Understanding International carriage contracts F.O.B with additional services

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

Export sales agreements are usually characterized by trade terms that are not used in traditional sales agreements.

F.o.b. is a trade term that stands for Free on Board and the nature of this contract is that the seller assumes responsibility for placing the goods on Board a ship that has been named to him by the buyer. The seller in this instance bears all costs up to the delivery of the goods on board the vessel.

There are different types of F.o.b. contracts but we shall focus on an F.o.b. contract with “additional services”. Under this arrangement, the shipping and the insurance are made by the seller for the buyer.

Passing of property.

Cargo like oil is treated as an ascertained good if it is clearly earmarked for the recipient. According to Schmitthoff[1], the property in ascertained goods passes when they are shipped.

But, in instances of F.o.b. contracts with additional services, property passes when the parties intend it to pass and this is further evidenced in the Sales of Goods Act, 1971[2]. So, in this instance, property in the goods and the risk with it would have passed when the oil was delivered and consideration furnished by the buyer in form of the cash against the documents.

However, in Kwei Tek Chao v British Traders and Shippers Ltd[3] it was held that property in the goods reverts to the seller if upon examination the goods are found to be different from the description in the contract and this shall be looked at in detail below.

Delivery would be deemed to have taken place when the goods are in the custody of the buyer.

However, there is always an implied term that the goods will correspond with the description. In the case of Gill and Duffus S.A. V Berger & Co. Inc[4], it was seen by Lord Diplock that sale must be a sale by description for section 13 to apply and a sale cannot be by description unless the parties intend the description to be a term of the contract.

There is also an implied term for the goods supplied to be of satisfactory quality. The effect of the breach of these terms is that the buyer has the right to reject the goods.

In Bernstein v. Pamson Motors (Golden Green) LTD[5], it was seen that goods can be rejected as long as this rejection is done within the reasonable time. However, in cases where the goods are already accepted, the buyer is estopped from rejecting the goods and can only claim for damages. But, cannot take place till the goods have been inspected. In the UK, Section 34 of the Sale of goods act, gives the buyer the option of inspecting the goods and making sure they conform to the contract.

Tendering of Documents

Would the issuance of a copy of the certificate of insurance be seen as bad tender of documents. According to the doctrine of strict compliance, the bank is entitled to reject documents that do not conform to the terms of the credit this is because it is deemed to be the agent of the buyer. In cases where the bank has already paid against the documents without objection even if the documents are defective, then the buyer cannot object. This was seen in the case of Panchaud Feres SA V Establissements General Grain Co. Ltd[6] where it was held by Lord Denning M.R. that by taking up the documents and paying for them, they are precluded afterwards from complaining of any other problems in the documents.

The effect of the above is that the bank cannot rely on the doctrine of strict compliance if they wanted to claim for the money since they accepted the documents.

This was seen in the case of Equitable Trust Company of Newyork v Dawson Partners Ltd[7] where it was held that the plaintiff’s bank was not entitled to be reimbursed by the buyers because, contrary to their instructions, it made available finance on the certificate of one expert instead of the two experts.

It was also seen in NV Handel My j Smits Import Export v English Exporters Ltd[8] that it is the buyer’s duty to arrange marine insurance on F.o.b. terms and that if the seller takes out insurance he does so as an agent of the buyer and cannot then reject the tender of his agent. Also, it came to light that the master of the ship had actually given a false Bill of lading concerning the quantity of oil in the hold.

Article 3 of the Carriage of Goods by sea act, 1971, makes the carrier responsible for issuance of a bill of lading and this should be a true manifestation of the cargo in relation to size or quantity. It was held in the Kwei case[9] that in instances of fraud, the buyer has a right to claim for damages even if he has lost his right of rejection. In this instance, the carrier would be liable for misrepresentation and the buyer would be entitled to sue as per the provisions of article 3 (ibid) and also because the buyer was In possession of the bill of lading.

Unascertained goods

The general rule is that no property can pass in unascertained goods till they become ascertained and this was seen in the case of Re Wait[10]

Appropriation

It was seen in the Comptoir d’Achat et de Vente Du Boerenbond Belge S/A v Luis de Ridder Limitada[11], that property cannot pass till appropriation has taken place and a reasonable measures have been taken to earmark the goods.

A delivery order in this instance would be a good sign of appropriation. It is also worth noting that there was use of letters of credit which are mostly commonly used method of payment for goods in export trade.

It was held in Power Curber International Ltd v National Bank of Kuwait[12] that is, it is vital for every bank that issues a letter of credit to honor its obligations and the bank is in no way concerned with any dispute that the buyer may have with the seller. So in this instance, the bank has to honor the documentary credit.

