in the trade. In such a case the seller is directly a party to the contract of carriage at least until he takes out the bill of lading in the buyer's name. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least 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 most convenient. In such a case the seller discharges his duty by putting the goods on board, getting the mate's receipt and handing it to the forwarding agent to enable him to obtain the bill of lading.
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In Pyrene v. Scindia, Devlin J. identified three varieties of f.o.b. contract:
1. Seller makes contract of carriage, but buyer nominates vessel ('classic' f.o.b.).
2. Seller nominates vessel, and makes contact of carriage. Probably rarest variety. Also referred to as f.o.b. with additional duties. Similar to c.i.f. except in terms of freight risk.
3. Buyer nominates vessel, and makes contract of carriage (as in Incoterms and Pyrene itself). Probably most common variety today.
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1. The 'classic' variety of f.o.b. contract, as described in Wimble Sons v. Rosenberg & Sons, is still probably the most common (but see, e.g., Incoterms 1990). The buyer nominates the ship (his duty is to nominate an effective ship), but the seller is required to load the goods on board and pay all costs incurred up to that point. The seller also makes the contract of carriage, though the cost of so doing will be charged to the buyer's account. The seller having loaded the goods will obtain bills of lading which will be forwarded to the buyer, and against which normally the buyer will pay the price.
2. The 'classic' type is the most appropriate where either the buyer's goods are of such a nature that a particular type of vessel is required, or there are (e.g.) foreign currency restrictions which encourage the buyer to use ships of his own national shipping line. Hence the requirement that the buyer nominate the ship. On the other hand, the seller may be better placed actually to make the arrangements for carriage, and the contract of carriage. Abundant shipping space is assumed, in other words that any ship nominated by the buyer will in fact be able to take the goods.
Also appropriate where freight payable on delivery, when it will probably be paid by the receiver of the cargo.
3. Wimble v. Rosenberg is described as type 1, and indeed, it appears that the seller indeed probably made the carriage contract as principal. He seller actually made pretty well all the shipping arrangements in Wimble, paid the freight and chose the vessel, so in some respects it looks most like type 2. However, the seller appears not to have been under any contractual obligation to do any of these things, Buckley L.J. commenting, for example, (at 753 bottom) that:
"The further request that the seller should pay the freight formed no part of the contract and was a matter with which the seller was not bound to comply."
The type 1 categorisation of Wimble is probably therefore justified if one considers only what the seller undertook to perform (but it is not clear whether he even undertook to be shipper, in which case the case would be correctly analysed as a variety of type 3). However, all this goes to show that the range of f.o.b. contracts is greater than stated by Devlin J. There is also very little consistency in the terminology used, and Sassoon and Schmitthoff in particular used different f.o.b. definitions.
Whatever may be the correct interpretation of Wimble, it is pretty clear that the f.o.b. term covers contracts where the seller contracts as principal: The El Amria and El Minia [1982] 2 Lloyd's Rep. 28. In The Sevonia Team [1983] 2 Lloyd’s Rep. 640, the seller must have been contracting as principal, since otherwise the Bills of Lading Act issues would not have arisen. It can also cover contracts where the seller undertakes to enter the carriage contract as principal, and even where he undertakes additional duties. Thus, in Carlos Federspiel & Co., S.A. v. Charles Twigg & Co. Ltd. [1957] 1 Lloyd's Rep. 240, a case which also illustrates a disadvantage of buyers agreeing to make payment in advance, Pearson J. was prepared to treat as f.o.b. a contract where the seller had undertaken, as an express term of the contract, the obligation to pay for the freight and insurance of the goods.
4. If in the classic f.o.b. the seller contracts with the carrier as principal, why can’t he take the bill of lading in his own name? Is this a belated concern that to do so may be to retain property in breach of contract, as discussed in Browne v. Hare? It is not clear that Devlin J is intending to rule it out, however, and there is no doubt that it can be permissible for classic f.o.b. sellers to take bills of lading in their own name, as in The Athanasia Comninos.
5. If shipping space is short, and the buyer does not require a special variety or nationality of ship (usually where the items shipped are small), the seller may nominate the ship as well.
If the seller is also charterer of the vessel, contracting on this basis might be more convenient than c.i.f., if under the charterparty freight does not become payable until on or even after delivery. It may be preferable in that case for the purchaser, not the seller, to take on the responsibility for paying freight. This type of contract is common for oil sales for this reason - freight under tanker voyage charterparties does not usually become payable until delivery.
