1. Formation of a contract of sale
1.1 What are the formalities for the formation of a
contract of sale under the laws of your country? Can a
contract be made by exchange of emails/faxes? Is a
signed or sealed contract needed? Can a contract made
orally be enforced?
A contract for the sale of goods does not require
compliance with formality. It may be made in writing
(either with or without seal), orally, or partly in
writing and partly by word of mouth. It may even be
implied from the conduct of the parties. This is
expressly set out in Section 4 of the Sale of Goods Act
1979, the Act which consolidates the law relating to the
sale of goods in England (the “SGA 1979”).
Accordingly, a signed or sealed contract is not
needed and a contract evidenced by an exchange of
e-mails or other means of rapid communication will be
effective and binding. In general however, a signed or
sealed contract is to be preferred on the basis that it
constitutes the most compelling evidence of the parties’
agreement and its terms. In certain jurisdictions, a
contract that is not so evidenced is not afforded
judicial recognition upon an attempt to enforce,
notwithstanding the English legal position.
The general legal principles applicable to the
formation of contracts apply. Accordingly, the minimum
requirements necessary for the creation of a contract
must be satisfied. The three essential requirements are
namely: an offer, the acceptance of an offer and
consideration.
1.2 Are there any limitations on the capacity of a
party to enter into a contract of sale as seller or
buyer? Are there any special limitations for signing a
contract? Is the position different if the contract
incorporates an arbitration agreement?
The capacity of a party to buy or sell commodities is
regulated by the general law concerning capacity to
contract and to transfer and acquire property (Section
3(1) of the SGA 1979). Subject to few limited
exceptions, there are no limitations on the capacity of
any person to acquire goods under English law.
The capacity of a company is restricted in law to
activities which are within the scope of the objects
clause contained in its memorandum of association.
Therefore, a contract made with a company might be open
to challenge on the ground that the directors (or other
person or persons representing the company) lacked the
authority required to bind the company or acted in a
manner which is not within the powers of the company or
which infringes some other constitutional provision of
the company. The English Companies Act 1985 provides,
however, that in favour of a person dealing with a
company in good faith, the power of the board of
directors to bind the company, or to authorise others to
do so, shall be free of any limitation under the
company’s constitution. The doctrine of ostensible
authority applies in favour of a party relying on the
apparent authority of a non-director officer of the
counterparty. Thus, in the absence of an express
stipulation, a “trader” within a commodities trading
house will be deemed to possess the authority to
conclude contracts for the sale of commodities.
The incorporation of an arbitration agreement in a
contract of sale does not change the above position and
requires no special formality or authority of the
parties.
1.3 Are there any sources that a party is advised to
check to ensure that a contract of sale is authorised by
the company?
It is advisable that a party wishing to create a
contract of sale should verify that the officer signing
the contract on behalf of a counterparty has the
requisite authority to bind the company. By conducting a
search at the Companies Registry, a party can at least
ascertain the identities of the company’s directors. If
the person signing the contract is not a director, it
would be prudent to seek written confirmation of the
officer’s authority signed by a director.
1.4 How far are the principles of “freedom of
contract” applicable? Should the parties to a contract
of sale check restrictions under local law? Should they
do so even if the sale contract is expressly subject to
another legal system?
Section 55(1) of the SGA 1979 maintains the
traditional freedom of parties to a contract to fix the
terms of their own bargain. However, certain, albeit
limited, restrictions to this freedom apply by virtue of
the Unfair Contract Terms Act 1977 (the “UCTA 1977”), to
which the section itself makes reference. The UCTA 1977
is principally a consumer protection measure, but in
certain circumstances also applies to commercial
contracts, such as contracts of sale. The UCTA 1977
restricts, and in certain instances negatives
altogether, the freedom of parties to exclude or vary
the terms implied into a contract of sale of goods by
the SGA 1979 in respect of title, quality, fitness of
the goods etc. However, the limits on contracting out
imposed by the UCTA 1977 do not apply to international
commercial contracts. In such contracts therefore the
English common law principles will apply.
The SGA 1979 does not authorise the parties to create
their own rules as to what should amount to a binding or
enforceable contract or to disregard the effect of
factors such as incapacity, misrepresentation or
illegality.
The parties should ascertain any applicable
restrictions on the capacity of a counterparty (for
instance, a governmental body or agency) to contract on
commercial terms, whether or not the contract is
governed by the law of the place where the counterparty
is incorporated. Among other things, the UCTA 1977
provides that its terms are effective notwithstanding
any foreign choice of law clause in the contract, where
the clause appears to the court or arbitrator to have
been imposed wholly or mainly for the purpose of
enabling the party imposing it to evade the operation of
this Act, and the essential steps necessary for the
making of the contract were taken there, whether by him
or by others on his behalf. However, the UCTA 1977 and
its restrictive regime does not apply where the proper
law of a contract is the law of any part of the United
Kingdom only by the choice of the parties. The effect of
this exclusion is that the English courts will refuse to
allow a party to a contract of sale to invoke
restrictions imposed by the UCTA 1977 if there is no
indication that English law would otherwise have been
the proper law of that contract. The UCTA 1977 is
therefore very unlikely to apply to a contract of sale
provided that the contract does not bear a sufficiently
close connection to England.
