England and Wales Court of Appeal (Civil Division) Decisions

QBCMF 1999/0879/A3

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION-COMMERCIAL COURT

(MR JUSTICE MOORE-BICK)

Royal Courts of Justice

Strand, London WC2A 2LL

Wednesday, 6 December 2000

Appellant

Respondent

STEPHEN MALES QC (instructed by Messrs Middleton Potts of London EC1A 7NP) appeared on behalf of the appellant.

The respondent did not appear and was not represented.

POTTER LJ:

Introduction

1. This is an appeal by the defendants Zenziper Grains and Feed Stuffs ("the buyers") from a judgment of Moore-Bick J dated 22 June 1999 and his subsequent order dated 25 June 1999, whereby he allowed an appeal by the claimants, Bulk Trading Corporation Limited ("the sellers") from an arbitration award by the Board of Appeal of the Grain and Feed Trade Association ("GAFTA") by which the Board ordered that the sellers should pay the buyers $224,500 as damages for breach of a contract of sale for 6,000 metric tonnes of American corn for delivery FOT i.e. free on truck, 3,000 tonnes each in May and June 1996.

2. The main question of law which arises is whether, under an FOT (i.e. `Free On Truck') contract for sale of goods to be imported by the sellers which allowed for delivery at a range of places in the country of destination, the right and duty to nominate the place for delivery lay in the sellers or buyers. The Board of Appeal held that it lay in the sellers, who were obliged to nominate the place of delivery before the buyers were obliged to nominate trucks to collect the goods. The judge reversed that decision, holding that the buyers were obliged to nominate the place of delivery. He granted a certificate pursuant to section 1(7)(b) of the Arbitration Act 1979 that the question of law is one of general public importance.

The Facts

3. The buyers and the sellers are both Israeli entities. The sale contract between them was concluded on 7 March 1996. If it was contained in writing, that writing is not before us and was not referred to in the Board's award. The relevant terms which can be collected from various paragraphs of the award are that the sellers agreed to sell and the buyers agreed to buy 6,000 Mts. of American corn FOT; 3,000Mts in May and 3,000Mts in June at USD 191 per ton (para 1:2). The contract cargo was to be "American corn No 2 or better" (para 8:5). It was to be imported by the sellers into Israel at a price of "USD 191 released from customs (3,000mt each May and June 1996)" [Introductory paragraph]. A cheque for payment would be transferred with the notification that the quantity was at the port in the name of the buyers (para 1:3). Save for anything which might be inferred from that last provision, the contract did not specify the place of delivery.

4. Between April and June 1996 there were various exchanges between the parties. In summary, the buyers asked on repeated occasions for details of the availability of the corn, including where it would be delivered. The sellers gave evasive answers to the effect that there was no binding contract between the parties, or that the sellers were released from any obligations to supply because of a transaction between the buyers and a third party. It is notable that sellers never suggested that it was for the buyers to nominate the place of delivery or to nominate the trucks which would collect the goods. Nor did they suggest that they were unable to proceed until the buyers did either of those things. At the hearing before the Board, the sellers argued that the identity of the collection point was always understood between the parties to be the Dagon Silo in Haifa; however the Board did not make a finding to that effect. Instead, they found that there were at least three silos located at the ports of Haifa, Ashdod and Ashbar, from which the goods might have been collected. The sellers failed to give the information sought by the buyers and the buyers failed to give notice that the trucks would arrive at any particular location to collect the goods. A position of stale-mate prevailed until the buyers accepted the conduct of the sellers as a repudiation and bought in against the sellers, claiming damages.

The Decision of the Board

5. The Board held that the sellers were obliged to inform the buyers of the place at which delivery would take place and that, until they had done so, the buyers were under no obligation to nominate to the sellers the trucks which would collect the goods; nor were the buyers in breach by failing to provide cheques for either the May or June instalments of the contract. The Board held that the sellers failed to give appropriate or any information as to the place of delivery and were in default for failing to make the goods available to the buyers. The Board's essential findings were as follows:

"7:1....A Free On Truck contract imposes obligations on both parties if the contract is to be performed. The obligations are interdependent. The parties rely on each other to carry out their respective responsibilities to ensure performance of the contract. Sellers do have an obligation to nominate the delivery point and buyers do have a responsibility to nominate their trucks. The initiative lies with sellers who commence the process by informing buyers of the collection location and thereafter buyers have to carry out their obligations and, at the agreed time, nominate their trucks to effect collection. It is sellers who have to act first and communicate to buyers the location of the pick up and buyers cannot reasonably be held to be responsible for failing to nominate their trucks if the sellers fail to provide information of the place where the trucks should collect the goods.

7:2 Buyers argued, convincingly in the opinion of the Board, that on numerous occasions the sellers failed to provide buyers with the specific information required to effect collection and a close examination of the exchanges set out at 2.1 to 2.26 above shows that the burden of reply lay with sellers to provide clear and unequivocal information about the location of the goods for collection by buyers. Such information was never forthcoming from the sellers and in this important respect, they failed to carry out a key contractual obligation. This failure applied to both the May and June portions of the contract."