6. Alternatively, as in Pyrene v. Scindia itself (and Incoterms), the buyer may nominate the ship and make the contract of carriage. This would be logical, for example, where the buyer has chartered an entire ship (though he had not in Pyrene v. Scindia itself).
This is also appropriate where freight is payable in advance.
7. Where the seller is shipper, the buyer may demand tender of a shipped bill of lading as evidence that the seller has performed his obligations, and loaded the goods. This bill of lading can be used as security by the seller as in c.i.f. sales, if taken to seller's order, and sales can be financed by banks on documentary credits. The buyer can use also use the shipped bill as a document of title, for pledge or resale. So whereas not all f.o.b. contracts make use of the bill of lading as a document of title, the documents can nevertheless perform the same function as in c.i.f. sales.
8. The contract between seller and carrier was implied because of the consequences which (according to Devlin J) would flow if the seller were not party to the venture. E.g. if the ship sailed without loading, the seller would thereby be put in breach of the contract of sale, but without any redress against the ship. Conversely, if the shipowner handled the goods in order to load them, he could be sued by the seller for conversion.
9. This reasoning is not convincing from a legal perspective alone, and in any case may not survive the Midland Silicones case. If the ship sailed without loading the buyer would probably be regarded as having failed to nominate an effective ship, and conversely if the shipowner was sued merely for handling the goods he would have a defence to a conversion action based on the consent of the seller ('volenti non fit iniuria'), whether or not the seller was also party to a contract.
10. From a policy perspective, on the other hand, if exemption clauses written into carriage contracts by international conventions are to be effective, they must bind all parties to the transaction. The policy behind the conventions will be subverted in any f.o.b. contract where the buyer is shipper if the seller, by suing not on the contract of carriage, but in the tort of negligence, can avoid the exemption clauses in the carriage contract, as was attempted in Pyrene v. Scindia.
11. However, it is reasonable to assume that the basis upon which contracts are implied are similar in every area of law, so that there is nothing special about the Pyrene situation. The Court of Appeal, in The Aramis [1989] 1 Lloyd's Rep. 213 and The Gudermes [1993] 1 Lloyd's Rep. 311, where the policy arguments for implying a contract were just as strong as in Pyrene, refused to do so, the test being that the facts must only be consistent with the implication of a contract. That is no more true in Pyrene than it is in The Aramis and The Gudermes, which again lends support to the view that Pyrene is wrong. However, Beldam LJ cited it with approval in The Coral, taking the view (in that case) that a contract might conceivably be implied between the charterers and the cargo-owners.
12. The privity problem in The Aramis and The Gudermes has been resolved by the Carriage of Goods by Sea Act 1992, but nothing has been done about the Pyrene privity problem (or indeed that alluded to in The Coral).
12. Not all f.o.b. contracts are export sales: an exporter who has contracted f.o.b. (as seller) may also contract f.o.b. (as buyer) with his supplier. This type of contract would nearly always be type 3, but may differ in a number of respects from the export contract (e.g., more likely that the buyer will undertake to arrange the export licence).
13. F.o.b. contracts may be used back to back in re-sales (e.g., Sevonia Team), or an f.o.b. buyer may sell on on c.i.f. terms (e.g., Albazero). The former would be more appropriate where it is intended that the ultimate receiver pay the freight (the eventual result in The Sevonia Team). An interesting case where two f.o.b. contracts were used for entirely speculative purposes, it not being envisaged even that any goods would be shipped, is The Filipinas I [1973] 1 Lloyd's Rep 349, and see also Garnac Grain Co. v. Faure & Fairclough Ltd. [1964] 2 Lloyd's Rep. 296, and CA [1966] 1 Q.B. 650, where the re-sale contract was used merely to adjust price.
14. The assumption that property was still vested in the seller is interesting, because payment had been made in advance for the goods, and unlike Federspiel v. Twigg, the seller would appear to have performed the last act necessary to appropriate the goods to the contract - surely he could not realistically have recalled them at the time of the accident? But the conversion argument assumes that property was still vested in the seller, and indeed the seller's claim in tort also assumes this. The case may therefore suggest a strong reluctance of the courts to hold that property in an f.o.b. contract passes before shipment.
15. On the Hague Rules, Devlin J. did not care for the idea of rights and duties transferring back and forth as the cargo swung on the crane to and from over the ship's rail. Though these remarks are not addressed to the question of risk, they appear to be equally applicable. It has not been decided whether risk passes f.o.b. at the ship's rail, or at the end (or beginning) of the loading process.
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