LAW OF CONTRACTS

ASSIGNMENT
TOPIC- FREE ON-BOARD CONTRACTS
SUBMITTED BY- ADITYA CHOUDHARY(22011872)

Free on Board (FOB) is a term that describes a seller's responsibility. Since FOB contracts
are flexible, merchants are free to use their contractual freedom to draft non-standard FOB
agreements that best serve their business interests. According to this contract, it is the seller's
responsibility to pay for and load the products onto the ship. The parties to a free on-board
contract are free to determine the specific obligations of the buyer and seller. It was said that
"Free on-Board contracts have a flexible instrument" in Pyrene Co. Ltd v. Scindia Navigation
Co. Ltd [1954] 2 QB 4021. The parties are free to alter their obligations.
In order to comprehend its nature, we need to compare the Free On-Board contract to the CIF
contract. The port designated in the CIF contract is typically the port of destination, whereas
The port that is specified in a FOB contract is often the port of loading. In a CIF contract, the
risk of the freight rate and insurance premium is assumed by the seller, but in a FOB contract,
the buyer may be required to make shipping arrangements. Even if the customer will choose
the ship, in other FOB transactions, the seller arranges for shipping. Normally, the seller will
be acting on the buyer's behalf and will not bear any risk. In some situations, the parties may
not agree on who is in charge of what. The court will consider the terms on which the parties
have agreed in this case. Either FOB or CIF will be determined by the court. The House of
Lords argued for this position in the case of Scottish & Newcastle International Ltd v. Othon
Ghalanos Ltd 2because they agreed with the seller that the contract in question was a FOB
contract. This position was backed up by a number of case-specific facts, including the fact
that the price was not lump sum and that freight and insurance were included as separate
items, the buyer had negotiated the freight rate with the carrier, and the buyer had chosen the
vessel. In a FOB agreement, the place of delivery was the location where the seller loaded the
items onto the ship.
In support of the aforementioned assertion, the Scottish & Newcastle International Ltd. case
divided FOB contracts into three categories: the traditional FOB, the extended FOB with
added responsibilities, and the straightforward FOB contract. I will briefly discuss each class
in accordance with the principles illustrated by the facts in the Scottish & Newcastle
International Ltd Case. In a Classic FOB transaction, the customer chooses the ship, and the
seller loads the merchandise onto the ship. Typically, the vendor pays for it out of pocket.
The vendor just transports the items to the port and loads them onto the vessel when the
customer designates the ship. In this situation, the seller is a direct party to the carriage
contract, at least until he signs the bill of lading in the buyer's or his name. When the seller
completes that, the carrier provides him with a bill of lading, which the seller is required to

1
Dharmarajan R, “Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 QB 402”
<https://www.studocu.com/en-gb/document/university-of-birmingham/co> accessed October 21, 2022
2
Dls B, “Scottish and Newcastle International Limited V Othon Ghalanos Ltd: HL 20 Feb 2008”
(swarb.co.ukDecember 20, 2021) <https://swarb.co.uk/scottish-and-newcastle-international-limited-v-
othon-ghalanos-ltd-hl-20-feb-2008/> accessed October 21, 2022
receive. The bill of lading must be in language that are customary in the industry. According
to the parties' agreement, the seller in this transaction either obtains the bill of lading in his or
her own name or in the name of the buyer. The bill of lading contract will be between the
carrier and the seller if it is obtained in the seller's name, and it will remain with the seller
until the seller signs the bill of lading and sends it to the buyer. The contract of carriage will
be between the buyer and the carrier if the bill of lading is made in the buyer's name. Seller
will be included as a party. Before delivering the items to the carrier, the seller and the carrier
entered into a contract for transportation. A contract between a seller and a carrier is always
the initial party, and it is terminated once a bill of lading is issued. It is undeniable that the
seller bears the expense of shipping, but the customer is taking the shipper into consideration.

