Landmark decision of the Norwegian Supreme Court on carrier's liability for failing to comply with sellers' notice of stoppage in transit
News | 25.04.19Shipping and Offshore
The two main issues were, first, whether the seller had a right of stoppage in transit vis-à-vis the Norwegian buyer, and, second, whether the carrier had a duty to comply with the seller's notice of stoppage and could be held liable for handing over the goods to the buyer contrary to the seller's instructions.
The dispute arose out of a sale of goods contract, under which the seller sold shoes on credit to the buyer on FOB delivery terms. The goods were carried from China to Norway, with the buyer arranging transportation with the carrier through its Norwegian agent. Upon arrival in Oslo, the seller received information that the buyer's bank had terminated the buyer's credit facility. The seller had not received payment for the goods, and immediately instructed the carrier to prevent handing over the goods to the buyer. The bill of lading had, however, been transferred to the buyer, who ordered the carrier to deliver the goods to its warehouse. The carrier had at this stage not received payment for freight etc. and thus not delivered the goods yet. An agent of the bank later settled the carrier's outstanding, and the goods were then delivered to the buyer's warehouse. Shortly thereafter, the buyer was declared bankrupt, and the seller's claim for the purchase price remained unpaid.
The seller's right of stoppage vis-à-vis the buyer
A seller's right of stoppage in transit vis-à-vis the buyer is a contract law issue. In the matter at hand, the sales contract was silent as to the question of right of stoppage. The contract was, however, subject to Quebec law, which meant that the UN Convention on Contracts for the International Sale of Goods (CISG) applied to the contract. In accordance with CISG Art. 71 (2), a seller may prevent the handing over of goods to the buyer even though the buyer holds a bill of lading which entitles him to obtain the goods, if – after dispatching the goods – it becomes evident that the buyer will not perform a substantial part of his obligations due to such grounds as set out in CISG Art. 71 (1), i.e. a) a serious deficiency in his ability to perform or in his creditworthiness.
The carrier argued, inter alia, that the right of stoppage was lost as the seller was aware of the buyer's liquidity issues prior to dispatch of the goods. The Supreme Court recognized that it is a condition for the right of stoppage under CISG Art. 71 that the grounds set out in Art. 71 (1) become evident after dispatch of the goods. However, the circumstance that the seller has certain knowledge of the buyer's liquidity issues prior to dispatch of the goods, does not preclude him from obtaining a right of stoppage after dispatch if the situation deteriorates. In the matter at hand, the Supreme Court held that the bank's termination of the buyer's loan facility was an event of detrimental consequence to the seller, and at the core of the situations which entitles a seller to prevent handing over of the goods according to Art. 71 (2).
The carrier also argued that the goods had already been delivered when the instructions to prevent delivery was received. It was submitted that the carrier's Norwegian agent, in addition to acting as agent for the carrier, acted as representative for the buyer after discharge at Oslo port, and in this capacity took delivery of the goods on behalf of the buyer thereby precluding stoppage.
The Supreme Court recognised that the seller's right of stoppage under CISG Art. (1) applies until the goods have been handed over, so that it is no longer possible for the seller to prevent physical delivery to the buyer. Further, the Supreme Court recognised that an agent of the carrier could have a dual role and at some point of the transport transcend into being a representative of the buyer and take delivery on his behalf. The Supreme Court stressed, however, that in order to ensure notoriety and transparency, such transition in roles must be clearly agreed, marked and documented. The Supreme Court concluded that there was no transition in the matter fulfilling these criteria and that the carrier's agent could not be considered as having taken delivery on behalf of the buyer.
The carrier's duty of care vis-à-vis the seller
Whereas the seller's right of stoppage vis-à-vis the buyer is a contract law issue, exercising the rights against a third party is not governed by CISG and must therefore be considered on the basis of other rules of law. If a bill of lading has been issued for the transport, a seller holding the bill of lading obviously might instruct the carrier under the contract of carriage and accordingly prevent delivery to the buyer, cf. the Norwegian Maritime Code Section 302. However, if the seller is not in possession of the bill of lading, the question arises whether the seller could otherwise exercise his right of stoppage against the carrier.
Under English law, it is explicitly set out in the Sales of Goods Act (1979) Section 46 that the right of stoppage can be exercised by giving notice to the carrier, and that the carrier must re-deliver the goods to, or according to the directions of, the seller. This apparently makes it clear that the seller can instruct the carrier without having any contractual link. We understand that this is also the textbook opinion, however, it is recognized among English legal scholars that a conflict arises between colliding rights in a situation where the buyer is in possession of a bill of lading entitling him to obtain the goods under the contract of carriage. Under US law, we understand that this conflict has been solved by establishing that the transfer of a bill of lading extinguishes the seller's right of stoppage in transit.
There is no statutory regulation of the seller's right to instruct the carrier under Norwegian law, however, it is emphasized in the Maritime Code Section 307 that the seller's right of stoppage (vis-à-vis the buyer) applies even if the buyer is in possession of the bill of lading. The Supreme Court held that the carrier has a general duty of care towards the seller, similar to the duty that arises under a contract, irrespective of the seller not having any contractual link with the carrier.
In the event that the carrier receives notice from the seller to prevent handing over of the goods, a duty to act arises, according to which the carrier must consider the seller's claim and whether there is any basis for following the seller's instructions or not. The carrier must ensure that he has sufficient information from the seller and the buyer to enable him to determine how to act. The question is whether it is justifiable – based on the carrier's knowledge – to deliver the goods or not. In case the carrier negligently fails to comply with his duty of care and delivers the goods to the buyer in breach of good faith, cf. the Maritime Code Sections 302 and 307, he can be held liable for seller's losses caused thereby.
The Supreme Court held that the carrier had acted negligently in failing to comply with the seller's instructions to prevent the handing over of the goods to the buyer. It was remarked that the carrier had received a clear notice of the seller's claim and was aware of the buyer's financial situation. The carrier was therefore held liable for the seller's loss.
Simonsen Vogt Wiig Transport and Logistics Team
Simonsen Vogt Wiig has one of Norway's leading transport law teams, and regularly assist cargo owners, carriers, freight forwarders and insurers in Norway and internationally. We have a broad international network to rely on for expertise on local law, and have long experience working on cross-border disputes, raising complex questions as to jurisdiction, private international law and foreign substantive law.