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Loss Of Or Damage To Goods Notes

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LOSS OF OR DAMAGE TO GOODS
Notes
- The problem of the loss or deterioration of the goods in transit must be analysed partly in terms of the obligations of the parties as to quality, packing, shipment, etc.; and partly in terms of risk.
o Therefore the cases for this week consider the obligations of the seller/buyer as to the goods, and also when risk passes
SUMMARY
RISK
When does risk generally pass?
FOB Contract
- On shipment

(Ingliss v Stock)
o Also Cunningham v Munro
CIF Contract
- On or as from shipment

The Julia

As from -> there might be a sale of goods while goods are afloat

Thus as from indicates that risk is deemed to have passed when shipment occurred ->
it's retrospective in that sense
- What does "on shipment" mean?
o At the ship's rail
- This rule is crude but certain

Both parties know exactly when to get insurance

It's crude but also clear -> that's the attraction of the rule
- Are there better alternatives?
o What about linking risk to control -> if you have control of the goods, you can manage the risk better

Possibility for reform is discussed in your seminar notes (see your Benjamin readings)
General rule
- General rule in S20(1) SGA is that risk passes with property

But there is significant departure from this rule in both FOB and CIF contexts
Important exceptions to the general rule
- 1) There is an important exception in S20(2) SGA
o "where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault"
o Delivery = shipment (S32(1))
o DN: unclear what "fault" means - but I think "fault" means breach
 You could take a broader view of fault, but then the problem is where does fault end then
- S20(2) is possibly important in a FOB context

In a standard FOB contract, if there is a delay in shipment, it'll be because the buyer has failed to arrange for a suitable vessel to pick up the goods within the shipment period
 So in that case, the risk would shift to the buyer even before shipment 1 But in that case, the buyer is already in breach of their contract with the seller to arrange a suitable seller
 So they'll already be liable to the seller for any loss arising from the breach
However, it is irrelevant in a CIF context

If shipment is delayed, likely to be due to the seller

You've got a straightforward breach of S13!
 Implied term that goods will match description
 So you could sue for damages, OR straight up reject the goods (if they've deteriorated)
----

2) S32(2) (reasonable CoC)
o Essentially, risk stays with seller if he fails to make a reasonable CoC
Usually irrelevant in a strict FOB case, because there usually the buyer makes the CoC
o It could be relevant in an extended services FOB, where the seller is involved in arranging the CoC
What about CIF? (or extended services)
o Not really relevant - the seller is already obligated to make the CoC
o But need to show that the failure to make a reasonable contract CAUSED the loss
 But this is unclear - no case law

One possibility is that it reverses the burden of proof
 i.e. seller needs to show that the loss was NOT caused by failure to make reasonable CoC
o So it might strengthen the hand of the buyer
The provisions of s.32(2) apply even where there is no contractual obligation on the seller to make a contract of carriage—where he is merely "authorised" but not "required" to send the goods to the buyer
What is a reasonable contract appears to depend on what is usual in the trade in question.
o Benjamin's: In one case the seller had the option of sending the goods either at carrier's or owner's (i.e. buyer's) risk; and it was held that he had not made a reasonable contract by choosing the latter method 3) S32(3) (notice of insurance)
o Could be impt in a FOB contract because the buyer has to take out insurance

So they might need such information

But OTOH they might not need such information from the seller, because they're the ones making the shipping arrangement -> so they already know everything they need to know to make the insurance arrangement!
o So this would only be relevant where the SELLER is responsible for making shipping arrangements but the BUYER is responsible for taking out insurance
In a CIF context it's usually not going to matter, the SELLER has to arrange the insurance and contract of carriage ANYWAY
o So if it were a C and F contract, then maybe!
See your seminar notes (Benjamin's) for case law on this 4) Cunningham v Munro Exception

Lord Hewart: "there may also be circumstances where, although the purchaser may be entitled to reject when the goods are being placed over the ship's rail, yet the vendor may be entitled to recover damages in respect of the deterioration of the goods"
o Where the buyer informs the seller that the ship will be arriving on a particular day,
and the seller brings the perishable cargo down to the docks, but the ship only arrives 2 o

later, after the goods have deteriorated. Even if the ship arrives within the shipment period (and thus the buyer is not in breach), there can still be a cause of action
 Indeed, Benjamin's has argued that this would, for instance, clearly include storage charges as well as deterioration owing to ineffective shipping instructions given by the buyer, even where there is no breach
 "If the time of shipment is at the buyer's option, he may at one point in the shipment period give shipping instructions which are ineffective; and if as a result of such instructions the seller suffers loss he can no doubt recover damages, e.g. in respect of storage charges or deterioration of the goods before shipment. But such abortive shipping instructions do not put the buyer finally in breach, it being still open to him to give effective shipping instructions during the remainder of the shipment period; and the market may fluctuate during this time"
Benjamin's explains this as a subset of S20(2) SGA, as an example where the buyer is at fault
 But DN: if you take this broader view of fault (beyond breach), then the question is where does it end
 Note: S61(1) defines fault as "wrongful act or default"

