Scottish Court of Session Decisions

In October 1901 the Bowhill Coal Company, Fife, Limited, raised an action against A. Tobias, Oldenburg, Germany, (1) for a balance still due and resting owing of the price of coals sold and delivered to the defender; and (2) for damages for breach of contract.

The facts of the case were as follows—By contract dated 3rd and 6th April 1901 the Bowhill Coal Company agreed to purchase from the Tobias 6000 tons of treble nut coal, to be shipped from 1st April 1901 to 1st April 1902 in as nearly as possible equal portions per month, delivery f.o.b. at Burntisland, Methil, and Charlestown, at 10s. per ton. The contract expressly provided that “the quantity of coal herein named is for bona fide exportation by the purchaser, and not for sale by other export merchants or any other person in Great Britain, unless specially permitted by us (the sellers) in writing.”

On 19th April, when the contract had just begun to be executed, the export-duty on coal imposed by the Finance Act 1901 came into operation.

By section 3 (1) of this Act it is enacted:—“There shall, as from the 19th day of April 1901, be charged, levied, and paid on coal exported from Great Britain or Ireland a duty of 1s. per ton, but a rebate of the duty shall be allowed on any coal the value of which free on board is proved to the satisfaction of the Commissioners of Customs not to exceed 6s. per ton.”

The sellers and the purchaser differed as to who should pay this duty. The sellers claimed that it should be paid by the purchaser as being the exporter. The purchaser contended that as delivery was to be f.o.b., and the duty had to be paid before shipment, the burden fell on the sellers. The purchaser had chartered certain vessels to proceed to the port of loading for the purpose of loading the coal which the sellers were to supply, but the sellers refused to load any of thesevessels unless the purchaser paid the tax. As the Customs authorities insisted on payment as a condition of shipment the purchaser, in order to get the vessels loaded, and to prevent loss from demurrage and other claims, paid the tax under protest and reservation of his rights. Thereafter, on 18th September 1901, as the sellers persisted in their refusal to pay the tax, the purchaser intimated to them that he cancelled the contract, reserving his claim for damages. When the contract was cancelled, 2157 tons 5 cwts. out of the 3000 tons to be taken during the months of April, May, June, July, August, and September had been supplied, for which a balance of £578, 7s. 7d. was still owing by the purchaser to the sellers. Of this

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balance the purchaser on 27th September sent £214, 10s. 1d. to the sellers as payment in full, the purchaser holding that the remainder had been paid by the sums disbursed by him under protest as export duty.

The sellers thereupon raised the present action, in which they concluded (1) for payment of the balance of the £578, 7s. 7d. withheld by the purchaser; and (2) for damages for breach of contract.

On 6th June 1902 the Lord Ordinary ( Kyllachy) pronounced the following interlocutor—“Finds that the pursuers are bound to give credit to the defender for the sums paid by him under protest on account of the export-duty on the coals shipped under the contract libelled: Finds that on that footing the pursuers have been paid in full for the coal delivered: Finds further that the defender's rescission of the contract was justified by the pursuers' refusal to pay the duty, and that the pursuers have therefore no claim for damages in respect of the defender's rescission of the contract: Therefore assoilzies the defender from the conclusions of the action, and decerns.”

Note.—“The pursuers in this case, who are coalowners in Fife, sold in the beginning of April 1901 to the defender, who is designed as a coal importer at Oldenburg, Germany, 6000 tons of coal. It was a condition of the contract that the coal should be bona fide exported by the purchaser, and delivery was to be f.o.b. at certain specified Scotch ports, the shipments being made, beginning the 1st of April, in as nearly as possible equal monthly quantities. On the 19th of April, and when the contract had just begun to be executed, the export duty on coal imposed by the Finance Act of 1901 came into operation, and the parties differed as to who should pay the duty. The pursuers claimed that it should be paid by the defender as being the exporter. The defender, on the other hand, claimed that as delivery was to be f.o.b., and the duty had to be paid before shipment, the burden fell on the pursuers. The pursuers did not, as it happened, take advantage of the power to apply to the Treasury contained in subsection 2 of section 3 of the Finance Act. Nor did they seek a solution of the matter by paying and seeking relief as against the defender under the 6th section of Schedule 4 of the Act. They were probably satisfied that the defender being a foreigner the provisions of this last section would not apply. Or it may be that they knew that the case was within the exception expressed in the last clause of the section. At all events the pursuers declined to pay the duty, and the upshot of the matter was that, the Customs authorities insisting on payment as a condition of shipment, the defender paid the duty under protest, and the pursuers still persisting in their refusal, he ultimately rescinded the contract, reserving his claim for damages.

