Commercial Law (LLB Academic Unit)

# Commercial Law (LLB) — Topic Notes

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## 1. Sale of Goods Act 1979 — Implied Terms (ss.12-15)

### s.14(2) — Satisfactory Quality

The seller impliedly undertakes that goods supplied under a contract of sale are of satisfactory quality. This is a condition; breach entitles the buyer to reject (subject to the right to reject not being lost under s.35 SGA 1979).

**Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm):** Geogas supplied approximately 5,200 metric tonnes of butane feedstock to Borealis that was contaminated with fluorides (2-methyl-2-fluoro-propane, "2M2F"). Geogas admitted breach of the implied term of satisfactory quality under s.14(2) SGA 1979, since the contaminated goods were plainly not of satisfactory quality. The court proceeded to assess damages for the resulting physical damage to Borealis's industrial plant and consequential business interruption losses. *Key principle: the implied term of satisfactory quality under s.14(2) SGA 1979 applies to commercial commodity sales; contamination causing damage to buyer's property is squarely within the statutory breach.*

### s.13 — Sale by Description

Goods must correspond with their description. This is a condition; any breach, however slight, traditionally entitled the buyer to reject — though the courts have moved toward treating minor breaches more flexibly via the innominate term analysis.

**Saipol SA v Inerco Trade SA [2014] EWHC 2211 (Comm):** Contract for sale of 3,000 MT of Ukrainian crude sunflower seed oil FOB. The goods were comingled with other sellers' parcels; the central issue was whether SGA 1979 limited recoverable damages to the difference in value between sound and defective goods (the prima facie measure under s.53(3)), or whether consequential losses (third-party liabilities) were also recoverable. The court confirmed the s.53(3) measure is a starting point, but broader consequential damages for breach of the implied quality term remain available where not too remote.

### Buyer's Right to Reject and Loss of that Right

**Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm):** The claimant purchased a new Challenger 605 private jet for approximately $20m. Following delivery, numerous serious defects emerged. The claimant sought a declaration it had validly rejected the aircraft and claimed rescission and a full refund, alternatively damages. The case explored the right to reject for breach of conditions under SGA 1979, the operation of exclusion clauses, and UCTA 1977. *Key principle: a buyer who has not yet accepted goods retains the right to reject for breach of condition; exclusion clauses limiting that right are subject to the reasonableness test under UCTA 1977 s.3.*

**Andrew France & Elusive Yachting Ltd v Discovery Yacht Sales Ltd & Discovery Yachts Group Ltd [2019] EWHC 3552 (Comm):** Buyers took delivery of a bespoke yacht built for "global blue water cruising." A very large number of serious defects materialised shortly after delivery. The court examined fitness for purpose (s.14(3) SGA 1979) — the yacht was intended to be lived on, and the seller knew this intended use. *Key principle: s.14(3) fitness for a particular purpose requires that the buyer has communicated the purpose and relied on the seller's skill; here reliance was clear from the specification of intended use.*

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## 2. Passing of Property and Risk (ss.16-20 SGA 1979)

### FOB Contracts — Property Passes on Shipment

**Moeve Trading SAU v Mael Trading FZ LLC [2026] EWHC 17 (Comm):** Seller and buyer contracted for the sale of approximately 14,000-14,500 MT of petroleum products (gasoline and gasoil) FOB Algeciras, Spain. The Sale Contract expressly provided that "the Buyer acquired property in the Cargo upon shipment." Bills of lading were issued; the Cargo was discharged at Freetown, Sierra Leone. Payment was to be made on presentation of shipping documents including bills of lading, secured by letters of credit. *Key principle: in an FOB sale, property in unascertained goods passes on appropriation to the contract — typically when goods are loaded and bills of lading issued in the buyer's name (or to order). This case confirms the interaction between passing of property, documentary presentation obligations, and the letter of credit payment mechanism.*

### Bills of Lading as Documents of Title

**Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm):** An FOB buyer sold on CIF terms and chartered a vessel. During the voyage the on-sale fell through; the buyer needed new "switch" bills of lading showing the new discharge port. The original bank held the bills as security. Switch bills were issued; the bank facilitated the transaction while retaining possession of effective bills to protect its security interest. The court examined whether the bank, by facilitating the switch, became an original party to the bill of lading contract (the Carriage of Goods by Sea Act 1992 point). *Key principle: the bill of lading is a document of title and a security instrument; the bank's possession of bills under a documentary credit gives it real property rights in the cargo that survive the switch process; becoming an original party to the contract of carriage turns on endorsement and taking delivery, not merely facilitating a switch.*

