The Gazette 1991

GAZETTE

JANUARY/FEBRUARY 1991

banker's commercial credit or where the bill of lading is retained as a security against payment. On the other hand, the presumption will be undermined if, for example, the sale is between two closely associated companies 16 or the bill of lading is retained by the seller purely as an admi n i s t r a t i ve convenience. General and special property and banker's commercial credits. Further difficulties arise in relation to commercial credits. If the sale of a cargo is financed by a banker's commercial credit instead of sending the bill of lading and other documents directly to the buyer the seller will forward them to the bank. The bank then retains them as security in case the buyer fails to reimburse it. The documents can then be used by the bank to claim the goods at the port of discharge. This type of transaction gives rise to a relationship between the bank and the carrier. The bank will want to have recourse to the carrier in the event of the goods being lost or damaged and the carrier may have to claim unpaid freight or demur- rage. However, a bank under a commercial credit, as pledgee,

to the buyer, the goods are at the buyer's risk whether delivery has been made or not." While this provides for a presumption that risk passes with the passing of property in the goods, this is subject to the proviso that the parties have not "agreed otherwise". It is to be noted that this section does not provide authority for a reverse presumption that property passes with risk. Risk can pass to the buyer even though property has not passed, thus denying him a basis of action. Where payment is by way of documentary credit, the parties will be deemed to have not intended property in the goods to pass, even if the bill of lading makes the goods deliverable to the order of the buyer. This is because it will be essential to the transaction that the seller retains property in the goods in order to pass it to the bank. 15 Therefore where this method of payment is agreed by the parties it is implied that property will remain with the seller. In summary then, the implication of a reservation of a right of disposal will arise where the bill of lading is made out to the order of the seller, where payment is by

Express and imp l i ed reservation of r i ght of disposal. Even if the goods are specific or ascertained within the meaning of the Sale of Goods Act 1893, property will only pass to the buyer when the parties intend it to pass; Section 19 of the Sale of Goods Act 1893 provides that despite the appropriation of the goods to the contract, property in the goods will not pass if a right of disposal is reserved. This is the case even if the goods have been delivered to the buyer or a carrier. It is further provided that where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facia to be taken to have reserved a right of disposal. The effect of this section is that a reservation of right of disposal, either express or implied, will deny a purchaser the benefit of Section 1 of the Bills of Lading Act 1855 as a basis for the establishment of a right of action against the carrier in the event of the cargo being lost or damaged. This pos i t i on was confirmed in the recent English case of Sullivan -v- Aiiakmon Shipping Co. Ltd. 12 In that case the purchaser's bank had refused to back their bill of exchange in payment for the price of the goods. An exchange of letters then occurred, the effect of which was to vary the contract so that the sellers retained a right of disposal and thus preventing the property passing to the purchaser. This took the purchaser out of the ambit of the Bills of Lading Act 1855 and left him without a basis for an action against the carrier when the goods were damaged. 13 In any case, as mentioned above, the seller is prima facie deemed to have reserved a right of disposal where the bill of lading is made out to his order. 14 Thus property will pass on indorsement of the bill of lading. This will normally occur only against payment of the price, either directly by the buyer or on a commercial credit from a bank. Section 20(1) of the Sale of Goods Act 1893 provides as follows: "Unless otherwise agreed the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property in them is transferred

Co-Authors Professor William Duncan and Paula Scully, Solicitor at the launch of Marriage Breakdown in Ireland: Law and Practice in Trinity College Dublin on 1st November 1990. The book is published by Butterworths (Irl.) Ltd.

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