2. Classification of terms
2.1 How are the sale contract terms classified (i.e.
important/less important terms) and what is the
consequence of such classification?
The terms of any contract governed by English law are
often classified as being either conditions or
warranties. The difference between the two categories is
that, in general, any breach of a condition entitles the
innocent party, if he so chooses, to treat himself as
discharged from further performance under the contract,
and in any event to claim damages for loss sustained by
the breach. A breach of warranty, on the other hand,
does not give rise to a right to treat the contract as
discharged, but creates an entitlement to damages only.
The dichotomy between conditions and warranties is
not, however, exhaustive. The more modern law provides
that there exists a third category of intermediate (or
innominate) terms, the failure to perform which may or
may not entitle the innocent party to treat himself as
discharged, depending on the nature and consequences of
the breach.
Whether a term constitutes a condition, warranty or
intermediate term will turn in all cases upon the
intention of the parties to the contract. In the absence
of an expressed intention, the law infers an intention
or is guided by statute or judicial precedent as to the
effect of a particular provision or type of provision.
For instance, in international sales agreements, terms
that relate to the timing of the performance of
obligations are, in absence of evidence of a contrary
intention, regarded as being conditions.
3. Validity of a contract of sale
3.1 Can misrepresentation affect the validity of a
contract of sale?
One of the remedies prescribed by law in relation to
the contracts entered into in reliance upon a
misrepresentation is the remedy of rescission. A party
influenced by a misrepresentation in deciding to enter
into a contract may be entitled to avoid the legal
relations created by it.
The English Misrepresentation Act 1967 affords a
party to a contract a statutory action for damages
against a counterparty who makes a false representation,
unless the counterparty demonstrates that he had
reasonable grounds to believe and did, in fact, believe
that the facts represented to the other party were true.
3.2 Can illegality affect the validity of a contract
of sale in your country?
Yes. In general, the consequence of illegality
affecting a contract is that it is unenforceable based
on public policy. Neither party can sue to recover money
paid or property transferred pursuant to such a
contract.
A contract of sale which is “tainted” or affected
with illegality cannot be enforced by a party who is
aware of the illegality. If both parties are aware of
the illegality, the contract cannot be enforced by
either of them.
A party who is innocent of the illegality is not
deprived of a remedy: he may not, of course, compel
performance of an illegal promise, and he is entitled
(and, indeed, bound) himself to stop further
performance. However, he may sue for a price, or claim
on a quantum meruit (fair price) in respect of
such performance as he has already given; and he may sue
for damages for breach of the contract. For this
purpose, a party is an innocent party if he was unaware
of the facts making the contract illegal or of the
illegal purpose which the other party had in mind.
3.3 What is the effect of bankruptcy or insolvency
of a party on the validity of a contract of sale? Does a
liquidator or other duly appointed insolvency officer
have the power to set aside the contract?
Neither the bankruptcy nor the insolvency of a party
affects its capacity to contract, or operates, of
itself, to terminate a contract already made by that
party. A liquidator or other duly appointed insolvency
officer has no power to set aside a contract.
However when an insolvency order is made, all the
property belonging to or vested in the bankrupt at the
commencement of the bankruptcy or accruing to him
thereafter passes by law to the trustee of his estate.
4. Passing of ownership and risk
4.1 What are the factors that determine whether and
when title in goods passes from the seller to the buyer?
The question whether and at what time title/ownership
in goods passes from the seller to the buyer is
dependent upon the intention of the parties. If no
intention has been expressed by the parties, Section 18
of the SGA 1979 sets out rules relevant to ascertaining
the intention of the parties as to the time at which the
title/ownership in the goods is to pass to the buyer. It
is considered best practice to state expressly in the
contract when title/ownership, such pass to the buyer.
Where contracts involve documents of title, such as
bills of lading, there is a presumption that title shall
pass when the documents of title are unconditionally
released to the buyer.
4.2 Will the courts in your country apply local law
or the law of the contract of sale to determine the
issue as to which party has property over goods? Does
the answer change if third parties (i.e. not parties to
the contract of sale) are involved?
As we have indicated above, English law will look to
the parties’ intention (express or implied) as to when
title in respect of goods is transferred under a
contract.
The contractual position as to whether title in
respect of goods has been transferred is, in the
majority of cases, still relevant.
The law requires that questions of proprietary rights
in moveable goods be decided by reference to the law of
the place where the goods are situated the lex situs.
Where the lex situs allows the passing of
property to depend upon the intention of the parties (as
is generally the case under the SGA 1979) and the
parties have chosen a law other than the lex situs
to be the governing law, a court may infer from such
choice (though it should not do so automatically) that
they intended the rules of that law as to the passing of
property to apply to their transaction.