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## 3. International Sale of Goods — CIF and FOB Contracts

### FOB — Seller's Duty to Load; Buyer's Duty to Nominate

**Petroplus Marketing AG v Shell Trading International Ltd [2009] EWHC 1024 (Comm):** Contract for the FOB sale of high sulphur fuel oil at Coryton. Shell were the buyers and were to declare a three-day loading range; the price was tied to Platts Rotterdam quotations around the bill of lading date. Disputes arose over loading obligations, price calculation, and demurrage. *Key principle: in an FOB contract, the seller must place goods on board the vessel nominated by the buyer at the named port; the buyer bears the freight and bears risk from the moment goods cross the ship's rail (the traditional "ship's rail" analysis, albeit now refined).*

**Ramburs Inc v Agrifert SA [2015] EWHC 3548 (Comm):** GAFTA FOB contract for 25,000 MT of maize. The buyers exercised a right to nominate a substitute vessel but failed to comply with pre-advice requirements in the contract. The sellers argued the defective nomination meant the buyers were in default entitling them to terminate. *Key principle: nomination of a vessel in an FOB contract is a condition of the buyers' performance; defective nomination may entitle the seller to treat the contract as repudiated, depending on whether the nomination clause is a condition or an innominate term.*

### CIF — Seller's Documentary Obligations

In a CIF contract the seller must (i) ship conforming goods, (ii) procure a contract of affreightment, (iii) obtain insurance, and (iv) tender the correct shipping documents (bill of lading, insurance policy, invoice) to the buyer. The buyer pays against documents, not against physical inspection of goods.

**Novasen SA v Alimenta SA [2013] EWHC 345 (Comm):** CIF contract for 2,000 MT of crude groundnut oil, Senegal to Genoa. Sellers were prevented from shipping by a Senegalese export prohibition. The FOSFA Prohibition Clause applied. The court examined whether the prohibition suspended or excused the sellers' obligations entirely, and assessed damages using the Golden Strait principles (taking into account post-breach events). *Key principle: a force majeure/prohibition clause in a CIF commodity contract may excuse the seller from performance if a relevant governmental prohibition applies during the shipment period; damages are assessed at the time of default.*

### Bills of Lading in International Trade

**Louis Dreyfus Commodities Kenya Ltd v Bolster Shipping Company Ltd [2010] EWHC 1732 (Comm):** LDCK was named shipper under bill of lading B/L No.2 for 5,000 tonnes of a commodity cargo. A dispute arose over whether an arbitration clause in the bill of lading bound LDCK such that foreign proceedings commenced against it were in breach of the arbitration agreement. The court considered when a party becomes bound by a bill of lading's incorporated arbitration clause. *Key principle: a shipper named in a bill of lading is bound by the arbitration clause contained in or incorporated from the charterparty if that clause is sufficiently incorporated; anti-suit injunctions are available to enforce arbitration agreements.*

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## 4. Agency Law

### Undisclosed Principal — Limits

**Karl Construction Ltd v Palisade Properties Plc [2002] ScotCS 350:** The court applied the delectus personae doctrine. Where a contract involves personal services or skilled work, and the counterparty contracted specifically for the skills of the identified person/entity, an undisclosed principal cannot intervene to perform or enforce the contract. *Key principle: the delectus personae doctrine prevents intervention by an undisclosed principal in contracts where the identity or personal qualifications of the contracting party are material to the contract.*

### Apparent/Ostensible Authority

The general rule is that a principal is bound by acts of an agent done within the agent's apparent (ostensible) authority — authority that the principal has represented the agent to have, on which a third party has relied. The classic authority is Freeman & Lockyer v Buckhurst Park Properties [1964] (not in corpus but standard doctrinal statement).