[1][1927] 1 Ch 606

[2]The Julia House Of Lords [1949] A.C. 293

[3][1981]2 WLR 1233

 

END NOTES.

[1]Murray,c. Holloway,D & Timson-Hunt, D. Schmitthoff’s Export Trade, Eleventh Edition, Sweet and Maxwell, 2010 at page 30

[2] In Section 17(1)

[3][1954] 2 QB 459 AT 487

[4](no2) 1984) AC 382 AT 394

[5][1987] 2 ALLER 220

[6][1970] 1 Lloyds Rep 53, CA

[7](1927)27 L.I.L.R 49

[8][1957]1 Lloyds Rep 517

[9] Supra 12

[10][1927] 1 Ch 606

[11]The Julia House Of Lords [1949] A.C. 293

[12][1981]2 WLR 1233

The issue of Jurisdiction in settling international disputes of commercial and civil nature.

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

The issue of Jurisdiction in settling international disputes of commercial and civil nature.

Jurisdiction is a principle that has been richly discussed in private international law. The issues with jurisdiction emanate from difficulty in establishing the country or countries, which will have the “appropriate forum” to determine a matter in dispute.

The basic preceding factor of jurisdiction and conflict of laws is that because the world has now become one big melting pot, individuals trade with other individuals who are nationals of other jurisdictions and states trade with each other in order to achieve economic stability and growth.

This trade is best envisaged by the age old adage, ‘No man is an island’ because without this trade, Technology and other resources would not be shared and there would be stagnation in economic growth.

In this course of trade, various disagreements may arise and inevitably, if the trade is between different nationals, then the issue would be which of the countries of the parties would have the appropriate ‘forum’ to hear the dispute.

It would be without dispute for a country like France to have its courts deal with a case between two French nationals.

But, this would not be so easy in dealing with a matter of two English nationals or one French and the other English. These issues are also difficult in countries with federal systems when the situation arises as to which state will have jurisdiction over a matter.

It can also be argued that this difficulty can be attributed to the ambiguity to the principle of domicile which is a major ingredient of jurisdiction. There are various rules and conventions that have been enacted to try and solve the problems associated with jurisdiction. Regulation 44/2001[1] is regarded as the most authoritative regulation in respect to jurisdiction and enforcement of foreign judgments but, has been regarded as shallow in regards to its scope and lack of clarity in its universal application.

The difficulty in ascertaining jurisdiction arose with the need for a unified European Judicial area. The principle of a unified European judicial was first seen in 1986 in the Single European Act, judicial cooperation in civil and criminal matters and was introduced by the Maastricht Treaty in 1993.

But, the principle of jurisdiction in particular was discussed at the conventions of Brussels in 1968 and Lugano in 1988. In 1980, the Rome convention established the law applicable to contractual obligations. In December 2000, the council approved Regulation 44/2001 which incorporated the provisions of the Brussels convention[2].

This regulation was enacted with the idea of continuity between it and the Brussels convention. It was also aimed at solving the problems relating to the rules on jurisdiction in particular in relation to civil and commercial matters. It was to determine the international jurisdiction of the courts in the member states that are bound by the regulation and to facilitate recognition and introduce an expeditious procedure for securing the enforcement of judgments, authentic instruments and court settlements. The regulations apply to every member state of the European Union, with Denmark joining the bandwagon in 2007.

Article 1 of the regulations states that the regulations are to apply in civil and commercial matters whatever the nature of the court or tribunal but that they will not extend to administrative matters. But, what this regulation fails to provide is a clear definition or example of what constitutes civil and commercial matters. To a commercial lawyer this may mean anything that is not criminal and he may be rightly right in thinking so. This was seen in the case of Re the State of Norway’s Application[3] where, it was held that for the purposes of English Law, “proceedings in any civil matter” includes all proceedings other than criminal proceedings and “proceedings in any commercial matter” fall within “proceedings in any civil matter”. So then it is difficult to understand why administrative matters and others mentioned in Article 1 are not civil matters if in fact in interpreting the decision above they cannot be classified as criminal.

In civil law countries on the other hand, the contrast is mostly common in relation to public law. The European court has since held that the concept of jurisdiction in relation to article 1 must be given an “autonomous” meaning. This means that it shouldn’t be interpreted according to one legal system but as a whole in comparison to other systems. In The Eurocontrol case[4], an international agency supplying air traffic control services to civil aviation in Western Europe, claimed route charges allegedly owed by Lufthansa.

Eurocontrol was in fact a public body but that did not mean the claim would fall outside the civil and commercial category. It was held that in determining whether a matter was civil or commercial, it had to first be ascertained whether the public body was acting in the exercise of its powers. If it were not, the matter would be a civil and commercial one.