“The present action is brought by the pursuers, the sellers, for the balance said to be due on the shipments in fact made, and for damages in respect of the defender's alleged breach of contract. The defender maintains that if he gets credit for the duty paid by him under protest, as I have said, there is nothing due, and on that assumption it does appear that such is the fact. The sole question therefore (putting aside in the meantime the question of damages), simply is whether the pursuers or the defender is under the contract liable for this export duty.

“It appears to me that the defender's contention is right. The Finance Act 1901 Schedule 4, sec. 1, provides expressly that ‘Coal shall not be shipped for exportation or carriage coastwise unless entry and clearance thereof shall have been made before shipment,’ and it is not disputed that entry and clearance involves in the case of export the due payment of the export-duty just as (by the succeeding section) it involves in the case of coal carried coastwise liability to find security for the due carriage coastwise. The duty therefore has unquestionably to be paid before shipment, and that being so it seems to me to follow that in a f.o.b. contract the payment falls necessarily on the seller. It does so in my opinion just as much as any other charge existing or supervening incident to the land journey to the port or to the shipment, or requiring to be incurred and paid before the coals are delivered over the ship side. I do not, I confess, see that it makes any difference whether the seller or the buyer is to be deemed the exporter. It is nowhere provided that the exporter shall pay the duty: nor does it seem material whether the seller puts the coal on board a general ship addressed to the foreign buyer, or delivers the coal to that buyer over the side of a ship which the buyer has chartered. I do not say that it is quite immaterial that the coals here were expressly sold for export. Had it been open to the defender to have shipped the coal to what place he pleased there might possibly have been an argument—I do not say a good argument, but an argument—to the effect that in that case the f.o.b. delivery was satisfied by the seller paying everything necessary for shipment or a clearance coastwise. But the contract here being expressly for exportation, that question, if it be a question, does not arise.

“The result, therefore, is that I propose to find that the pursuers are bound to give credit to the defender for the sum paid by him on account of export duty, and that on that footing the pursuers have been paid in full for the coal delivered under the contract, and further, that as the defender's rescission of the contract was justified by the pursuers' refusal to pay or provide for the duty, the pursuers have no claim for damages against the defender, and that therefore, on the whole matter, the defender is entitled to absolvitor, with expenses.”

The pursuers reclaimed, and argued—As far as the statute was concerned it did not impose the tax on the seller of the coal. It was absurd to assume that the Legislature meant to impose the tax on any person who contracted to put the coal on board, such as a porter at the wharf. The duty was imposed on the coal exported. Therefore prima facie under the statute the

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person liable to pay was the man who exported the coal. Under section 104 of the Customs Consolidation Act 1876 (39 and 40 Vict. c. 36) a bond in security had to be given to the Commissioners of Customs before certain goods could be exported, and the person who was required to give this bond was the exporter or his agent. This showed that it was the exporter who in the intention of the Legislature was the person bound to pay export duty. The words f.o.b. were not to be construed as relieving a purchaser of coal from paying such a duty as the present— Glengarnock Iron and Steel Company, Limited v. Cooper & Company, June 12, 1895, 22 R. 672, 32 S.L.R. 546.

Argued for the defender and respondent—Under an f.o.b. contract the seller was bound to deliver the goods on board ship at his own expense—Benjamin on Sale (4th ed.) 685; Stock v. Inglis, 1884, 12 Q.B.D. 564. Until the coals were put on board they remained the property of the seller. The obligation to pay any tax to which the goods were liable before they were put on board therefore lay upon the seller. F.o.b. under the Finance Act 1901 simply meant “free of duty.” The case of the Glengarnock Iron and Steel Company, Limited v. Cooper & Company, supra, did not bear on the present case, because in that case the purchaser was the shipowner as well, and the cost of storing the cargo was naturally held to have fallen on the owners of the ship. The judgment of the Lord Ordinary should be affirmed.

At advising—