Scottish and Newcastle International Limited v Othon Ghalanos Limited (a company incorporated in Cyprus)1
In this case, the seller (Scottish and Newcastle) sought to recover the price of goods which it had sold to the buyer (Othon Ghalanos). The seller was a company based in Scotland, and the buyer a company registered in Cyprus. The seller initiated proceedings before the English Court on the basis that, under the sale contract, England was the place where the goods were delivered within the meaning of article 5(1) of Council Regulation (EC) No 44/2001 (also known as the “Brussels Regulation” or “EU Regulation”), thereby conferring jurisdiction on the English Court to hear the matter.
The issue before the House of Lords was a short one, namely whether the English Court had jurisdiction to entertain the claim. This, in turn, necessitated the Court’s consideration of article 5(1)(b) of the Regulation.
By way of background, Council Regulation EC 44/2001 relates to the jurisdiction, recognition and enforcement of judgments in civil and commercial matters of Member States, and effectively replaces the Brussels Convention, although the Lugano Convention continues to apply to Iceland, Norway and Switzerland.
In deciding whether or not to hear a claim or stay proceedings in favour of a particular court, the court before which the issue of jurisdiction is raised is required to apply the provisions of the Regulation to ascertain whether or not it has jurisdiction.
(a) Article 2 provides that, as a general rule, persons domiciled in a member state must, whatever their nationality, be sued in the courts of that member state. This is qualified by the specific provisions, such as Article 5.
(b) Article 5(1) provides that, in claims for breach of contract, a person may be sued in the courts of another member state if the conditions of the article are met.
Article 5 provides that:
A person domiciled in a Member State may, in another Member State, be sued:
1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
- in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
- in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided,
(c) if subparagraph (b) does not apply, then subparagraph (a) applies.
Sub-paragraph (b) therefore makes specific provision in sale of goods cases, namely that the place of the performance of an obligation shall be either the place where the goods were delivered or the place where the goods should have been delivered. Accordingly, in the context of the action instituted by the seller in this case, the Court had to determine whether the goods were, or should have been, delivered to the buyer in England.
It was agreed between the parties (and confirmed by the Court) that the Regulation did not purport to impose a uniform concept of delivery and it was left to member states to apply the law applicable to the contract in question in order to determine when delivery took place. In this case, the sale contract was governed by English law, and therefore the question more properly put was whether, under English law, the goods were, or should have been, delivered in England.
In this case, the buyer had agreed to purchase 11 container loads of cider. The cider was shipped at Liverpool and taken by vessels to Limassol where it was delivered to the buyers. The buyer’s primary argument was that the contract provided for Limassol as the place of delivery because this was the port named on the invoices under the box “Place of delivery”. Further, that the terms of delivery were CFR Limassol. The seller’s case was that for the purposes of article 5(1)(b), the cider was delivered in Liverpool, where it was then shipped for carriage to Cyprus.
In considering when delivery took place (which required an application of English law principles), the Court referred to the Sale of Goods Act 1979.
Under the Sale of Goods Act, section 6(1) provides that delivery means the “voluntary transfer of possession from one person to another”. Under section 32, if the seller is authorised to send the goods, then delivery to a carrier for the purposes of transmission to the buyer is deemed to be delivery of the goods to the buyer. This is obviously subject to any terms otherwise agreed by the parties, or where the carrier acts as an agent for the seller.
The Court noted that the Sale of Goods Act reflected the position at common law, for example, in Dunlop v Lambert 2it was said:
“It is no doubt true as a general rule, that the delivery by the consignor to the carrier is a delivery to the consignee, and that the risk is after such delivery the risk of the consignee. That is so if, without designating the particular carrier, the consignee directs that the goods shall be sent by the ordinary conveyance: the delivery to the ordinary carrier is then a delivery to the consignee, and the consignee incurs all the risk of carriage….”
It was the seller’s view that the goods were delivered to the buyer at the point where they were delivered for shipment in Liverpool for transmission to the buyer.