The position is unchanged where a third party becomes
involved or asserts rights in the goods. English law, as
the lex situs, will apply its laws and rules in
determining the competing interests between the relevant
parties.
In English law, this means that the Courts will apply
the general rule that no one can transfer a better title
to goods that he himself possesses. (This rule is often
expressed in terms of the latin maxim nemo dat qui
non habet). In recent years the law has developed a
series of exceptions to this general rule in order to
protect innocent third parties from the harsh effects of
the rule. The most significant of these exceptions in a
commercial context is that a person who takes goods in
good faith and for value without notice of the deficit
in title should take good title to the goods.
4.3 What are the factors that determine whether and
when risk in respect of goods passes from the seller to
the buyer? What (if any) is the relationship between the
passing of risk of loss/damage in the goods and the
passing of property?
As a general rule, risk of loss or damage to goods
transfers at the same time as property. Section 20 of
the SGA 1979 provides that unless otherwise agreed, the
goods remain at the seller’s risk until the property in
the goods is transferred to the buyer. When property in
the goods is transferred to the buyer, the goods become
“at the buyer’s risk” whether delivery has been made or
not.
The parties may (and often do), by express or implied
agreement provide in contracts of sale that the passing
of risk is to be separated from the passing of property.
An agreement that one party or the other will bear the
risk may be inferred from the parties’ course of
dealing, or by usage binding on both parties.
In relation to contracts requiring goods to be sent
to the buyer, the SGA 1979 defines delivery as taking
place upon delivery to a carrier for transmission to the
buyer. Accordingly, the effect of this provision on the
majority of international sale contracts is that
delivery takes place upon shipment. It is extremely
common in international sales for risk to pass upon
shipment.
4.4 In what circumstances will the courts in your
country give effect to a provision in the contract of
sale that reserves or purports to reserve title or other
rights over goods once the seller has parted with
possession of the goods?
Section 19(1) of the SGA 1979 expressly provides that
the seller may, by the terms of the contract or of the
appropriation of goods to a contract, reserve the right
of disposal of the goods or similar rights until certain
conditions are fulfilled. Ultimately, therefore, the
effect of a reservation of title clause will depend upon
the terms of the contract and the conditions it imposes
upon a transfer of title.
“Appropriation” is an act by the seller of
unascertained goods by which the seller binds himself
contractually to deliver particular goods (or goods from
a specific source), or the documents representing them.
If the seller reserves a right of disposal by an
express reservation of title (“ROT” clause),
notwithstanding the delivery of the goods to be buyer,
or to a carrier for the purpose of delivery to the
buyer, the property in the goods does not pass to the
buyer until the conditions imposed by the seller are
fulfilled.
The condition most commonly imposed in such a
reservation is full payment of the price. However, the
seller is at liberty to reserve the right of disposal on
whatever conditions he himself wishes to impose.
In relation to contracts that involve payment of the
price being made upon the presentation of title
documents or documents conferring rights of delivery of
possession, there is an implied reservation of a right
of disposal by the seller pending such presentation or
payment by the buyer of the price.
4.5 Is a provision that reserves title over the
goods sufficient for legal title to the goods to remain
vested in the seller notwithstanding the passing of risk
on shipment?
Yes. Where the seller reserves title over goods, he
retains both the legal and beneficial ownership of the
goods and no equitable interest passes to the buyer
notwithstanding that the goods are ascertained and have
been appropriated to the contract.
4.6 In contracts for the sale of goods that form
part of an identified bulk, can property be passed
before the goods are separated from the bulk?
Yes, but subject to the conditions set out in Section
20A of the SGA 1979. The bulk must be identified and the
buyer must have paid the price. The buyer then becomes
an owner “in common” with other owners of the bulk in
proportion. If these conditions are not met, property
cannot pass.
5. Performance of a contract of sale
5.1 What is the place of delivery of the goods in
the absence of any agreement, express or implied,
between the parties?
In the absence of the parties’ agreement, express or
implied, as to the place of delivery, section 29(2) of
the SGA 1979 provides that the place of delivery is the
seller’s place of business. Usually, however, a sale
contract will expressly state the place at which
delivery is to be effected.
In cases where the seller has more than one place of
business, the appropriate place of delivery can be
established from the circumstances surrounding the
contract of sale and the respective positions of the
parties.
5.2 What is the time of delivery of the goods in the
absence of any agreement, express or implied, between
the parties?
If the contract is silent as to the time of delivery,
the goods must be delivered within a reasonable time of
the contract being made (Section 29(3) of the SGA 1979).
What is a reasonable time is a question of fact
determinable by reference to the circumstances of the
contract including the nature and the type of goods
being sold and the availability of such goods in the
market.
If the contract expressly provides a time for
delivery or shipment, this is almost invariably a
condition of the contract. A delivery in such cases
would constitute a breach of condition and would be
repudiatory. In contracts of the kind that authorise the
seller to deliver goods to a carrier for transmission to
the buyer (such as CIF contracts), the tender of a bill
of lading reflecting shipment beyond the last possible
date of delivery will be liable to rejection by the
buyer.
