Breach Of Contract Under CIF And Sale Of Goods Act 1896 (Qld) Essay.

Kanga Pty Ltd, a Brisbane based company, entered into a contract governed by the law of Queensland to sell 100 tonnes of beef meat under CIF Singapore (Incoterms 2010) to Sing Pty Ltd in Singapore. Kanga packed a refrigerated container with 100 tonnes of meat and the container was loaded on board the ship ‘Jumping Jack Xpress’ at the Port of Brisbane. On its way from Brisbane to Singapore, the ship was struck by lightning. The surge of electricity from the lightning strike damaged the refrigeration system of the container holding the meat.

When the container was opened in Singapore, 50 tonnes of beef meat had gone bad, but 50 tonnes of cheaper kangaroo meat was still in good condition. Solve the issue as to whether Kanga would be in breach of its contract with Sing under a CIF contract. Would your answer be different if the contract between Kanga and Sing was governed under the Sale of Goods Act 1896 (Qld).

In March 2017, the captain of ‘SS Pacific’ was carrying livestock and abattoir related equipment from Brisbane to Indonesia when cyclone Debbie effected its trip causing 14 containers carrying equipment to fall over.Also, the SS Pacific was not in the best condition because not enough time had been allocated to maintenance works during port stays. The Hull of the ship had cracks that were not detected or fixed. During the trip, the SS Pacific took on a substantial amount of water which drowned 456 cattle. The SS Pacific was now moving very slowly and sea pirates boarded and took control of the ship and its cargo.

The captain took evasive action but the evasive action was ineffective because it was carrying too much water. The ship was located off the coast of Indonesia without the livestock but the remaining 116 containers of abattoir equipment was still on board. Most of the abattoir equipment eventually arrived to its destination.The livestock and cargo were carried under bills of lading and the contracts excluded the carrier from liability for damage or loss to the livestock and cargo. No mention was made in the contracts on whether the abattoir equipment would be carried on deck.Advise the carrier of its liability to the various shippers, making reference to the amended Hague Visby Rules.

In the case law that is provided the issue is whether Kanga Pty Ltd which is a company situated in Brisbane has committed breach of contract by being unable to deliver the 100 tonnes of beef meat properly to Sing Pty Ltd due to unforeseeable circumstances and under the CIF contract?

Relevant Rule:

Offer and acceptance are the core elements of a contract. The offer should have been made for a consideration and then the obligations of both the parties are decided. The parties should also be competent to contract and they should also have the capacity. These are few of the basic elements which need to be kept in mind while forming a valid contract. Another important thing that should be kept in mind while forming a contract is that any goods which a seller is willing to sell should match the description which is made in the contract.

A buyer has every right to get only that product and also to pay for that product which they have specifically ordered. Even under the CIF rule it is the basic duty of the seller to make sure that the goods which are being shipped match to the description in the contract. In case the goods do not match then the buyer has the right to not accept the goods and also claim for damages.

Goods description also includes the date in which the goods are meant to be shipped also including the packaging details. This basic rule was put down in the case of Manbre Saccharine Co. Ltd v. Corn Products Co. Ltd. The case dealt with selling of starch in 280lb bags. The contract had specified that the goods will be delivered to the buyer in the proper packaging but the goods were unfortunately shipped partly in 280lb bags and the rest in 140lb bags which was against the terms agreed between the buyer and seller.

The seller was of the view that packaging does not form an essential element when it comes to description of goods and also that this condition was not vital for the agreement. The court on the other hand was of the view that the seller could not escape this liability by saying that packaging was not an essential part of the agreement and that it did not form an important part when it came to description of goods. The court was also of the view that the seller was in breach of their duties by providing goods in packages which were contrary to the description of goods mentioned in the contract.

Thus from the case mentioned above it can be inferred that description of the goods whether it be in the form of packaging or any other form should be maintained by the seller. Any provision regarding how the contract needs to be performed should be followed. Another case which can be referred to in this matter is that of Benabu & Co. v. Produce Brokers Co. Ltd. This case deals with the sale of beans in bags arriving by a steamship. The dispute arose when the steamship arrived much earlier which was before the contractual date and dropped off the goods which was not known either to the buyer or seller. The buyer after getting the knowledge accepted the necessary document but refused to take the goods as they had not arrived on the appropriate date as mentioned in the contract. The court was also of the view that the buyer had acted within their rights by rejecting the goods and that they could claim the price which had been paid.