OBLIGATIONS OF THE SELLER
SGA
Mash & Murrell
- Where goods are sold on a delivery involving transit, there is an implied warranty that they can endure the normal course of transit, and will be of merchantable quality for a reasonable time thereafter (Mash & Murrell)
o This seems to derive both from the common law, as well as under S14 SGA - in Mash
& Murrell, the term at common law is described as the "third side of the same coin"
(with the first two sides being SGA 14(1) and 14(2))
o In The Mercini Lady, Rix LJ does not necessarily reject the existence of an equivalent implied term at common law, but rather of an implied term that the specification is to be met at delivery but also for a reasonable period after delivery

i.e. he rejected the existence of a continuing warranty, but Mash & Murrell was concerned with a prospective warranty
APPROPRIATION AND LOST GOODS
Can you appropriate goods which are lost?
- Groom and Manbre Saccharine show that you can appropriate goods which are lost

In Groom, the ship sank on 6 Aug, and it was only on 20 Aug that the seller tendered documents to the buyer
 Prior to that, there didn't seem to be any identification of the cloth that was to be used under the contract
 While there was correspondence about war risk and insurance, it is hard to see how this would be sufficient to constitute appropriation

Further reinforced by Manbre Saccharine
 Nothing in the case to suggest that there was contractual appropriation before the goods were lost
 Only communication was sending of the invoice
 This case goes even further than Groom -> here the seller knew that the goods were lost 3 

Thus this suggests that you can appropriate goods that you KNOW are lost to the contract!

LIABILITY OF THE CARRIER
Liability of the carrier wrt loss of or damage to goods
(a) when the Hague-Visby Rules do not apply
- IMPT to know this for next week

One consequence of deviation might be that the H-V rules don't apply
- What does Lord Sumption say in Volcafe?
o That it's just a bailment for reward -> governed by common law rules on bailment

(1) carrier has a duty to take reasonable care

(2) if loss/damage is suffered, the carrier bears the burden of proving the absence of negligence
- There are also established excepted perils at common law

Act of God, jettison, act of Queen's enemies, bad packing (?)
- There used to be an old regime of common carriers

Under which the carrier would be subject to strict liability

But people don't really use common carriers anymore
(b) when the Hague-Visby Rules do apply
- Art III R1

Seaworthiness -> refers only to initial seaworthiness (at the beginning of voyage)
 Some discussion of what that means in the Maxine Footwear ccase

What's the standard of care wrt seaworthiness?
 Due diligence
 It means a duty of reasonable care -> but a non-delegable duty of reasonable care
 So he's liable if the person whom he's delegated the work to is negligent
- Art III R2

What's the standard of care for Art III R2?
 Also reasonable care (According to Lord Sumption in Volcafe)
 Although with a big caveat, it's qualified by the excepted perils in Art IV R2
 SO you can't assess the content of the obligations in Art III R2 without reference to Art IV R2
Burden of proof
- Art III R1 (seaworthiness)
o Who needs to prove what?
o Cargo-owners would need to show that the ship was unseaworthy at the relevant time

If they can show that, then burden shifts to carriers to establish due diligence

Might be quite hard for cargo-owners to prove unseaworthiness, but Court can infer that from circumstances
- What about Art III R2? (reasonable care in loading, etc)
o Cargo owner simply needs to establish that the goods were shipped in apparent good order and condition (and now they are damaged)

4 Volcafe: "where cargo was shipped in apparent good order and condition but is discharged damaged the carrier bears the burden of proving that that was not due to its breach of the obligation in article III, rule 2 to take reasonable care"
 Once the cargo-owner can prove that the goods were in apparent good order and condition at loading, and that they weren't at discharge, they can rely on that to allege a breach of Art III R2!!
Once they've shown that, burden shifts to carrier that they've shown (a) reasonable care, or that (b) one of the excepted perils apply
 Some of those exceptions encompass negligent conduct, e.g. negligent navigation
 This is a reversal of burden of proof! Since once the cargo-owner establishes that the goods were shipped in apparent good order and condition, the burden shifts to the shipowner to prove (a) or (b)

o

Excepted Perils
- NOTE: excepted perils qualify Art III R2

What's difficult is the scope of that exception -> what's the scope of negligent navigation of the ship