5.3 What is the place of payment of the price for
the goods where no place of payment is specified in the
contract?
Where no place of payment is specified in the
contract, the place of payment depends upon the
intention of the parties to be inferred from the terms
of the contract and circumstances prevailing at the time
the contract was concluded.
In most cases, the method of payment prescribed in
the contract will determine where payment is to be made.
If no place of payment can be implied, it has been said
to be a general rule that “the debtor must follow his
creditor and must pay wherever his creditor is”.
In commercial transactions, however, the general rule
would seem to be that payment is to be made at the place
where the creditor resided or carried on business at the
time of the contract. In contracts of sale, this means
the seller’s place of business, if he has one, or if
not, his residence. The seller should closely follow the
contract provisions when demanding payment, because the
buyer is only obliged to pay in the contractually agreed
manner.
5.4 If no time of payment is specified in the
contract of sale, what is the time at which payment is
to be made?
Where no time of payment is expressly or impliedly
specified in the contract, payment is generally due when
the seller informs the buyer that he is ready and
willing to deliver the goods, since by virtue of section
28 of the SGA 1979 delivery of the goods and payment of
the price are, unless otherwise agreed, concurrent
conditions. In other words, they must happen at the same
time.
Under English law, the time for payment of the price
is not a condition of contract unless the contract
provides otherwise. However, the time for establishing a
payment instrument (such as a documentary credit) or an
instrument supporting the buyer’s payment obligation
(such as a letter of credit, performance bond or
guarantee) will be a condition of the contract. A
failure by the buyer to comply with any time limit
imposed by the contract will be repudiatory.
5.5 In determining the duties of the parties in C&F,
FOB, CPT and similar contracts, will the “INCOTERMS”
publication by ICC be followed in determining which
party does what?
The “INCOTERMS” will be followed if the parties to a
contract of sale make the contract subject to
“INCOTERMS” by express incorporation into the contract.
If the parties do not incorporate the “INCOTERMS” into
their contract, these rules do not strictly apply.
Nonetheless they serve as a useful guide as to what the
parties mean by attaching the abbreviated INCOTERMS
labels to their contracts.
6. Frustration of the contract of sale / Force
Majeure
6.1 Is there a doctrine of force majeure or a
similar doctrine under local law? In what circumstances
may a contract of sale be frustrated or be subject to
force majeure?
There is no legal doctrine of force majeure in
English law. Force majeure clauses are however
frequently found in commercial contracts including
contracts for the sale of goods. Such clauses will
usually contain a list of events the occurrence of which
will excuse or suspend delivery.
Frequently a number of events will be specified in
such force majeure clauses and it is for the
party seeking to invoke the force majeure clauses
to bring himself within the force majeure clause
by demonstrating the occurrence of a force majeure
event. Force majeure clauses are subject to
strict interpretation and any doubts about the meaning
of words and events listed in such clauses will be
resolved against the party seeking to invoke the clause.
A contract of sale may be frustrated when it has
become impossible or incapable of being performed by
either of the parties upon the happening of an
unspecified event or events beyond the parties’ control.
6.2 What are the consequences of frustration or
force majeure on a contract of sale?
Frustration brings the contract to an end forthwith,
without more, and automatically, in the sense that it
releases both parties from any further performance of
the contract. A court does not have the power to allow
the contract to continue and to adjust its terms to the
new circumstances, but does have some power to order
reimbursement of monies paid or payment for work already
done.
As regards force majeure, the effect depends
on the terms of the force majeure clause in the
contract. It is common for force majeure clauses
to provide that performance is suspended for a period
prior to the parties’ obligations being totally
discharged.
7. Remedies of the parties
7.1 What are the remedies of the buyer against the
seller in respect of goods delivered in breach of a
contractual term as to (a) quality (b) condition (c)
quantity or (d) description?
The remedies available for breach of such contractual
terms will depend largely upon whether one classifies
such terms as warranties, conditions or intermediate
terms of the contract. As mentioned in the answer to
question 2.1 above, a breach of condition gives rise to
a right to terminate and claim damages whereas the
remedy for a breach of warranty will be damages only. A
breach of an intermediate term may give rise to a right
to terminate the sale contract if the breach and /or its
consequences is/are of a serious nature.
In general, it is thought that terms relating to
quality and condition are likely to be construed in the
majority of contracts as for the sale of goods; whilst
terms relating to quantity and description would be
treated as conditions.
Accordingly, a right to reject goods and/or documents
tendered in respect of goods will arise where there has
been a breach of the terms of the sale contract relating
to quantity and description. A similar right to reject
goods will arise in respect of a breach of terms
relating to quality and condition where the breach or
its consequences are of a serious nature.
The right to reject goods and documents will
invariably be accompanied by a right to claim damages,
for example, for non-delivery by the seller.