Analysis

CIF contracts are one of the major exceptions to general rule mentioned in section 20 of the Sale of Goods Act. Under the CIF contract once the property has passed and the buyer has paid after which documents have been taken up, the goods are from that moment considered to be the liability or risk of the buyer. From the time the goods have been shipped the buyer is at the risk or liability for the mentioned goods. In case the contract is made between the buyer and seller after the goods have been shipped then in that case the buyer is at risk or responsible for the goods after the formation of the contract.

This is done retrospectively which means it is assumed that the buyer was responsible from the time of shipment of goods. The buyer on the other hand to minimize the risk does have the advantage of contract of carriage and also insurance policy which helps them to minimize the risk by claiming under the contract or policy any of the loss occurred or damages when the goods are being shipped.

The Vienna Convention also has its applicability when it comes to the risks involved in CIF contracts. According to Article 67(1) of the Vienna Convention, if the seller shrugs off the responsibility of delivering product despite the contract of sale that states carriage facility, the risk completely falls on the buyer. In the other case where the seller has the responsibility to deliver the product by carrier at a particular place then the risk only passes to the buyer once the goods have been delivered by carrier to that certain place.

Article 67(2) of the Vienna Convention states that the buyer is free from risk until unless the goods or products are clearly recognizable in the contract which means that the goods can be identified either through any mark on the goods or can be identified by the documents related to shipping or by giving some sort of notice or intimation to the buyer. These are some of the Articles of the Vienna Convention which need to be kept in mind while dealing with CIF contracts. Once these rules or Articles are kept in mind the risks involved especially to the buyer minimizes.

Analysis:

In the present case Kanga Pty Ltd who were the sellers had to sell 100 tonnes of beef meat to Sing Pty Ltd who were the buyers. The contract was made between the parties for 100 tonnes of beef meat. The goods were being dispatched by shipment under CIF rule. The issue arose when the goods were on transit and a lightning struck the ship while it was travelling to Singapore. The goods which were refrigerated got damaged due to the lightning. The goods once arrived at Singapore had 50 tonnes of beef meat which were damaged. There were 50 tonnes of cheap kangaroo meat which were still in good condition. The question that arose was whether Kanga Pty Ltd were in breach of contract with Sing as followed under CIF rules.

The answer to the question is in the positive which means that Kanga Pty Ltd had breached the contract. The discussion made above regarding the description of goods being an essential element of any contract comes into play. The case of Manbre Saccharine Co. Ltd v. Corn Products Co. Ltd illustrates clearly that if the goods mentioned in the contract and agreed between the parties does not match the goods which arrive then the seller will be considered in breach of their duties and the buyer can sue for breach of contract.

In the present case Kanga Pty Ltd had failed to honor the terms of the contract as they had shipped only 50 tonnes of beef meat. The agreement was for 100 tonnes of beef meat but Kanga Pty Ltd had not done so. There were 50 tonnes of kangaroo meat which were in good condition but that did not match the description of goods. The contract was for specifically beef meat and not kangaroo meat. Thus the terms of contract were not met and the buyers Sing Pty Ltd could sue for damages.

Conclusion:

Thus it can be concluded from the analysis made above that as long as the basic elements of contract are not met, in this case being description of goods not matching the buyer has every right to sue for damages and claim their money back. Thus Kanga Pty Ltd was responsible for the breach.

Issue

In the case that is provided the issue is whether the carrier is liable to the shippers for the damages caused and what are their liabilities?

Relevant Rule:

The present context draws attention toward Hague Visby Rules. The Hague Visby Rules is the amended version of the original Hague Rule, known as International Convention for the Unification of Certain Rules of Law Relating to Bill of Lading’. It was drafted in Brussels in the year1924. Officially the Hague Rules was known as ‘. These rules are part of admiralty law governing the international carriage of goods by sea routes.. In 1968, the original Hague Rules was slightly amended to make the laws applicable on the shipper and carrier clearer and this amended version was termed as Hague Visby Rules.

Most of the countries follow these rules while dealing in maritime activities, especially while transporting of goods by sea routes. In context of Bill of Lading and other related documents which determine the rights and duties of the contracting parties who are engaged in carriage of goods by sea, the Hague Visby Rules will apply. Rights and responsibilities that the shipper and carrier generally have concern the present case. Before discussing about the rights and responsibilities it is important to know who is carrier and how is it different from a shipper. According to the rules, a carrier is a person or corporation who is the owner of the ship or is charged with the carriage of goods by ship. Shipper, on the other hand, is a person or company who is the owner or the supplier of the goods to be shipped.