The same situation was present in Wimble, Sons & Co. v. Rosenberg (1913)3, where the
buyer designated the vessel and gave the seller instructions to load items upon it. Seller
entered into a contract of carriage and made shipment arrangements. It was decided that the
contract was a typical FOB. The other category is applied when the vendor arranges shipping.
Here, the seller contracts with a vessel of his choice for shipping and then obtains a bill of
lading in his own name. Later on, the seller will sign the bill of lading and give it to the
buyer. When the seller signs the bill of lading and gives it to the buyer, that is when the buyer
is officially included in the carriage contract. Buyer is obligated by the conditions of the bill
of lading and becomes a party to the carriage contract subsequently. In this instance, the
buyer had picked one of two ports in England where the supplier was to send the goods. It
thereby met the criteria for being an expanded FOB contract with extra responsibilities.

"All we know is that the sellers arranged for the ship to become available, that the sellers
shipped the onions, that the sellers took an order bill of loading, that the sellers endorsed that
bill of lading in favour of the buyers and delivered it to the buyers on payment of the price,"
the court ruled in the case of El Amria and the El Minia.4

The final classification is the point at which the customer arranges shipping (simple contract).
The buyer arranges the shipping arrangements, which is the key differentiating factor in this
case. In addition to choosing the ship, the buyer is also responsible for making the shipment
arrangements. Due to his distance from the seller's country's port, the buyer typically uses an
agency there. Agents will notify the seller when the buyer has made shipping arrangements,
and the seller will then transport the goods to the port and load them onto the ship. A mate's
receipt is given to the seller after items are loaded into the ship; the agent completes it and
returns it to the carrier, who will use it to create a bill of lading. The bill of lading will be in
the buyer's name rather than the sellers' once the buyer's agent utilises the mate's receipt to
get one. As soon as the bill of lading is issued, the buyer is included in the carriage contract

3
Ltd AT, “CIF and FOB Contracts” (Law TeacherJuly 27, 2022) <https://www.lawteacher.net/free-law-
essays/contract-law/cif-and-fob-contracts.php> accessed October 21, 2022
4
Professor Robert Merkin KC and Dr Johanna Hjalmarsson, “Lloyd's Law Reports” (THE "EL AMRIA" AND "EL
MINIA"September 9, 2022) <https://www.i-law.com/ilaw/doc/view.htm?id=148469> accessed October
21, 2022
that is supported by the document. However, up until that point, the seller is the party to the
carriage contract and continues to be so until a bill of lading is issued in the buyer's name.

The classification's relevance.

