The International Comparative Legal Guide to:

Commodities and Trade Law 2006

A practical insight to cross-border Commodities and Trade Laws

Published by Global Legal Group, in association with Richards Butler, with contributions from:
AACNI Aluko & Oyebode Anjarwalla & Khanna Advocates Baeza, Larran & Rozas Bernard & Partners Blake Dawson Waldron Chrysses Demetriades & Co. DLA Piper Rudnick Gray Cary US LLP Kromann Reumert L&J Law Office, LPC Law Offices Carl Kincaid Osterwald & Wegner Rajah & Tann Schellenberg Wittmer Setterwalls Advokatbyr Simonsen Fyen Advokatfirma DA Soebagjo, Jatim, Djarot Studio Legale Mordiglia Werksmans Inc. Zafir & Kristf & Partners

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Chapter 10

England & Wales

Richards Butler

Kyri Evagora

Vassia Payiataki

1 Formation of 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 and Wales (the SGA 1979). Accordingly, a signed or sealed contract is not needed and a contract evidenced by an exchange of emails 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?

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 companys 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 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 companys directors. If the person signing the contract is not a director, it would be prudent to seek written confirmation of the officers 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?

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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

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

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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.

England & Wales

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?

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

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.

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4 Passing of Property and Risk
4.3

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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?

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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 should 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.

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 sellers 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 buyers 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.

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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?

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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 sellers 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?

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 the 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 sellers 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?

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 buyers 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?

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?

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?

Where no place of payment is specified in the contract, the

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

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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?

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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 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 sellers 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 buyers 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?

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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

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 buyers damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the sellers 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 sellers 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.

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7.3 Does the buyer have any remedies against the seller for delay in delivery of the goods?

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contract.

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 buyers 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?

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 unpaid sellers 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 sellers remedy is an action for damages for nonacceptance. The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyers 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; and (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

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 others 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

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8 Assessment of Damages

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Sources of Law Relating to Sale of Goods

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other partys 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.

11.1 What is the main source of the law relating to the sale of goods?

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 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 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?

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).

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Conflict of Laws

No. The innocent party cannot, in the absence of an express contractual term, demand from the seller any guarantee of future correct performance.

12.1 What are the rules relating to the law application to the contract of sale in your legal system?

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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.

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 sales are generally untouched by the Rome Convention.

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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?

England & Wales

documents on title.
13.2 If not, how is title over goods held in storage transferred and proven?

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.

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 partys 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 UK. 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?

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

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 a transfer of possession and an intent to create a pledge. Possession gives the pledgee full control

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14

England & Wales

Enforcement of Awards

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?

England & Wales

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?

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 co-mingling of goods inevitably substantially diminishes the value of a pledgees 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 of 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.

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 courts 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 courts 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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Kyri Evagora
Richards Butler Beaufort House 15 St Botolph Street London EC3A 7EE United Kingdom

Vassia Payiataki

Tel: Fax: Email: URL:

+44 20 7772 5896 +44 20 7539 5220 [email protected] www.richardsbutler.com

Tel: Fax: Email: URL:

+44 20 7772 5908 +44 20 7539 5371 [email protected] www.richardsbutler.com

Kyri Evagora qualified as a lawyer in 1994 and became a partner at Richards Butler in 2000. He specialises in advising companies that trade, finance and transport commodities, and his experience covers the related disciplines of sale of goods, trade finance, shipping and insurance. Kyris recent experience includes handling complex, multi-jurisdictional litigation arising out of energy and commodities transactions.

Vassia Payiataki qualified as a lawyer in Greece in January 1997 and worked as an associate in a Piraeus shipping law firm for nearly two years before joining Richards Butler in October 1998. She qualified as a solicitor in England and Wales in September 2000. Vassia specialises in advising trading companies in connection with various aspects of their trading. She has experience of dispute resolution relating to the trading and transportation of commodities, in particular arbitration before various trade associations, maritime arbitration and litigation at the High Court in London.

Richards Butler is an International Law Firm with offices in London, Paris, Hong Kong, Beijing, Abu Dhabi, Piraeus, So Paulo and Muscat. The market leader in international trade and commodities law, Richards Butler has a large team of lawyers worldwide with a wide range of expertise in the production, trading, financing, transportation and end use of energy products and commodities. Our team provides a full and effective service to clients of all types and sizes operating in every sector of the commodities markets. The range and quality of our teams experience is unsurpassed, spanning international sales, insurance, finance and shipping. Expertise in international commodities markets ranges from hard commodities such as metals, coal, crude and crude products and precious metals to futures and soft commodities, such as grains, sugar, edible oils and cocoa. Our team has extensive experience of conducting arbitrations before commercial tribunals including the LCIA, GAFTA, FOSFA, IPE, the Sugar Associations, Liverpool Cotton Association and LME; it also represents commodity clients in ICC, CIETAC and UNCITRAL arbitrations and in court proceedings in the High Court in London. Our team is very actively involved in advising banks, traders, and investors in projects and transactions in energy and commodities. They are by far the leading firm in this area immense strength in relation to contentious soft commodities - Chambers 2006

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