The Judge's Decision

6. Despite the apparent commercial sense of the reasoning set out by the Board, who confirmed the award of the arbitrators below, the judge held that the Board's conclusion was wrong. He first lamented the absence of the contract and the absence of any findings by the Board as to the commercial background of the contract which might have enabled the court to approach the issue of construction in a way which would fully reflect the parties' understanding and intention. As a result the issues of law arising had to be decided "in something of a vacuum", as he put it. However, he recorded that neither party had applied for the award to be remitted for further reasons and neither wished him to make an order at this stage. He therefore proceeded to the task of construction.

7. The judge first observed that it was a striking feature of the contract that it made no provision for a specific place or range of places for delivery, although it seemed clear that delivery was to be made within Israel at a silo capable of handling grain in bulk. He also appears to have accepted, as the Board found, that the range of silos was in effect those at the ports of Haifa, Ashdod and Ashbar. He concluded that, under what he called a "simple FOT contract", where the parties have agreed a range of places for delivery, the buyer must notify the seller where and when he intends to take delivery. He reached that conclusion by way of analogy, with a "simple FOB contract", referring in that connection to the decision of Kerr J in David T. Boyd & Co. v Louis Louca [1973] 1 Lloyds' Rep 209. In that case, in which the obligation was to deliver goods "FOB Stowed good Danish port", Kerr J. stated:

"I have come to the conclusion that as a matter of principle, where nothing is expressly agreed and where there is no custom or any surrounding circumstances from which any particular conclusion can be drawn, the choice of a loading port under an FOB contract is that of the buyer if the contract leaves it open at what port shipment is to be made."

See also: Pagnan SpA -v- Feed Products Ltd [1987] 2 Lloyds Rep 601 at 612 per Bingham J.

8. The Judge rejected the submission of counsel for the buyers that, as experienced commercial men, the Board of Appeal should be taken to have had in mind the surrounding circumstances and any aspects of the background which justified their conclusion, including the fact that, in the case of sale of goods FOT, the problems of obtaining transport to take delivery at a particular time or place were less serious than the difficulties under an FOB contract of arranging for a vessel to arrive and load the cargo within a limited space of time. The judge observed:

"It may well be that an understanding of the practicalities of the trade would have been helpful, but in the absence of any findings, the court cannot simply assume that the commercial background justifies the Board's conclusion. One is therefore thrown back on such findings as there are in the award. I should say that no attempt was made by the parties before the Board of Appeal to establish any trade custom, nor has any trade custom been found by the Board."

He concluded:

"I think that the balance is still tilted in favour of the buyer. His task is still to arrange for the transport of the goods; the seller simply has to have them available and give delivery. I would accept that in the case of an FOB contract, where a range of delivery places has been agreed, it would not necessarily be commercially impractical to allow the seller to nominate the place of delivery and indeed, some standard forms make provision for that, but that may well depend on the particular nature of the trade in question. However, it is clear from the authorities that in the absence of a term to that effect, it is for the buyer under an FOB contract to nominate the place of delivery. If the seller has difficulty in making goods available except at particular times or places, he can make appropriate provision for that in the contract. In my judgment the same principles apply to a simple FOT contract, which in its origin is essentially derived from the established form of FOB contract."

The Grounds of Appeal

9. The principal ground of appeal is that the judge's analogy with FOB contracts was unsound in that it failed to take into account the difference in the nature of, as well as the practicalities underlying, an FOB contract, where delivery takes place at the port of loading onto a vessel chartered or nominated by the buyer, and an FOT contract of the type in issue in this case where delivery is to take place after the goods have been discharged from a vessel chartered by the seller and imported by him into the country of destination. Mr Males QC for the buyer has submitted that, if an analogy is to be sought, such an FOT contract is more akin to (albeit not the same as) an `ex ship' or `arrival' contract, than an FOB contract. Whether or not the judge was right to assert that an FOT contract is "essentially derived" from an FOB contract (and no authority was stated for that proposition), any analogy based on the practicalities so far as nominating the place of delivery is concerned, can only sensibly be applied to an FOT contract where the place of delivery is in the country of origin and not the country of destination.

10. Mr Males relied upon the following practical differences between the two types of contract. First, the chartering of a ship is materially different from the hiring of a truck. It is likely to be a more straightforward task for a buyer to hire trucks to take delivery of goods at a place selected by the seller than to charter a ship to load a cargo. Second, the choice of loading ports under an FOB contract will generally be constrained by the characteristics of the ocean vessel on which the goods are to be loaded (e.g. her length and draught) which the buyer has chartered, as to which the seller will usually have no knowledge. Thus, it makes sense that the buyer should choose the loading port. However, under an FOT contract for the delivery not in the country of origin, but in the country of destination, the goods will be delivered by an ocean vessel chartered by the seller, at a discharge port agreed between the seller and the ship owner. Again the selection of the discharge port may be conditioned by the characteristics of the vessel, so that the same practical considerations which render it sensible for the buyer to choose the load port under an FOB contract make it sensible for the seller to choose the delivery port under an intended FOT contract. Third, the goods which are the subject of an FOT sale may form only part of a large single cargo also the subject of several FOT sales to different buyers. In such a situation, it would be commercially impractical if each buyer were entitled to call for delivery to be made at a different port.

