The English House of Lords released a decision today involving the shipment of cider from England to Cyprus. The key question was where were the goods “delivered” and therefore which court should have jurisdiction over the lawsuit. The contract itself stated that the law of England would govern the contract, and it also specified that the “place of delivery” was a location in Cyprus. When the Cypriot company did not pay for the goods, the English company sued in the English courts. The Cypriot company (based upon wording in the European Union legislation) argued that the courts of Cyprus ought to hear the case, and not the English courts, since delivery (and thus contractual performance) was to occur in Cyprus. The clear use of this tactic was to force the English company to go all the way to Cyprus to obtain judgment at, I am sure, considerable expense – which would have either forced a settlement or caused the English company to drop the litigation.
The House of Lords (and all courts below) disagreed with the Cypriot company’s position. The Court reviewed section 61 of the English Sale of Goods Act, which is similar to Section 31 of Ontario’s Sale of Goods Act, that provides that unless there is some indication to the contrary in the contract, the delivery of goods by a seller to a carrier shall be considered delivery to the buyer. For the House of Lords, delivery by the English company to a shipping company in Liverpool was “delivery” (and therefore contractual performance) in England and the English courts had jurisdiction to hear the case.
The Court then went on to discuss whether the presumption that delivery had occurred in England had been rebutted. Ultimately, the Court determined that the presumption had not been rebutted – after a lengthy discussion of the differences between FOB (“free on board”) and CFR (“cost and freight”) forms of shipping goods and the legal effects of both.
The key issues for small businesses to take from this decision are:
(1) The fact that this dispute could have been avoided in a relatively easy fashion by adding to their contract a jurisdiction clause which specified that the courts of a certain place had exclusive jurisdiction to hear any disputes arising from the contract and that all parties agreed to attorn (or go) to only that place’s courts to determine the disputes. If a seller in Ontario is selling goods to a buyer in New York, it would be easiest (and less costly) for the Ontario seller to sue in Ontario and then to have the Ontario judgment recognized in New York; and
(2) Care should be given in conducting inter-provincial or international contracts. If the law of Ontario, for example, is stated to apply (or determined by the courts to apply) then provisions such as Section 31 of the Sale of Goods Act can prove costly for buyers. Why? Because if delivery is deemed to have been made to the buyer when the seller takes the goods to the carrier, then the buyer can be found to bear the risk of any loss. So, if I sell my widgets to a customer in New York and the widgets are damaged or lost while in transit, the New York customer could be out not only the widgets but also the money owed to me for the purchase price – and unless the buyer had insurance on the goods, that double whammy could be a very hard lesson to learn. How can you avoid this result if you are the buyer? A couple of ways: (a) as already suggested, obtain insurance on the goods; (b) ensure that the contract specifies that the law of your province / state will apply (assuming your legal regime is friendlier to your situation); and (c) ensure that the contract terms provide that the risk of loss lies with the seller until delivery at your place of business is made and you have approved the goods as shipped.