VEGOIL TRADING CO LTD V ZANNETTI OIL PALMS LIMITED

LECTURE 2: A BRIEF OVERVIEW OF THE RELEVANT LAW

Introduction
To obtain a freezing order from the court you need to show that you have a good arguable
case on the merits. To address the court on this part of the test, you will need to identify and
make submissions about the substantive issues in the case. You will need to show that you
have a good arguable case on the merits, both in your skeleton argument and in your oral
submission.
To do that best, it is a good idea to think about how your client, Vegoil, will in due course,
formulate their case in the Particulars of Claim.
You need to identify the relevant cause(s) of action and the key legal issues that Vegoil must
prove to win their case. Once you have done that, you will be able to evaluate and address
the court on the evidence which shows that your client has a good arguable case which meets
the relevant merits test for the freezing order.
This lecture note will help you to identify, and start to evaluate, the underlying substantive
issues in the case in order to demonstrate that your client has a good arguable case on the
merits.

THE CONTRACT
A good place to start when thinking about your cause of action is the contract.
The contract between Vegoil and Zannetti is a commercial contract for the international sale
and carriage of goods by sea, governed by English law.
The sale aspect is therefore governed by the Sale of Goods Act 1979 and the carriage of the
goods is governed by the Hague-Visby Rules enacted in the Carriage of Goods by Sea Act
1971 and also by the Carriage of Goods by Sea Act 1992. The 1971 and 1992 Act are not
relevant here because those acts govern the obligations and rights between buyers and
shippers and the sea carrier. Here, we are only concerned with a claim against the seller in
relation to the supply of the goods, so you need only consider the Sale of Goods Act 1979.
The contract between Vegoil and Zannetti appears to be an oral contract, evidenced by the
sold note from Zannetti to Vegoil.

The express terms of the contract

You will need to identify the relevant express terms of the contact.
There are two express terms that are of crucial importance:
(a) The oil would have a FFA content not exceeding 2%.
(b) It was also an express term that the price would be paid after presentation of
documents by the seller (those documents being the Bill of Lading, the Invoice, the
Certificate of Insurance and the Certificate of Quality).

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The implied terms
You will need to consider what terms can be implied into the contract by virtue of sections 13
and 14 of the Sale of Goods Act 1979. Your advocacy will be more focused if you can clearly
identify (and address the court if necessary) about the relevant key express and implied terms
of the contract.
These goods, at the time of the contract of sale, were wholly unascertained goods and so
could only be sold by description. Therefore, there must be an implied term that the goods
sold should correspond with the contractual description (s.13 SoGA 79). If that is right,
what is the relevant description? Is the FFA content part of the description?
It is also usually the case that goods sold have to be of satisfactory quality, so it highly likely
that the contract contained such a term, implied by s.14(1) of the Act.
Is it likely that the goods were intended to be fit for a purpose expressly or impliedly made
known by Vegoil to Zannetti (see s.14(3))? What evidence do you have about the purpose for
which the goods were being bought by Vegoil? Was this purpose communicated to Zannetti?
If so, where, when and by whom? Consider whether you have enough evidence in your papers
to establish that it was an implied term of the contract that the goods were being purchased
for resale to a third party to be used in the manufacture of soaps and toiletries with an
environmentally friendly image.
CIF CONTRACT
You will see from the enclosures in your Instructions that this is a CIF contract.
CIF is a price term, meaning that the price agreed includes the cost of the goods, insurance
and freight. This price term also defines the seller’s obligations in respect of the goods. Under
a CIF contract, the seller has to supply the goods and arrange the insurance and carriage of
the goods to the port of discharge or arrival (here CIF London).
To show that the seller has complied with these obligations, a seller customarily tenders 3
documents to the buyer:

• C: refers to the overall cost, and this is represented by the commercial Invoice.
• I: refers to the Insurance element, and this is represented by the Certificate of
Insurance.
• F: refers to the freight/shipping of the goods, and this is represented by the Bill of
Lading.
Sometimes other documents are required, such as a Certificate of Quality. In this case, a
Certificate of Quality was to be provided in addition to the three documents I have just
mentioned.
In a CIF contract, put simply, the seller owes obligations to the buyer in relation to both the
documents and the goods. I want to give you a bit more guidance on each of these matters.

THE SELLER’S OBLIGATIONS IN RELATION TO THE DOCUMENTS

The seller must transfer to the buyer:

• the bill of lading with any necessary endorsements;

• the insurance policy;

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 • the invoice, and, in this case
• the certificate of quality.
Two of these documents are particularly important in Re Vegoil.