Another example would be in relation to armed conflict, if for example issues do arise because of Russia’s involvement in crimea, and these matters were not necessarily criminal in nature but involved individuals who for example brought proceedings against Russia for loss of income due to its military activity.

Prima facie, such a case might be looked at as commercial because the remedy sought would be compensation of some sort but this may not be so. It was seen in Case C- 292/05 Lechouritou v Dimisio tis Omospondiakis Dimokratis tis Germanias[5], that acts of the German armed forces in Greece during the second world war should be regarded as outside the scope of civil and commercial matters.

In other cases, like in Grovit v Nederlandesche Bank[6] it was seen that cases involving public bodies were not civil or commercial in nature.

Also, arbitration is not classified as a civil or commercial matter as per Article 1. This seems rather strange seeing as in most countries of late, arbitration is more sought after because of its convenience in terms of time and cost.

It has already been said that domicile is an important aspect of jurisdiction. According to Article 59, if any given country’s court is determining whether an individual party is or is not domiciled in that country, then that country would supply its own definition for domicile.

This entirely contradicts the principle of domicile and further shows the lack of universality of Regulation 44/200. A more detailed and concise definition and explanation is needed in this Article to suit domicile in general. Section 41 of the Civil Jurisdiction and Judgments Act 1982, provides such a definition in the context of the Brussels Convention and the same rules are applied to the Regulation in the Civil Jurisdiction and Judgments order 2001[7].The rules provide that a person is domiciled in the United Kingdom only if he or she is resident in the United Kingdom and that the residence indicates a substantial connection.  There lacks however, a definition for residence or substantial connection.

Article 59 (2) of Regulation44/2001 also provides that if a party is not domiciled in the state whose courts are seised of the matter, then in order to determine whether the party is domiciled in another member state, the  court is to apply the law of that state. But, this contradicts the traditional principles of English domicile law where English Law is seen to be as the one that will always apply.

The regulation also seems to state that one can have more than one domicile and yet it is a settled principle promulgated by the leading case of Udny v Udny[8] that no man shall be without a domicile and that he shall have one domicile at a time. The regulations also fail to address the determination of the domicile of a person in a state other than a member state and this is further evidence of lack of universality.

Article 60 (1) provides a different approach to corporations or associations. It states that a corporation or other legal entity is domiciled at the state where it is incorporated or has its statutory seat, place of business or central administration. This could be interpreted to mean that a corporation can also have more than one domicile because in practice, a company can have its place of business or can be incorporated in more than one country. In order to lessen the ambiguity, it tries to define statutory seat in Article 60 (2) as the registered office or place of incorporation.

Say for instance a situation where a company is incorporated in England but has its registered offices in Germany. If a dispute were to arise, it would be hard to interpret these regulations in relation to the given definition. This is even made more difficult because Article 22 (2) of the regulation gives exclusive jurisdiction over certain disputes about the constitution, dissolution or acts of a company or association to the courts for the “seat” of that entity.

Courts in this instance would have to apply rules of private international law which in the case of England are codified in the Civil Jurisdiction and Foreign Judgments Order 2001[9]. In interpreting “seat” the aforementioned order, states that a company has its seat in the United Kingdom if either it was incorporated in the United Kingdom or has its central management in the United Kingdom.

Article 60 (3) provides for  trusts and says that in determining whether a trust is domiciled in the member state whose courts are seised of the matter, courts shall apply rules of private international law.

The regulations also seem to give exclusive jurisdiction to courts of a country in specific instances. Article 25 in fact provides that if a court of one member state finds itself seized of a claim which is principally concerned with a matter over which courts of another state have jurisdiction, it must declare that it has no jurisdiction over that matter. This was seen in The Maciej Rataj[10]  where the European Court of Justice had to consider the applicability of Article 21 of the Brussels Convention[11] to actions in rem and in personam and held that an action in rem and an action in personam involve the same cause of action, the same object and the same parties. It was also opined that what is important is whether or not the substantive issues which the court is called upon are the same.

Article 22 lists instances of exclusive jurisdiction. But, then questions may arise as to when the parties themselves have determined the jurisdiction. It would seem that they would intermittently be denied their fundamental right to chose courts of adjudication especially in contract law because of this provision. Exclusive jurisdiction is given to courts according to Article 22 in cases of immovable property in which case the country in which the property is situated will have jurisdiction.

It is also given in proceedings involving corporations as already discussed above, in public registers the place where the register is located will have jurisdiction, in intellectual property jurisdiction will fall where the intellectual property right has been registered or where the infringement has taken place. And, in enforcement of foreign judgments, the courts of the member state in which the judgment has been or is enforced will have jurisdiction.