A shipper is the consignor. The Rules contain articles which are followed by most of the countries to govern their international carriage of goods by sea. The Articles precisely mentions the rights and responsibilities of the carrier and shipper. Firstly, the carrier is under obligation to make the ship worthy of a journey. It is the duty of the carrier to check that the ship is capable to complete a journey by sea. The carrier should ensure that all the parts of the ship are in best condition and is prepared fully to undertake the journey on water.

The hull of the ship should be in proper condition, the crew should be well conversed with the charts and equipments of the ship, the body of the ship should be mechanically safe and sound. The ship should be loaded with trained crew who will be experienced enough to handle any kind of danger that may arise in mid journey. Thus, the ship should be allowed to sail only when its seaworthiness is proved before the beginning of the journey. Secondly, the carrier should exercise proper diligence before starting the voyage. If a ship is not in a proper shape then it possess several risks, especially damage to the goods that are being carried on the ship.  

The carrier is duty bound to take sufficient measures before starting a voyage. The carrier can delegate his duty of due diligence to his subordinates but if the subordinates fail to complete their tasks properly and the ship suffers damage because of this negligence, then the carrier can be held liable by the cargo owner. This does not imply that the carrier will be held liable every time a mishap occurs to the ship in mid journey. The Article states that before the commencement of the journey, the carrier is under duty to take all the precautions and measures required to make a ship seaworthy. Thirdly, the various parts of the ship which is related to the receiving and carrying of goods should be in proper and good and condition. The ship should be in fit shape to preserve the goods till the journey ends.

Analysis:

After a careful study of the rules, it is clear that the Hague Visby Rules have been formed to govern the seafarers and to cover the rules and contract between the contracting parties, that is, a carrier and a shipper. In the present case, the carrier, ‘SS Pacific’ was hit by the cyclone Debbie after it started its journey and the ship lost fourteen container carrying abattoir equipments. The ship being hit by the cyclone resulted in all the damages in the first place. A cyclone is an act of god and a carrier cannot know it from before. Therefore, the carrier can claim exemption from his liability under Article IV of the Rules.

There is no liability of the carrier if cyclone causes any damage but at the same time, the hull of the ship developed cracks and water entered into the ship. The captain did not give enough time to the ship to cure the defects that developed due to the natural calamity. This resulted in some of the defects going unnoticed. The ship commenced its journey again without fixing the defects. Thus, the captain is in fault of not taking proper measures before starting its journey again. The carrier was not back in proper and fit condition for continuing the rest of the journey. This resulted in large amount of water entering the ship during the trip. It further caused damage by drowning 456 cattle.

The fault and negligence of the captain of the carrier in taking proper measures made the ship unworthy of continuing the journey further. Further, the ship was also unable to protect itself from the attack of the sea pirates though the captain tried to dodge and escape them. The evasive action of the carrier failed due to the large amount of the water that entered into the ship and decreased its speed. As the captain failed to comply with his duties therefore he lost the livestock and cargo. The carrier is therefore liable for the damages caused. According to Hague Visby Rules livestock and cargo which is carried on the deck are exception to the definition of ‘goods’. The livestock is always exempted from the definition of ‘goods’ under any circumstances.

The same is not applicable to the cargo. The words used in the definition specifically mentions that cargo which is carried on deck is exception. The Bill of Lading and contracts mentioned the terms regarding the livestock and cargo and excluded the carrier from any liability in relation to damage of livestock and cargo. According to the Rules, any such terms of contract where the carrier is discharged from its liability is null and void. In this case, the carrier will not be discharged from any liability that may arise in respect of livestock and cargo because of the contract signed between them which exclude the carrier from any liability in respect of livestock and cargo. A carrier can be exempted from his liability only under the provisions of Article IV of the Rules. In the given case, only the abattoir equipments reached the port safely.

Conclusion:

Most of the countries are governed by the Hague Visby Rules when it comes to international carriage of goods by sea routes. It also takes into account the terms and conditions that are applicable on Bill of Lading and other related documents determining the rights and responsibilities of the shipper and carrier. In the present case, therefore there is no liability on part of the carrier for any damages caused to cargo or the livestock which is carried on deck as they are not considered as ‘goods’ under the Rules.

There lies no liability of the carrier for the damages caused due to cyclone as it was an act of god and falls under Article IV of the Rules dealing with circumstances under which the carrier can be exempted from his liabilities. The carrier might be exempted under the above mentioned situations but the carrier is responsible for the damages caused in the journey where the ship was not fit for continuing the journey. The carrier instead of starting its journey with the defects should have waited and devoted enough time to fix all the defects. Therefore, we can conclude that the carrier is not responsible for the loss and damage to livestock but is responsible for the loss of cargo caused by the increasing water in the ship and pirates.

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