In this case, the buyer had designated the carrier to be used for the shipment of the goods by advising the seller that the goods would be shipped from Liverpool to Limassol by way of Zim Line vessels in accordance with their shipping schedule. In addition, the buyers had negotiated the freight rate with Zim Line. These factors suggested to the Court that Zim Line were the agents of the buyer for the purposes of section 31 of the Sale of Goods Act. As such, the Court stated that it followed that delivery of the cider to the vessels in Liverpool was prima facie deemed delivery to the buyer.
Having come to this conclusion, however, the Court then had to consider whether the parties had made any arrangements which would suggest that it was not the intention of the parties that risk should pass in Liverpool.
Interestingly, the Court did not simply consider whether the contract terms ought to be classified FOB or CIF, but was concerned with the terms of the arrangements made by the parties. This was on the basis that it considered that there is considerable flexibility within and between categorisations such as CFR, FOB, CIF etc so that there is “no really satisfactory definition of such a contract”. Effectively this means that no matter the designation of the type of contract, the court will also look to the actual arrangements in place between the parties.
Here the Court took the view that in all essential respects the contracts were FOB because, essentially, shipment had to be made by the seller at a port designated by the buyer; additionally, the buyer had agreed the freight rate with the shipping line. The nature of the arrangements was that the seller would have no interest in the goods after shipment. It is this latter point which appears to be the Court’s point of departure, particularly in view of the fact that the bills of lading were issued on shipment on behalf of the buyer and that the seller was under an obligation to forward these to the buyer immediately. In this regard, it noted that the seller was to pay freight and obtain the bills of lading from the carrier on behalf of the buyer. The bills were made out to the buyer and were non-negotiable so that the seller did not retain the right to dispose of the property.
Therefore, the Court found that it was clear that the intention of the parties was that property in the goods passed to the buyer on shipment and the seller would have no continuing interest in the goods once they had been shipped. It is in this vein that it concluded that the place of delivery identified on the invoices referred merely to the transport arrangements between the parties.
The combined effect of the arrangements led the Court to conclude that on a proper analysis of the contract, and by reference to English law principles, the contractually agreed place of delivery was Liverpool because under section 32 of the Sale of Goods Act and in view of the common law and the contractual arrangements between the parties, the seller was deemed to have delivered the cider to the buyer at Liverpool. Lord Rodger stated the finding could also be put another way, namely, that where property had passed and the seller had no continuing interest in the goods after shipment, the bills of lading evidenced a bailment with Zim Line as bailee and the buyer as bailor, meaning that, effectively, the carrier held possession of the cargo for and on behalf of the buyer only.
On this basis, the Court found that it had jurisdiction to entertain the claim by virtue of article 5(1)(b) of the Regulation.
In conclusion, it is worth noting the obiter comments of the Lordships where there appeared to be a difference of opinion relating to situations where the place of shipment should be taken to be the place of delivery. Lord Mance took the view that in all types of FOB contracts, including those where the seller retains the bills of lading until, say, payment has been made, for the purposes of article 5(1)(b), the place of shipment should be taken to be the place of delivery. His view was predicated on the fact that it would be undesirable if, according to an analysis of the type of FOB contract, the place of delivery for the purposes of article 5(1)(b) could vary. He went on to say that it was quite conceivable that in certain situations, there may be no necessary connection between delivery and the passing of property.
In contrast, Lord Rodger felt that the bills of lading were a symbol of the goods so that if the seller retains the bills, he also retains the right to possession of the goods until he is paid, ergo there can be no intention to deliver. Accordingly, his view was that even if the seller then shipped the goods on a vessel nominated by the buyer, there may be no intention to transfer possession of the goods. In that eventuality, Lord Rodger felt that there was at least an argument to be made that section 32 of the Sale of Goods Act was displaced by the terms of the contract because the goods are not “delivered” at the place of shipment.
These comments suggest that although there are readily ascertainable basic principles of delivery under English law, each case is subject to the contractual arrangements made by the parties in the shipment of goods and what the Court derives the intention of the parties to be from those arrangements.
1. 2008 WL 371004
2. (1839) 6 Cl. & F 600
