UGANDA CHRISTIAN UNIVERSITY

FACULTY OF LAW

INTERNATIONAL TRADE LAW

LL.B 4
Draft Lecture Notes by Robert Kiiza

FOB CONTRACTS (Free on board)

Unlike cif contracts where definitions are many, this is not the case with fob because of
the many uses to which the terms have been put over the years. The term is not
restricted to sea carriage but also covers air, road and rail transport. The essence of fob
contracts was laid out in Wimble & Sons v Rosenburg [1913]3 KB 743 where the fob
contract was described as a contract for sale of goods where the seller agrees to deliver
the goods over the ship’s rail and the buyer agrees to convey them overseas.

In Pyrene v Scindia Navigation [1954]2 ALLER 158, [1954]2 QB 402, Devlin J categorized
the different varieties of fob contracts as follows:
a) In the first or the classic type, the buyer nominates the ship and the seller puts
the goods on board for the account of the buyer procuring a BOL. The seller is a
party to the contract of carriage and if he had taken the BOL to his order, the
only contract of carriage to which the buyer could become a party is that
contained in the BOL endorsed to him by the seller.

b) The second is a variation of the first category. Here the seller arranges for the
ship to come to berth but the legal incidents are the same. This variety is very
rare and is traditionally referred to as fob with additional duties and its closest to
cif except in terms of freight and risk.

c) In the third, the seller puts the goods on board , takes a mates receipt and gives
it-to the buyer or his agent who then takes the BOL. The buyer is party to the
contract of carriage ab initio.

In Wimble & Sons (supra), it was said that the buyer's duty is to nominate the ship and
the seller's to put the goods on board for the account of the buyer and to procure a BOL
in terms usual in the trade and that in such a case the seller is directly a party to the
contract of carriage at least until he takes The BOL in the buyer's name. This is the
classic type of fob which is based on the assumption that the ship nominated by the
buyer will be willing to load any goods brought down to berth.

This classic type is still the most common and most appropriate where either the
buyer's goods are of the type that a particular kind of vessel is required or there are
restrictions that encourage the buyer to use ships of his own national shipping lines. It
is because of this that fob requires the buyer to nominate the ship. On the other hand
the seller may be better placed to make the actual carriage arrangements. Therefore,
though there different kinds of fob contracts, the classic type will be the point of focus.

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DUTIES OF SELLER UNDER CLASSIC FOB
i) The seller must ship goods that match the contract description. In the event of
breach of the sale by description, if the breach is light, the buyer does not
ordinarily reject the goods but treats the breach as one of warranty rather than
condition.

ii) The seller must deliver goods at the specified date of shipment. This is regarded as
a condition of the contract which allows the buyer to repudiate in order to avoid
frequent disputes that would arise if the buyer were always left free to reject the
goods at the destination. So the term is treated as a condition to create certainty.
The date of delivery in fob is related to the date of shipment. The seller is deemed
to have delivered the goods to the buyer when the goods pass the ship's rail on
the date of shipment. The time of arrival at the port of destination is not
important. The seller is also under duty to notify the buyer of the shipment.
Ordinarily in Maritime insurance deeds, where goods are sent to the buyer by sea,
the seller must give notice in a way that enables the buyer to insure the goods
should he want to do so. If the seller fails to do so, then the goods remain at his
risk during transit. However this requirement may not be applied strictly to all fob
contracts. In Wimble & sons v Rosenburg (supra) for instance, it was concluded
interlia that the seller remained at risk if he hadn't given notice to the buyer of the
shipment unless the buyer had sufficient information to insure the goods even if
he may not have the name of the ship or the exact date of shipment.

iii) To pay handling and transportation costs. The seller is responsible for these up to
the time the goods cross the ship's rail. This will include the costs of loading and
'stevedores' unless the port custom provides otherwise.

iv) To ship goods on time. Under fob, the buyer is responsible for the arrangements of
shipping the goods to the destination. The seller is therefore under no duty to ship
the goods until he has received shipment instructions from the buyer. Once he is
instructed by the buyer, the seller is bound to ship the gods in the specified time.
In some cases the contract gives the seller the right to fix the time of shipment. In
that case, the seller must notify the buyer of the date so that he can arrange for the
ship to arrive and load the goods. In the absence of an express provision regarding
notification by the seller, the courts may imply such term into the contract.

In Harlow & Jones Ltd v Panex International Ltd [1967]2 Lloyds Rep 509, the contract
stipulated that the cargo was to be delivered during August-September at
suppliers' option. The seller notified the buyer that half of the cargo was ready for
shipment in August and the buyer didn't respond to the seller's request. On 1 st
August, the buyer informed the seller that he will be calling for loading of the first
shipment between 12th -22nd August and the remainder at the end of the month.
On 3rd August, buyer informed seller that he wouldn't be able to load the 1 st
installment since he had received no confirmation of the communication of 1 st
August. On 11th August, the buyer wanted the seller to guarantee that he will be
able to load the entire cargo on 24 th and 27th. On 22nd though, the buyer cancelled
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 the contract on grounds that the seller had repudiated. The seller claimed
damages for breach.
Held: That in this case the seller had the option of deciding when to ship and
therefore it was necessary to make an implication that before the buyers
nomination of ship, the sellers had to inform them when or approximately when
the sellers expected to load.

DUTIES OF THE BUYER UNDER FOB

Under the fob contract, the duties of a buyer are more extensive than those of the buyer
under a cif, contract. They include the following:

i. To secure shipping space:

The buyer is responsible for arranging the shipment of the goods to their destination.
He has to secure the space and inform the seller in good time that he has done so. The
seller should be informed about the name of the ship, the time it will available for
loading and all the information to enable the seller to ship the goods.