They tried to qualify this in Gosse Millerd - distinguishing between failure to manage the ship as a whole and failure to manage the cargo

But not always easy to make this distinction
- This is in contrast to the seaworthiness obligation in Art III R1(a)
o Cannot rely on fire exception if you've failed to use due diligence to make ship seaworthy
 Maxine Footwear
 Also made clear in text of HV rules

Seaworthiness obligation trumps the dangerous goods exception (The Fiona)
o However, package limitation still applies even where there is a breach of Art III R1
(Happy Ranger)
- Art IV R2(a) -> Negligent navigation/management of the ship

Distinguish between negligent management of the ship and negligent management of the cargo (Gosse Millerd)
o Can apply the "want of care" test -> is it want of care wrt ship or cargo
 If the only real problem with this is the effect on the cargo, then its negligent management of the cargo
 For e.g. in Gosse Millerd, there's nothing wrong with moving the tarp, other than the effect on the cargo
- Art IV R2(b) -> Damage by fire

Can be relied on so long as there is no actual fault or privity of the carrier, even if the fire was started barratrously by a member of crew (The Lady M)

5 READINGS

Sale of Goods Act 1979 ss. 6, 7, 13-15, 20, 32, 33
S6 - Goods which have perished
Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when a contract is made, the contract is void
S7 - Goods perishing before sale but after agreement to sell
Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided
S13 - Sale by description (implied term)
(1)Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.
(1A)As regards England and Wales and Northern Ireland, the term implied by subsection (1)
above is a condition.
S14 - Implied terms about quality or fitness
S15 - Sale by sample
S20 - Passing of risk
(1)Unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer's risk whether delivery has been made or not.
(2)But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.
S32 - Delivery to carrier
(1)Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer.
(2)Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea transit
S33 - Risk where goods are delivered at distant place
(1) Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer must nevertheless (unless otherwise agreed) take any risk of deterioration in the goods necessarily incident to the course of transit.

6 Seller's obligation to deliver goods in a satisfactory quality
Mash & Murrell v. Emanuel [1961] 1 W.L.R. 862 (Diplock J); [1961] 2 Lloyd's Rep. 326 (C.A.)
Notes
- This isn't a continuing prospective warranty, this is an assessment at the time of passing of risk (shipment) as to whether the goods can withstand a normal voyage and will be of merchantable quality for a reasonable time thereafter

Makes sense for a CIF contract

But some difficulties in a FOB contract -> the seller wouldn't know where the goods are going, and whether it's a long or short journey

Presumably in a FOB contract, the warranty would just be that the goods are fit to survive a normal journey
Facts
- C & f contract for the sale of potatoes
- Potatoes were properly stowed, but on arrival at Liverpool, they were found to be rotten and unfit for human consumption

The sellers' agents knew the nature of the buyers' business and the purpose for which the potatoes were required
- Buyer brought an action for alleged breaches of implied terms as to the fitness of goods for purpose (SGA), merchantability (SGA), and fitness to stand the voyage and arrive sound for sale for human consumption
Held (Diplock J)
- 1) There is an implied warranty that goods sold under CIF/FOB contracts involving transit can endure the normal journey and be in a merchantable condition upon arrival (for a reasonable time)
o "have so far travelled through my legal life under the impression, shared by a number of other judges who have sat in this court, that when goods are sold under a contract such as a c.i.f. contract, or f.o.b. contract, which involves transit before use, there is an implied warranty not merely that they shall be merchantable at the time they are put on the vessel, but that they shall be in such a state that they can endure the normal journey and be in a merchantable condition upon arrival."
- 2) Merchantability means the goods must remain merchantable for a reasonable time -> with time for (1) arrival and (2) disposal upon arrival

"merchantability in the case of goods sold c.i.f. or c. & f. means that the goods must remain merchantable for a reasonable time, and that, in the case of such contracts, a reasonable time means time for arrival and disposal upon arrival"
- 3) Here, the warranty as to merchantability was a warranty that they should remain merchantable for a reasonable time - for the time for normal transit to the destination, and for disposal after. That warranty was broken

"It follows, therefore, applying that view of the law to the present case, that, these goods being bought c. & f. Liverpool, the warranty as to merchantability was a warranty that they should remain merchantable for a reasonable time, the time reasonable in all the circumstances, which means a time for the normal transit to the destination, Liverpool, and for disposal after. That warranty was, in my view, broken."
Held (Harman LJ, with whom the rest of the CA agreed)
- 1) On the evidence, the holds were not properly ventilated during the journey (when the ship was berthed at Famagusta), which led to the deterioration of the potatoes

"An explanation there must be, and this heat asphyxiation seems to me (as it seemed to everybody indeed) the only possible one. That it happened at Famagusta during 7

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