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## 5. Seller's and Buyer's Remedies

### Seller's Claim for the Price / Damages

**Thai Airways International Public Company Ltd v KI Holdings Co Ltd [2015] EWHC 1250 (Comm):** Koito (KI Holdings) contracted to supply economy class seats for three groups of Thai Airways aircraft. Some seats were delivered late; others not at all. Thai Airways was prevented from using five new aircraft for approximately 18 months. Koito admitted liability. The court assessed damages for late/non-delivery, focusing on (i) the correct measure (loss of use of aircraft during the period of delay), (ii) mitigation steps taken by Thai Airways, and (iii) whether the losses were too remote. *Key principle: where a seller fails to deliver goods, the buyer's primary measure is the difference between the contract price and the market price at the date of non-delivery (s.51(3) SGA 1979); where the buyer has suffered special loss (e.g., inability to use aircraft in commercial service), those losses are recoverable if within the reasonable contemplation of the parties.*

### Damages for Defective Goods Supplied

**Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm):** (see also Implied Terms above) After establishing breach of s.14(2), the court quantified damages to cover: (i) the cost of repair/replacement of Borealis's industrial plant damaged by the HF acid produced by the contaminated feedstock; (ii) business interruption losses during the period the plant was down. *Key principle: consequential physical damage caused by defective goods is recoverable as damages if not too remote; the seller's knowledge that the goods would be used in an industrial process makes plant damage foreseeable.*

### Buyer's Damages — Defective Vessel Sale

**Dalmare SpA v Union Maritime Ltd [2012] EWHC 3537 (Comm):** Sellers sold motor tanker Calafuria to buyers for US$7 million on Norwegian Saleform 1993. Buyers had inspected the vessel and the sale was "outright and definite." However, the vessel's classification records did not accurately reflect its condition; the buyers' claim for damages for breach succeeded in full before the arbitral tribunal. The court addressed questions of law arising from the award on when an "as is" or inspection clause bars subsequent quality claims. *Key principle: an express inspection/acceptance clause in a ship sale agreement may displace implied statutory quality terms, but only if sufficiently clear; the mere fact of pre-sale inspection does not exclude SGA-equivalent quality obligations where the seller has made a representation about classification.*

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## 6. Exclusion Clauses (UCTA 1977)

Under UCTA 1977 s.6(3), a seller dealing on business terms cannot exclude or restrict liability for breach of the implied terms in ss.13-15 SGA 1979 as against a person dealing otherwise than as a consumer, except in so far as the term satisfies the requirement of reasonableness (s.11 UCTA, Schedule 2 guidelines).

**Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm):** The aircraft purchase agreement contained exclusion clauses; the claimant argued these were subject to UCTA 1977 scrutiny. The court considered the reasonableness of contractual limitations in a high-value bespoke goods sale between sophisticated commercial parties.

**Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies PLC [2023] EWHC 2506 (TCC):** Concerned construction of an exclusion clause (clause 16.2) in a commercial reseller agreement excluding "loss of profit" and costs incurred in reliance on the contract. The court considered the proper approach to construing exclusion clauses — words must be clear and unambiguous to exclude liability for breach; contra proferentem applies where there is doubt.

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## 7. Credit and Security — FOB/CIF Payment by Letter of Credit

**Moeve Trading SAU v Mael Trading FZ LLC [2026] EWHC 17 (Comm):** (see also Passing of Property above) The Sale Contract provided for payment against shipping documents secured by letters of credit. The buyer received the goods but failed to pay. The court considered the seller's remedies where the buyer takes delivery but refuses payment under the documentary credit mechanism. *Key principle: in a documentary credit transaction, the issuing bank's obligation to pay is autonomous — it is independent of the underlying sale contract; the seller's right to demand payment arises on tender of conforming documents.*

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## Statutory Reference Map

| Topic | Key Provision |
|---|---|
| Implied title | SGA 1979 s.12 |
| Implied description | SGA 1979 s.13 |
| Satisfactory quality | SGA 1979 s.14(2) |
| Fitness for purpose | SGA 1979 s.14(3) |
| Sale by sample | SGA 1979 s.15 |
| Passing of property (specific goods) | SGA 1979 s.17 |
| Passing of property (unascertained goods) | SGA 1979 s.18, r.5 |
| Risk | SGA 1979 s.20 |
| Seller's lien | SGA 1979 s.41 |
| Stoppage in transit | SGA 1979 s.44 |
| Damages for non-delivery | SGA 1979 s.51 |
| Damages for defective goods | SGA 1979 s.53 |
| Nemo dat | SGA 1979 s.21 |
| Sale by mercantile agent | Factors Act 1889 s.2 |
| Buyer in possession | SGA 1979 s.25 |
| Seller in possession | SGA 1979 s.24 |
| UCTA reasonableness (business-to-business) | UCTA 1977 ss.6, 11, Sch.2 |