As regards the damages recoverable by an innocent
buyer in circumstances where such breaches occur, the
position may be broadly summarised as follows.
Where a breach of a contractual term as to quality
occurs, the buyer is entitled to bring an action against
the seller for damages. The measure of damages for such
breach is generally the difference between the actual
value of the goods at the time of delivery to the buyer
and the value they would have had, had they had complied
with the terms of the contract with respect to quality
(Section 53(3) of the SGA 1979).
In addition to the above, the buyer may recover
special damages under Section 54 of the SGA 1979 in
respect of losses suffered by him as the result of
special circumstances provided that these were
communicated to or known by the seller at the time the
contract was made, such as the costs of remedying the
defect, the cost of acquiring substitute goods or
expenses wasted as a result of the defect in quality.
The buyer also has the right to recover interest.
A similar measure of damages applies in relation to
breaches of condition and description of the goods.
Where the seller delivers to the buyer a quantity of
goods less than the minimum quality he has contracted to
sell, the buyer may sue for any losses arising out of
the seller’s breach. If the buyer accepts the goods so
delivered, he must pay for them at the contract price
(Section 30(1) of the SGA 1979). In the latter case, the
buyer also has the right to claim damages from the
seller for non-delivery of the balance. Where the seller
delivers to the buyer a quantity of goods larger than
the one he contracted to sell, the buyer may accept the
contracted quantity and reject the rest, or he may
reject all of the goods (Section 30(2) of the SGA 1979).
The seller has no right to insist upon the buyer’s
accepting the correct quantity out of the larger
quantity delivered. If the buyer accepts all of the
goods so delivered, he must pay for them at the contract
price.
7.2 What remedies does the buyer have against the
seller for non-delivery of the goods?
Section 51 of the SGA 1979 provides that when the
seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may maintain an action
against the seller for damages for non-delivery.
The measure of the buyer’s damages is the estimated
loss directly and naturally resulting, in the ordinary
course of events, from the seller’s breach of contract.
Where there is an available market for the goods in
question, the measure of damages is ordinarily to be
ascertained by reference to the difference between the
contract price and the market or current price of the
goods at the time or times when they ought to have been
delivered or (if no time was fixed) at the time of the
refusal to deliver.
In addition to the above, by Section 54 of the SGA
1979, the buyer has the right to recover interest and
consequential losses, such as extra expenses incurred by
him as a result of the seller’s breach. A loss of profit
under a resale is recoverable in limited circumstances;
the buyer can recover such loss only when the seller
should have contemplated, at the time the contract was
made, both that the buyer was, or was probably, buying
for resale, and that the buyer could perform his
obligations under a contract of resale only by
delivering the same goods.
7.3 Does the buyer have any remedies against the
seller for delay in delivery of the goods?
Yes. In the first place, a delay in delivery beyond
the time specified in the contract is likely to be
repudiatory and would therefore give rise to a right to
reject on late tender of goods. In other words the buyer
can terminate the contract if delivery is effected later
than the final date agreed in the contract.
Additionally, the buyer is entitled to bring a claim
against the seller for damages for delay in delivery.
The objective of such damages would be to place the
buyer into the financial position he would have been in
had the seller fulfilled his contractual obligation with
regard to the time for delivery of the goods.
Where there is an available market for the goods, the
usual measure of the buyer’s damages is the difference
between (a) their market value at the time and place
fixed for delivery by the terms of the contract, and (b)
their market value at the time when (and the place
where) the goods were in fact delivered to the buyer.
The buyer may also seek damages for any extra
expenses he incurs as a result of not having the goods
delivered on time. The expenses must be such as were
within the reasonable contemplation of the parties, at
the time the contract was made, as “not unlikely” to
result from a delay in delivery.
The general rule (subject to a few, limited
exceptions) is that the buyer cannot recover any loss of
profits under a contract of resale when the seller makes
a late delivery under the original contract.
7.4 What are the main remedies of an unpaid seller
against the buyer? Does the unpaid seller have any
rights over the goods themselves?
The unpaid seller’s main remedy is to sue the buyer
for the price of the goods. Usually property must have
passed to the buyer in order for the buyer to sue for
the price (Section 49 of the SGA 1979). In addition to
recovering the price itself, the unpaid seller may bring
a claim for interest on the price of the goods or a
claim for consequential losses.
Where property in the goods has not passed to the
buyer, the unpaid seller’s remedy is an action for
damages for non-acceptance. The measure of damages is
the estimated loss directly and naturally resulting, in
the ordinary course of events, from the buyer’s breach
of contract (Section 50 of the SGA 1979). This is
usually the difference between the contract price and
any resale price achieved by the seller in respect of
the goods not accepted. In addition to damages for
non-acceptance, the unpaid seller may bring an action
for consequential losses or expenses.