Due to the fact that freight and insurance are not included in the FOB contract's lump sum
price, the buyer is responsible for any price fluctuations. Additionally, under the terms of the
FOB contract, even when the seller arranges shipping, the seller is acting on the buyer's
behalf rather than acting in his own right. However, it is not necessary for the seller to be a
party to the bill of lading contract from the start under a FOB arrangement. The FOB contract
is a flexible instrument, but it is nevertheless crucial to specify the basic FOB contract
because that is the baseline from which parties may deviate.
Duty of the seller
In a FOB agreement, the seller is required to deliver the goods to the ship. According to the
Incoterms 2010, the seller is responsible for paying all fees from his warehouse to the point
of shipping, including those for packaging, loading, delivery to port, export duty and taxes,
origin terminal fees, and loading on transportation. An FOB vendor is required to load the
products into the ship at his own expense. But what if the seller is unable to do so for some
reason, particularly if doing so is prohibited by law? In response, Wimble, Sons and Co. v.
Rosenberg5 asserted that the seller had fulfilled his contractual obligation once the items have
been loaded onto the ship. Further, it was determined in Maine Spinning Co. v. Sutcliffe &
Co6 that "A term in the contract pertaining to the form of delivery is not fully for the
advantage of any party to the contract and neither party can renounce it without the other
party's assent." The buyer cannot make a decision on their own. Consent must be given by
both parties. The Court of Appeal stated that when a seller enters into a contract for the
export of goods, the seller charges a price that is reasonable for products travelling abroad as
justification for the aforementioned verdict. Therefore, forcing the vendor to deliver the
products inland can be bad for business. In addition, the seller might have been glad to sell
the items to the buyer for export, but if the government had banned exports, it might be bad
for the seller to ship the goods to a rival in the domestic market. In the Scottish & Newcastle7
case, the cider was shipped from Liverpool to Limassol pursuant to a contract for the sale of
cider by the Scottish claimants to the Cypriot defendants, with invoices designating Limassol
as the "place of delivery." Liverpool was the agreed-upon place of delivery, and Liverpool
served as the site of delivery for the purposes of article 5(1)(b) of Council Regulation (EC)
5
banar A, “Wimble & Sons v Rosenberg & Sons (1913) 3 KB 743” (Simple StudyingMarch 24, 2022)
<https://simplestudying.com/wimble-sons-v-rosenberg-sons-1913-3-kb-743/> accessed October 21,
2022
6
Yoel Gordon, “FOB Contracts Copy Flashcards by Yoel Gordon | Brainscape” (FoB)
<https://www.brainscape.com/flashcards/fob-contracts-copy-6727500/packs/10482205> accessed
October 21, 2022
7
Dls B, “Scottish and Newcastle International Limited V Othon Ghalanos Ltd: HL 20 Feb 2008”
(swarb.co.ukDecember 20, 2021) <https://swarb.co.uk/scottish-and-newcastle-international-limited-v-
othon-ghalanos-ltd-hl-20-feb-2008/> accessed October 21, 2022
No 44/2001. In the Australian jurisdiction, the court used a different strategy in Cohen & Co
v. Ockerby & Co. Ltd8, holding that FOB sellers are required to deliver inland but are free to
decline in cases where they have valid business justifications. Seller must be able to
demonstrate the disadvantages he would experience. Sending paperwork is another
obligation. Depending on the type of FOB contract, the seller may need to provide the buyer
with paperwork after the items have been loaded onto the ship. The type of FOB contract will
determine when documentation must be submitted for FOB contracts. The seller may not be
required to offer a bill of lading in some FOB contracts, while being compelled to do so in
others. Even though in a traditional FOB contract, the buyer is the party that chooses the
vessel, it is often the seller's responsibility to obtain shipping paperwork. In some situations,
this will be a mate's receipt, and the buyer will use the mate's receipt to secure a bill of lading.
If the FOB seller goes to pick up the bill of lading from the carrier and the carrier requests
that freight be paid in advance of the release of the bill of lading, the FOB seller is not
required to pay for the freight in advance. This can be observed in the case of Green v.
Sichel10, where it was decided that it is the responsibility of the FOB buyer to ensure that the
freight is prepaid as the carrier requests in such a circumstance. FOB customer can do this by
paying the carrier directly, giving the seller the money and asking them to pay the carrier on
their behalf, or by asking the seller to pay the carrier in advance with the understanding that
they would be reimbursed later. The bill of lading must be delivered by the vendor. Where a
bill of lading is required, the seller must get it under conditions that are customary in the
industry. The bill of lading must be in the format required by the FOB contract and must be
of the type listed therein. In a FOB agreement, the buyer chooses the vessel and notifies the
seller of their choice. The buyer would provide shipping instructions to the seller, informing
him to prepare to load the items onto the vessel he has designated, which will be accessible at
a specific port starting on a specific date. In the Scottish & Newcastle case, the purchaser did
choose the vessel for shipping. The last charge is related to shipping space. As a general rule,
the buyer is often responsible for securing cargo space in a vessel, not the FOB seller.
However, as the buyer is typically abroad and located far from the port of shipment, it is not
viable for the buyer. Although it is customary for the seller to actually organise shipping
space, the law views this as a favour the seller is providing the buyer rather than as a
requirement under the terms of the agreement. As an alternative, the seller is representing the
buyer by making those arrangements. The buyer at Cyrus is currently required to request the
seller's favour in England in order to smooth the transaction. The court found that "the seller
has no obligation to the buyer to make a contract of carriage" in D. H. Bain v. Field & Co9.
The seller may, however, contract for carriage on customary terms at the risk and expense of
the buyer if the buyer so requests or if it is customary in the industry and the buyer fails to
provide timely instructions to the contrary. The buyer must be quickly notified if the seller
decides not to make the carriage contract.
Duties of the buyer