11. Mr Males pointed out that the argument of the sellers as to the supposed analogy between an FOT and an FOB contract, on which the judge based his decision, does not appear to have been advanced before the Board. Certainly, it earned no reference in the Board's decision, which recorded the arguments addressed. Thus, the judge lacked the benefit of the Board's views on the value of the analogy, as do we. I accept the force of Mr Males' submissions and the reasoning of the Board. Consequently, I do not consider that the position under an FOT contract which provides for delivery of imported goods to be made at one of a number of ports or places is analogous to an FOB contract which similarly so provides.

12. For the reasons given by the Board, it seems to me that the mechanics of the contract work much better if it is the sellers (who make all the arrangements with the ship), who select the place for delivery and inform the buyers accordingly. If that is correct, it seems to me clear that the Board was correct to hold that this obligation fell to be performed before the buyers were obliged to nominate the trucks and the time for delivery. In such cases the buyer needs to know where he is going to have to send his trucks before engaging them and fixing a time for delivery. The identity of his haulier and the negotiation of the road freight rate and other terms are likely to be impracticable without knowing the delivery/collection point. On the other hand, it is not essential for a seller to know the identity of the trucks or to be given notice of their ETA before selecting and notifying the buyer of the place at which delivery will be made.

13. In this connection, as is apparent from the passage of his judgment quoted in paragraph 8 above, the judge acknowledged that an understanding of the practicalities of the trade would be helpful, but declined to assume that the commercial background justified the Board's conclusion. In so doing, it does seem to me that the judge's approach departed somewhat from the court's customary approach to arbitral awards of this kind. Commercial parties appoint trade arbitrators precisely because of their understanding of the practicalities of the trade which, even if not articulated in their award, will usually be assumed to have been taken into account in the absence of obvious error. If the judge had felt real difficulty in proceeding without further findings of fact as to the practicalities of the trade or the commercial background, it was open to him to remit the award for further reasons under Section 1(5) of the Arbitration Act 1979. However, he did not think it necessary to do so in the face of the parties' wishes and in the light of his view that, absent any express provision or custom of the trade to the contrary, the effect of the FOT provision was clear. I consider he was wrong in his view and I would restore the reasoning and decision of the Board.

14. For completeness, I would advert to two further arguments advanced by Mr Males. First, he relied upon the provision of the contract which provided for payment by cheque `with [i.e. upon] the notification [by the sellers] that the quantity was at the port in the name of the buyers'. While acknowledging that it was a provision in relation to payment, Mr Males submitted that it was some indication that the initiative for any notification in relation to delivery lay upon the sellers. That does not seem to me to be so. The provision did indeed relate to payment and the requirement of the sellers to confirm the arrival and/or appropriation of the appropriate quantity of corn at the port of delivery as a condition of payment. While the wording of the provision was an indication that delivery was to be at a port, it did not answer the question which party had the right and/or duty to nominate the place of delivery in the first place.

15. Second, reference was made before the judge by counsel for the sellers to the current edition of Incoterms FCA Terms as reinforcing the sellers' argument that it was the buyers' right and duty under an FOT contract to choose the time and place for delivery to the carrier. Clause B7 of the FCA Terms provides for the buyer to give notice to the seller specifying the name of the carrier and the date and place for delivery of the goods. The judge rightly said he did not derive assistance from such terms, they being designed to provide a single coherent code to regulate the rights and duties of buyers and sellers under contracts requiring goods to be delivered to a commercial freight terminal. He might also have added that the FCA i.e. "Free Carrier At" terms are designed to be used when (a) the place of delivery is in the country from which the goods are to be exported and not the country of destination, (b) it is the seller's responsibility to arrange and pay for export of the goods and (c) it is the buyer's responsibility to arrange carriage to the country of destination and to import the goods. That allocation of responsibilities bears no relationship to the FOT contract at issue in this case. The nature of the FOT transaction in this case, was far nearer to the situation envisaged under Incoterms DDP ("Delivered Duty Paid") Terms under which:

"The seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation".

Clause A3 provides that where the point of delivery at a named place of destination:

"is not agreed or is not determined by practice, the seller may select the point at the named place of destination which best suits his purpose."

The seller must also:

"Give the buyer sufficient notice of the despatch of the goods as well as any other notice required in order to allow the buyer to take measures which are normally necessary to enable him to take the goods".

16. However, it does not appear that the Incoterms DPP Terms were considered by the Board or referred to before the judge. While Incoterms represent an attempt to define the duties of the parties under various standard types of sale (including of course FOB sales) the term FOT is neither defined nor referred to. In the ultimate analysis, no worthwhile assistance can be gained from Incoterms.

Conclusion

17. For the reasons stated above, I would allow the appeal, set aside the Judge's Order and restore the award of the GAFTA Board of Appeal.

HALE LJ: I agree.

THORPE LJ: I also agree.