English law also gives an unpaid seller remedies in
respect of the goods themselves. Accordingly, Section
39(1) of the SGA 1979 provides that, notwithstanding
that the property in the goods may have passed to the
buyer, the unpaid seller has by implication of law (a) a
lien on the goods or a right to retain them for the
price while he is in possession of them; (b) in case of
insolvency of the buyer, a right of stopping the goods
in transit after he has parted with the possession of
them; (c) a right of resale as limited by the SGA 1979.
The remedies in respect of the goods themselves arise
“by implication of law” under Section 39(1) of the SGA
1979 and can be excluded or varied by express agreement
in the contract.
8.0 Assessment of damages
8.1 Are there any general rules which are used to
decide what types of losses caused by a breach of
contract may be recovered by the innocent party by way
of damages?
The parties have the right to agree and specify in
their contract both the type and amount of damages
available to the innocent party following the other’s
breach of contract. It is common for the parties to
specify a liquidated or fixed amount payable in certain
situations; for instance, demurrage in respect of a
failure to maintain discharge rates of ocean vessels or
allowances payable for minor deficiencies in quality
specification. There are however general rules for the
assessment of damages for breach of contract which apply
to all contracts.
The law relating to damages for breach of contract is
complex and a wide body of authorities exists. There are
three basic and fundamental issues that commonly arise
in the context of the sale of goods and only brief
reference is made here.
The first is that only losses that flow naturally and
directly from the relevant breach are recoverable
(section 50(2) of the SGA 1979). The effect of this is
that a party claiming damages must demonstrate a causal
connection between the breach and the loss claimed in
order to be entitled to make a recovery. Where a loss is
attributable to more than one cause, the claimant is
only entitled to recover damages in respect of which the
breach complained of is the dominant or effective cause.
Secondly, a “remote” loss is not recoverable. Not
only must the loss flow naturally and directly from the
breach, but it must be of a type that would arise in the
ordinary course of events from the breach of contract. A
legal test that is commonly applied in determining
whether a loss is of a remote type is to ask whether a
particular type of loss was, or should have been, within
the parties’ reasonable contemplation at the time when
the contract was made.
Finally, the normal rule for the assessment of
damages assumes that the innocent party should act
immediately upon the breach on mitigating his losses by
buying or selling, as the case may be, in the market if
there is an available market. This is the principle of
mitigation in relation to which please see answer to
question 8.3 below.
8.2 What is the relevant date for the assessment of
damages?
The general rule is that damages for breach of
contract should be assessed as at the date when the
cause of action arose, viz. the date of the breach. This
rule usually applies where substitute performance is
readily available in the market.
8.3 Is the innocent party under any duty to mitigate
its losses consequent on a breach of the contract of
sale? If so, what is the extent of that duty?
The innocent party cannot recover for loss caused by
the other party’s breach of contract where the innocent
party could have avoided the loss by taking reasonable
steps. This “avoidable loss” rule debars the innocent
party from claiming any part of the damages which is due
to his neglect to take such steps. The onus of proof is
on the party which breached the contract to show that
the innocent party ought reasonably to have taken
certain steps to mitigate his loss.
However, since the defendant is the wrongdoer, in
breach of his contractual obligation, the standard
imposed on the innocent party is not generally a high
one and the innocent party would not ordinarily be
expected to take steps other than in the ordinary course
of its business.
9. Instalment Contracts
9.1 Can a breach of one or more instalments entitle
the innocent party to terminate the balance of the
contract of sale?
The answer depends upon whether the contract of sale
is entire or severable, i.e. divisible.
A contract of sale is an entire contract where the
liability of one party to perform is dependent upon
complete performance of the obligations by the other
party. In the case of an entire contract, a partial
breach by the seller is treated as a total breach and
the buyer is entitled to reject all of the goods for any
breach of condition.
A contract of sale is severable when the goods are to
be delivered by instalments and the instalments are to
be separately paid for. In the case of a severable
contract, a breach relating to one or more instalments
must be considered in the light of its effect on the
contract as a whole. The innocent party will not
necessarily be entitled to treat the whole contract as
repudiated by virtue of such a breach, although
additional circumstances accompanying the breach may
well give rise to such a right.
9.2 Can the innocent party legitimately demand some
guarantee of future correct performance?
No. The innocent party cannot, in the absence of an
express contractual term, demand from the seller any
guarantee of future correct performance.
10 Assignment
10.1 Can a contract of sale be assigned by one party
without the permission of the other? If so, is notice
required?
The rights of either party under a contract of sale
may in general be assigned to third parties. Thus, a
claim for the price may be assigned by the seller to a
third party (assignee) However, as a general rule,
obligations of a party to a contract of sale cannot be
assigned except with the consent of the contracting
parties. Accordingly, where the right of a party is
conditional upon the performance by him of his own
obligations that right cannot be assigned (except with
the consent of the other party) in any way which
discharges him from his own duty of performance.
11 Sources of law relating to sale of goods
11.1 What is the main source of the law relating to
the sale of goods?
