International Legal Framework

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APRIL 2010
Essence of FOB Contract:
1. The seller must pay the cost and bear the responsibility of putting goods FOB Means: the seller must bear full liability for the cost and safety of the goods until the point of their passing ship’s rail. The seller’s duty is to deliver the goods over the rails of the ship, the issue of a BOL or a mate’s receipt is irrelevant to the issue of property & risk. 2. Once the goods has passed the ship’s rail, the risk of the goods are then transferred to the buyer 3. The buyer remains the legal shipper of the goods where he is the main contracting party in the contract of the carriage. Cases: J. Raymond Wilson & Co. Ltd v N.Scratchard Ltd.

Held that if a party sells goods FOB, he has to put the goods on board and to pay the expense of doing so and delivery is made and the goods are the risk of the buyer when they are on board, the expense having been paid by the seller. Although the oldest form of FOB is where the buyer assumes the role of the shipper of the goods, FOB contracts have gone through developments where the terms have been varied. The parties may modify their obligations under an FOB contract, in particular the relationship between seller, buyer and carrier may be varied according to the nature of the arrangements made. Cases: N.V. Handel My. J. Smits Import-Export v English (London) Ltd. Sellers have agreed to do their best to secure shipping space for a cargo to be delivered FOB Rotterdam. However, the sellers failed to nominate a ship. The question was whether the contract was an FOB contract. It was held that a contract does not cease to be an FOB contract by virtue of the fact that the seller has agreed to secure the shipping space. 4. The FOB can be only used for sea or inland waterway transport. 5. The sellers fulfils its obligations to deliver when the goods have passed over the ship’s rail Classification of FOB:

* First variation known as classic type, where the buyer nominated the ship and the seller put the goods on board for the account of the buyer, procuring a BOL in his own name or showing the buyer as a consignor. The seller was a party to the contract of carriage. * Second variation are FOB with additional services whereby the seller may undertake additional duties which is seller nominates vessel, makes contract of carriage and arranging insurance cover for the cargo. The seller will place the goods on board ship and receive a BOL in his own name, which he will forward to the buyer in return of payment. Also the freight and insurance cost are to the buyer’s account. The seller may also charge a commission for the services he has tendered the buyer in obtaining the contract of carriage and the contract of insurance in this type of FOB contract. The buyer is likely to require these additional services of the seller when he is ill placed to obtain them in the seller’s country. * Third variation is FOB Ab Initio. This is where the seller puts the goods on board, takes a mate’s receipt and gives this to the buyer or his agent who then takes a BOL. In simple word, the buyer nominates vessel, obtaining the insurance premiums and makes a contract of carriage (through his agent) with the carrier. Cases : Pyrene & Co Ltd v Scindia Steam Navigation Co Ltd Pyrene sued Scindia in negligence for the cost of repairs £966. However, Scindia relied on a clause, incorporated into the carriage contract by the Hague Rules which limited the liability of the carrier to £200. The issue was then whether Pyrene could be bound by the contract to which they were not directly a party. Court held that although the buyer had made the contract, the court held that it must have been intended to bind and benefit the seller and had therefore been on his behalf. It was necessary to load the goods in order to fulfil the seller’s duty to deliver the goods on board and he must therefore be in a contractual relationship with the carrier based on the acts of...
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