The Bill of Lading is an important document.

a) It acts as a receipt for the goods when they are delivered to the sea carrier by
the seller for onward shipment to the buyer. It is prima facie evidence in favour of
the shipper and conclusive evidence in favour of the consignee (usually the buyer)
that the goods described in the bill of lading (the contract goods) were received by
the carrier and the issue of the bill of lading by the carrier is an acknowledgment
by the carrier that the goods are held for whoever is the holder of the BOL.

b) The Bill of lading is also a contractual document, as it evidences or contains the

terms of the contract of carriage. This is particularly important in this case
because the bill of lading purports to incorporate the terms of a charterparty
agreement between Zannetti and Venetian Steamship Company (basically what
Zannetti has done is hire a ship from Venetian and then operated it to carry cargo).
You will note from the core reading in Benjamin’s Sale of Goods, that where a bill
of lading incorporates the terms of a charterparty, it is usual (with some limited
exceptions which are unlikely to apply on these facts) to tender the charterparty to
the buyer with the bill of lading. If the charterparty agreement is NOT tendered with
the bill of lading, the bill of lading can be rejected by the buyer. The reason why it
is important to do so is because when the bill of lading is transferred to the buyer
it is conclusive evidence of the terms of the contract of carriage in the hands of the
buyer and enables the buyer to sue the carrier by virtue of the provisions in the
Carriage of Goods by Sea Act 1991. The buyer is therefore entitled to insist on
delivery of all documents which evidence the terms of the contract of carriage.

c) Some types of bills of lading, namely a negotiable bill of lading (which is an order
bill or a bearer bill) is a document of title which gives the holder of the bill
constructive possession of the goods. Such a bill can be transferred by
endorsement in the case of an order bill (simply signing the bill on the back in
favour of the new holder) or passing it to another (in the case of a bearer bill). The
holder of the bill can negotiate it to third parties who can produce it to take delivery
of the goods from the carrier at the arrival port.

d) In relation to all types of bills of lading, the carrier has to deliver up the goods to
person who presents the bill, so the person in possession of the bill of lading has
the right to take delivery of the goods from the carrier.

The Certificate of Quality/Certificate of Analysis.

The seller’s obligation in a CIF contract is to deliver conforming goods to the carrier and
delivery of the goods to the carrier is treated as delivery to the buyer. Risk in the goods passes
to the buyer from the point of shipment. To ensure that goods do conform to the contract at
the time of shipment, buyers may insist on the seller producing a certificate of quality or
analysis at that time. Such certificates are usually conclusive in relation to the quality issues
covered by them.

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THE PROBLEM
You now should have some understanding of the nature of the contract and its key terms, both
express and implied.
You now need to think about what has gone wrong. The oil has arrived at Tilbury, London and
Vegoil has discovered that it the FFA content is above 2%. The oil was shipped on a bulk
tanker (entirely normal) and was part of a much bigger quality of oil which was to be sold in
parcels to several buyers. You can see this from the loading report. Vegoil was only sold
around 1000mt out of the 7000mt on board the vessel. You also have some evidence in your
papers which suggests a fraud was being perpetrated by Zannetti, because it seems oil was
being sold to other buyers from that same bulk on the basis it had a FFA above 2% (we have
a copy of certificate from another buyer which confirms this).
WHAT RIGHTS AND REMEDIES MAY VEGOIL HAVE IN RELATION TO THESE
MATTERS?
Rejection of the documents
In CIF contracts, the buyer has two separate and independent rights of rejection – namely
rejection of documents and rejection of the goods.
If there is a right to reject the documents, then the price does not become due because the
price is payable on delivery of conforming documents.
In this case, it appears that Vegoil has the right to reject the documents on two different bases
(you should ascertain this from the core reading you have been asked to do in Benjamin’s
Sale of Goods).
(a) The bill of lading can be rejected because of the failure to produce the charterparty.
Relevant cases include Finska Cellulosaforenigen v Westfield Paper Co Ltd [1940] 4
All ER 473 and SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53.

(b) The Certificate of Analysis can be rejected because it was fraudulent (note such a
certificate can only be rejected if it was fraudulent, not if the certifier was negligent –
see cases such as Kwei Tek Chao v British Traders & Shippers [1954] 2 QB 459 and
Gill & Dufus v Berger [1984] 1 All ER 438).

Rejection of the goods

The buyer in CIF contracts has an independent right to reject the goods, even if they have no
right to reject the documents or have lost that right. This is likely to be law that is more familiar
to you. Has there been a breach of the express and implied terms of the contract that entitles
Vegoil to reject the goods here? Does the evidence show that Zannetti delivered conforming
goods, that matched the contract specification and description, at the time of shipment? If not,
have Vegoil lawfully rejected the goods? Have they lost their right to reject?
Remedies
You then need to think about what other remedies Vegoil may have. You will need to quantify
the claim and seek a freezing order up to the maximum value of the claim.

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CONCLUSION
I hope this, and the previous lecture note, helps you to analyse the case and prepare an
effective and persuasive skeleton argument.

The Advanced Civil Advocacy team look forward to hearing your submissions.

Associate Professor Julie Browne

Advanced Civil Advocacy Module Leader
April 2022

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