The Sale of Goods Act 1979 which came into force on
January 1, 1980, consolidates the law relating to the
sale of goods. The SGA 1979 applies to contracts for the
sale of all types of goods. As a result, it is not
specific to international sales and case law supplements
the Act substantially relating to CIF/FOB contracts,
what are conditions, time for performance etc. The Act
is not therefore always helpful or complete.
11.2 Is the Vienna Convention on Contracts for
International Sale of Goods applicable in your country?
The Vienna Convention on Contracts for the
International Sale of Goods, which governs the rights
and duties of the parties to, and the formation of, such
contracts, has not yet been ratified by the United
Kingdom.
Almost all standard commodity trading association
rules and standard forms expressly exclude the Vienna
Convention.
11.3 Are clauses exempting or excluding liability of
a party to a contract of sale effective?
Not always. Clauses that exempt or exclude liability
of a party to a contract of sale are subject to the
reasonableness test; liability therefore may be excluded
in so far as the clause relied upon satisfies the test
of reasonableness. Further, the UCTA 1977 imposes
restrictions on the freedom of the parties to exclude
liability (see also answer to question 1.4 above).
12 Conflict of Laws
12.1 What are the rules relating to the law
application to the contract of sale in your legal
system?
The rules relating to the law applying to the
contract of sale fall into two groups which reflect the
dual aspect of the contract of sale as both a
contractual and proprietary transaction.
Contractual issues are referred to the “proper law”
of the relevant contract. The rules of the Rome
Convention on the Law Applicable to Contractual
Obligations 1980 (“the Rome Convention”) apply to
determine the law applicable to a contract of sale which
is entered into after April 1, 1991. In general, an
express choice of law in the contract is advisable and
would be upheld.
Proprietary issues are generally referred to the law
of the country where the goods are situated at the
relevant time (lex situs). The proprietary
aspects of sale are generally untouched by the Rome
Convention.
12.2 If the parties to an international contract of
sale have not expressly chosen the law which will govern
the contract, what factors will determine which law is
applied?
Where there is no valid choice of the law governing
the contract, the courts will consider whether the
parties have, by implication, come to an agreement as to
what should be the proper law.
When the proper law is not expressly or impliedly
chosen by the parties, the law is to be taken to be the
law of the country or the system of law with which the
transaction has the “closest and most real connection”.
In relation to contracts for the sale of goods, this is
likely to be the law of the place in which no delivery
and/or payment obligations were to be performed.
12.3 Are any limitations imposed on the freedom of
the parties to choose the law governing a contract of
sale?
The law chosen by the parties must be the law of a
country, in the sense of a recognised and definable body
of national law rules. Thus if the parties stipulate in
the contract that it shall be governed by “general
principles of law” or by “its own terms” or by “the
lex mercatoria”, this is not considered a choice of
law.
Very few limitations are imposed on the freedom of
the parties to choose the law governing a contract for
the sale of goods. Such restrictions that exist emanate
from general rules of the Rome Convention and from a
special provision of the Rome Convention concerned with
“certain consumer contracts” which may include, but is
not confined to, certain contracts for the sale of
goods.
Article 7(2) of the Rome Convention provides that
nothing in the Rome Convention restricts the application
of the rules of the forum in a situation where they are
mandatory irrespective of the law which would otherwise
apply to the contract.
A further general restriction on the effect of a
choice of law is to be found in Article 16 of the Rome
Convention according to which the application of a rule
of the law of any country specified by the Rome
Convention “may be refused only if such application is
manifestly incompatible with the public policy of the
forum”.
13 Warehousing and storage
13.1 What is the legal effect, if any, of a
warehouse receipt or a warrant under the laws of your
country? Are they documents of title?
English law does not recognise a warehouse receipt or
a warehouse warrant as a document of title except where
such documents acquire the status of title documents
through trade custom or usage or by Acts of Parliament.
There are very few examples of a commercial custom
having been proven in relation to warrants. It is widely
thought that warrants traded on London Metal Exchange
are very likely to be given recognition as documents of
title by virtue of trade custom and usage in relation to
LME warrants.
There are very few examples of relevant “statutory
documents on title”.
13.2 If not, how is title over goods held in storage
transferred and proven?
Title in respect of goods held in storage is
transferred by agreement. As with any contract of sale,
there is no formal document necessary in order to convey
title in moveable goods.
Commonly, a contractual transfer of title will and
should be accompanied by the transfer or the issuance of
a warehouse receipt or other storage contract conferring
rights of delivery in favour of the holder of the
warehouse receipt, the owner of the goods.
Proving title over goods requires evidence. Usually,
in the absence of a dispute or a challenge to a party’s
ownership, proof of the rights to delivery conferred by
the warehouse receipt or storage contract, accompanied
by a copy of the agreement pursuant to which title was
transferred will be sufficient.
In cases where the assertion of title is challenged
by a third party or parties asserting an interest in
stored goods, title needs to be deduced by reference to
all of the evidence.
13.3 Is it necessary to register an interest in
goods in order to protect such interest against third
party claims or interests?