8
Barnet jade, “Cohen & Co v. Ockerby & Co. Ltd” (Barnet jade - find recent Australian legal decisions,
judgments, case summaries for legal professionals (judgments and decisions enhanced)
<https://jade.io/summary/mnc/1917/HCA/58> accessed October 21, 2022
9
Professor Robert Merkin KC and Dr Johanna Hjalmarsson, “Lloyd's Law Reports” (D. H. BAIN v. FIELD &
CO. FRUIT MERCHANTS, LTD.September 9, 2022) <https://www.i-law.com/ilaw/doc/view.htm?
id=135643> accessed October 21, 2022
According to the facts of the Scottish & Newcastle case, it is the responsibility of the FOB
customer to provide shipping instructions. The instruction must be both legitimate and
effective in order to be followed. This is accomplished by naming the vessel and allocating
shipping. If the instructions are not supplied in accordance with the contract, there has been a
contract violation. This was noted in Bunge & Co. v. Tradex England12, where it was
decided that the buyer would violate the FOB contract if they gave ineffective instructions.
An instruction to the shipping location is another job. According to the contract, the port of
shipment is where the ship is docked for loading. This means that the buyer is responsible for
any contract violations if the vessel is late. In addition, a buyer in a FOB contract is required
to secure shipping space by making plans for the transportation of goods from the named port
of shipment to the port of destination at his expense, of which he must notify the seller in
good time, as stated in the case of Cunningham v. Munroe10, where the court held that the
buyer must make sure the shipping space, he has acquired will allow the seller to load the
goods. Since the items are at the buyer's risk as soon as the seller loads them onto the ship,
the buyer is also obligated to pay the agreed-upon price in addition to any additional charges,
duties, and taxes, such as import permits and customs formalities. It is obvious from the
discussion that the obiter of Lord Mance 11refers to the FOB contract. To determine if you are
dealing with a FOB contract, it is crucial to choose the fundamental concepts, classes, and
obligations of a seller and a buyer. This is the basis for the Scottish & Newcastle case.
Paying the Price for the Goods
What time does the buyer become obligated to pay the price is the major concern here.
Section 28 of the Sale of Goods Act 12serves as the beginning point for this. The parties may,
however, agree on a different period for payment. The general norm under this act is that the
buyer's duty to pay the price arises at the same time as the seller's duty to deliver the goods.
An FOB contract is the same as a CIF contract in that payment is due when the
documentation, not the products, are delivered. Those papers could be a bill of lading or a
receipt from a friend. Payment shall be made in the manner and at the location designated in
the Contract. Similar to the CIF buyer, the FOB buyer is required to exchange payment for
documents only when those documents meet the contract's conditions. The FOB buyer will
likewise have two rights of rejection, namely a right to reject the documentation and a right to
reject the products, just like the CIF buyer did. The Aston FFI case demonstrated this.
Though a FOB customer may be able to reject the products even if the documentation is
contractually compliant, this is different from a CIF buyer in terms of document rejection.
This is something that a CIF buyer is unable to do; instead, a CIF buyer can only reject the
goods once they have reached the port of destination. If the documents are acceptable, the
CIF buyer must accept them rather than reject the items upon document tender. This
difference most likely results from the fact that in the CIF contract, when the seller loads the
goods onto the vessel at the port of shipment, that is not delivery to the buyer, and the buyer

10
“81 Mass. 471 (Mass. 1860), Cunningham v. Munroe” (vLex) <https://case-law.vlex.com/vid/81-mass-471-
mass-617256918> accessed October 21, 2022
11
Yoel Gordon, “FOB Contracts Copy Flashcards by Yoel Gordon | Brainscape”
<https://www.brainscape.com/flashcards/fob-contracts-copy-6727500/packs/10482205> accessed
October 21, 2022
12
Participation E, “Sale of Goods Act 1979” (Legislation.gov.ukJanuary 31, 1980)
<https://www.legislation.gov.uk/ukpga/1979/54/section/28> accessed October 21, 2022
cannot reject those goods at the port of shipment. Instead, delivery of the goods is from the
port of shipment.