The shipping space must be sufficient for the cargo during the specified shipping
period.
In Cunningham v Monroe [1922]28 Comm Cas 42, the contract was for sale of bran fob
Rotterdam and the shipment period was October. The sellers obtained the goods from
their suppliers on 13th October but the buyers were unable t get a ship on which to load
until 28th October. The sellers claimed that the buyers were in breach of their obligation
to nominate a ship within the shipment period and were thus liable to pay the extra
storage charges.
Held: That the shipment period of October per the contract put the buyers under
obligation to nominate a ship that would load the goods before the end of October.
They had provided a ship which would enable the seller to load the goods over the
ship's rail during October and they were therefore not in breach.

Where the buyer is unsuccessful in securing shipping space to allow the seller to fulfill
his obligation to load in the specified period he may be liable for the extra storage costs.
Where the nomination of a ship is ineffective, the buyer can withdraw the nomination
and substitute it with another provided the loading of the goods can be completed
within the contract period.
In Agricultores Fiderrados V Ampro [1965]2 Lloyds JRep 757, The shipment was to take
place between the 21st - 29th September. The buyer nominated a ship but due to heavy
weather, it was delayed and could not load until the 30th September. On 20th September,
The buyer found another vessel which was already at the port of loading. The seller
refused to co-operate and his failure to cooperate prevented the loading from being
completed on time
Held: That the nomination was valid. According to Widgery. J., “The general law
applying to fob contract is that the buyers shall provide a vessel which is capable of
loading within the stipulated time and if as a matter of courtesy or convenience the
buyers inform the sellers that they propose to provide vessel A, I can see no reason in
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principle why they “Shouldn't change their minds and provide vessel B at a later stage
always assuming that “vessel B is provided within such a time as to make it possible for
her to fulfill the buyer’s obligations under the contract.
Where the seller incurs extra expenses as a result of the re-nomination the buyer meets
the extra costs since the right of re-nomination or substitution imports uncertainty into
the contract. The parties are free to exclude this right of substitution using appropriate
clause, eg, “Nomination once given cannot be withdrawn”.

If the buyer fails to nominate an effective ship or give instructions to the seller on time
to enable him make the suitable arrangements for Loading, the buyer is liable for non
acceptance but if not liable for the price of the goods because the property would not
have passed to the buyer until the cargo is placed on the ship.

In Colly v Overseas Exporters [1921] 126 LT58; The vessel nominated by the buyer was
withdrawn by the ship owners. The buyer was unable to find a substitute vessel. The
seller argued that the buyer was liable for the price.

Held: That since property had not passed to the buyer; the seller could not sue for the
price.

ii) Duty to pay the price:

The buyer is under an obligation to pay for the goods in accordance with t he contract.
Generally, the contract makes express provisions with regard to payment e.g payment
cash against documents or payment by bankers documentary credit. Where there is no
specific provision, the payment is usually against delivery of the goods to the buyer and
this is when the goods pass the ship's rail.

iii) Duty to acquire licenses:

There is no general rule with regard to the party responsible for obtaining licenses
because mercantile practice and case law are not uniform. In HO Brandt v Morris 2 KB
784. The buyer was an American firm and it appointed Brandt in Manchester as agent
for the purchase of oil fob Manchester. The agent placed the order with the defendants.
Subsequent to the signing of the contract, the govt issued an order prohibiting the
export of oil without license. The seller wasn't able to obtain the license and the buyer
sued for non delivery.

Held by C/A: That the duty of obtaining a license was that of the buyer since the buyer’s
obligation in fob is to provide an effective ship which can legally carry the goods

However in AV Pound & Co Ltd v MW Hardy [1956 ] AC 588, the H/L came to a
different conclusion. In this case the contract was for the sale of turpentine (fas) The-
seller-knew that East Germany was the intended destination. Under Portuguese law,
the export of these goods required an export license. Neither the seller nor the buyer
was registered with Portuguese authority for licensing purposes but the seller's supplier
was. The sellers, through their suppliers failed to obtain the license.

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Court concluded that the duty to acquire export licenses was the sellers because in the
circumstances they were in a better position to obtain the license after all their supplier
was registered with the authorities. Court distinguished HO Brandt but was reluctant to
lay down any general rules about the duty of obtaining licenses and it would seem this
is a duty that has to be decided on the surrounding circumstances.

PASSING OF PROPERTY IN FOB SALES

Generally in sale of goods, property passes when the parties intend it to pass and the
intention is taken from the circumstances. However under fob, property passes when
the goods cross the ship's rail. See Pyrene v Scindia (supra)

This however is not always the case where goods form part of a bulk. The property will
pass upon their ascertainment. For ascertainment to take place there must be an
irrevocable act on the part of the seller allocating the goods to the performance of the
contract.

In Carlos Federspiel v Charles Twigg, The buyer bought 85 bicycles and paid for them in
advance. The bicycles were packed, the buyer's name was attached to the package and
the shipment was also registered. However the bicycles had not been sent to the port of
loading. The receiver in bankruptcy claimed that the bicycles were part of the assets
charged by the seller to the debenture holders.

Held That the buyers had not acquired the property since the intention was to pass
property upon shipment. The packaging, marking and other acts of the seller did not
constitute irrevocable earmarking of the goods.

Note: Where the seller takes a BOL in his own name he is taken to have reserved the
right of disposal of the goods but the presumption is rebuttable.