Rights of ownership in moveable goods are best
protected by notice to the outside world. However, it is
not possible to register a title interest in respect of
moveable goods in the U.K. Accordingly, it is common
practice and advisable for the owner of goods to place
an easily visible notice within the vicinity of the
goods in storage stating clearly the name of the owner
and requiring that all dealings in respect of the goods
present be directed to the owner.
13.4 Are there any other interests over moveable
goods that the laws of your country will recognise? For
example, a pledge or a charge?
The English law recognises a pledge or a charge over
moveable goods.
A pledge is a bailment, that is, a delivery of
possession, of goods, or of documents of title to goods,
in order to secure a debt. Ownership of the goods
remains with the debtor/pledgor. The pledgee has a
common law right, in the event of default in payment of
the debt of the pledgor, to sell the goods without first
obtaining the authority of the court.
A charge gives neither ownership to nor possession of
the goods but gives a right to the chargee to have
specified property of the debtor applied to the
discharge of the debt. A charge must always be
equitable, unlike a pledge which is a matter of common
law and which therefore takes priority over a charge.
13.5 If so, how are such interests created? Is it
necessary to protect them by registration?
Security interests, such as a pledge, are simple to
create: what is needed is transfer of possession and an
intent to create a pledge. Possession gives the pledgee
full control over the relevant goods, accompanied by
effective powers of enforcement and a legal interest
which prevails against third parties.
Security, once granted, needs to be properly
perfected before it is fully valid against third parties
and the debtor. Perfection can involve possession of the
charged asset, registration or notice. Failure to
perfect security will mean that the security is void
against other creditors, liquidators, administrators and
other parties.
A pledge, however, is exempted from the requirement
of the Bills of Sale Acts for registration. It can be
created by mere oral agreement and physical delivery,
and need not be generated, constituted or evidenced by
any written instrument. Of course, it is always in
practice sensible for it to be in writing. If however a
pledge has the effect of creating a charge over an
asset, it will have to be registered.
A charge over an asset requires registration in order
to be effective.
13.6 In relation to all of the questions at
paragraphs 13.1 to 13.5 what if anything is the effect
upon title or other security interests of co-mingling
the relevant goods with other goods?
Subject to the conditions specified in Section 20A of
the SGA 1979 it is possible for a party to become the
“owner in common” of a part of a commingled “bulk” or
quantity of goods. It is theoretically possible for that
party to create a security interest by way of a pledge
in respect of its interest in its share of the
collective bulk or quantity.
Instances of security being granted in respect of a
part share in a larger bulk of goods appear to be
relatively rare.
The commingling of goods inevitably substantially
diminishes the value of a pledgee’s security from a
legal perspective. Unless the conditions of Section 20A
of the SGA as fulfilled, the owner of the goods cannot
retain title to goods that he has allowed to commingle
or which have in fact become commingled with other goods
and the efficacy of any pledge in respect the goods is
similarly lost.
There are numerous other practical disadvantages and
risks that arise when pledged goods held as security are
commingled. They include difficulties in properly
allocating losses caused by theft or other damage; the
risk of loss is greater and commingled goods are
difficult to insure.
14 Enforcement of Awards
14.1 Are Awards of arbitration in respect of
contracts for the sale of goods recognised under the
laws of your country?
Yes. English awards of arbitration in respect of
contracts for the sale of goods are recognised and are
enforceable under English law.
The position is the same with regard to foreign
arbitration awards. The United Kingdom is a party to the
New York Convention on the Recognition and Enforcement
of Foreign Arbitration Awards (1958).
14.2 If so, what is the process for enforcement and
approximate time scale?
Under English law, an arbitration award cannot be
enforced by the successful party without the assistance
of the court. Statute has long provided a speedy
mechanism for this process in the form of summary
enforcement.
Section 66 of the English Arbitration Act 1996 (“the
1996 Act”) sets out the relevant provisions governing
summary enforcement of an award with the court’s
permission. When permission is given, the award may be
enforced in the same manner as a judgment or order of
the court. In other words, once permission has been
given, an enforcement order will be made by the court in
the terms of the award giving permission to enforce the
award against the respondent. Section 66 applies to all
awards, whether made in England or elsewhere. The time
scale is usually a few weeks and depends on whether the
respondent wishes to oppose the enforcement order. The
respondent can only oppose enforcement if he can show
that the tribunal lacked substantive jurisdiction to
make the award. However, lack of substantive
jurisdiction cannot be argued if a party has proceeded
to take part in the arbitration without challenging
jurisdiction or the award on jurisdiction was not
challenged within 28 days of its publication.
An award made in a country, other than the UK, which
is a party to the New York Convention on the Recognition
and Enforcement of Foreign Arbitration Awards (1958) may
also be enforced under Section 101 of the 1996 Act, with
the court’s permission, as if it were a court judgment.
The enforcement mechanism is identical to that in
Section 66 of the 1996 Act.
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