A person domiciled in one member state for example Greece, may be sued in another jurisdiction like England because the subject matter may be closely connected with England. This is what is termed as special jurisdiction and is enshrined in Article 5. This can happen for example in contract especially if there is a dispute as to the existence of a contract. Contract is given an autonomous meaning in the regulation and as such is cannot be determined by one legal system.

In Peters v Zuid Nederlandse Aannemers Vereniging[12], a dispute arose between the Dutch trade association and one of its members. Under the institutions rules, a percentage of any earnings within the association’s area were to be paid to the institution. The issue would be contractual in English law but in Dutch law it was treated as Sui generis .The European court held that as membership of an association creates between the members close links of the same kind as those which are created between parties to a contract, then their obligation should be regarded as contractual for the purpose of the application of Article 5 (1).

Generally, benefits conferred on others as third party beneficiaries cannot be treated as arising out of contract. But, in WPP Holdings Italy Srl v Benaitti[13] it was seen that a situation where two parties had conferred benefit on a stranger could be a contractual matter for the purposes of the judgment regulations. So, even if the definition of contract is autonomous in the interest of eliminating further dispute, this has not been the case as courts find it difficult to identify “the place of performance”.

This was seen in Barry v Bradshaw[14] where, the plaintiffs retired from business in 1989 and went to live in Ireland. They then employed tax consultants including the defendant, later, the plaintiffs sued the tax consultant for breach of failing over failing to secure capital gains tax retirement relief in respect of the certain years. The defendant argued that the English courts had no jurisdiction since he was himself domiciled in Ireland and the place of performance of the contract was also Ireland.

But, court of appeal held that as the tax claim had to be delivered to the Inland Revenue in England that would be the place of performance. Another case is that of Boss Group ltd v Boss France sa[15], where an English company that manufactured fork lift trucks, set up a French subsidiary to act as sole distributor of its products in France. Both companies were later sold one to a German business and the other to a French one who claimed that because distribution of the trucks was now routed through Germany, there was a breach of the exclusive distributorship agreement. The English company applied to the English courts for a negative declaration that there was no agreement of that nature or if it was there it had been terminated. Court held that the obligation was to be performed in England or possibly everywhere. The ECJ then said that a negative obligation applying everywhere cannot be located in a member state at all.

The difficulty of Article 5 (1) has seen it be redrafted in the Judgments regulation with an additional provision as Article 5 (1) (b) to say that in sale of goods the place where obligation is said to take place will be the place where the goods are delivered, should have been delivered or where services are provided or should have been provided. If the Barry case[16] had been decided after this amendment, the outcome would have been different.

In matters of tort, Article 5 (3) provides that a person can be sued in a state he is not domiciled in. in Bier v Mines de potasse d Alsace[17] which was a case involving physical damage, it was held that a claimant has an option to sue either at the place where the damage occurred or the place of the event giving rise to it. Place of damage in this case would be the place of the physical loss or economic loss.

But, in Dumez France v Hessische Landesbank[18], it was held by the European court that jurisdiction must be limited to where the harmful event “directly produced its harmful effect on the person who is the immediate victim of that event.”  Article 6 (1) of the regulations says that a person domiciled in another member state who is one of a number of co defendants may also be sued in the courts for the place where any of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid risk of irreconcilable judgments resulting from separate proceedings. But, there is no mention of the basis of the claim.

However, it was suggested in Reunion europeenne SA V Speliethoffs bevrachtingskantoor[19] that a claim in contract cannot be connected to one in tort. In Freeport plc v olle Arnoldsson[20] it was seen that a claim of both contract and tort does not necessarily preclude the application of article 6 (1). Article 20 of that Regulation provides for a rule on jurisdiction for proceedings brought by the employer. Due to difficulties that arise in trans-border labor relationships, it will inevitably become necessary to amend Article 20. The employer needs to be given the option to bring proceedings in the courts for the place where the employee habitually carries out his work or, if the employee does not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is situated as is the case in tort cases above.

It is worth noting, that a number of instruments have been enacted in support of the regulations and possibly to iron out the kinks. On 3 May 2002 the Commission presented a proposal for a Council Regulation on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in matters of parental responsibility. Once adopted, this proposal will amend Article 5(2) of Council Regulation (EC) No 44/2001 to ensure that a court can assume jurisdiction in matters related to maintenance in all cases where these are ancillary to proceedings concerning matters of parental responsibility.

 

Another is  the Corrigendum to Council Regulation (EC) no 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters Official Journal L 307 of 24.11.2011, the Declaration of the United Kingdom (Council Regulation (EC) NO 44/2001 of 22 December 2000on jurisdiction and the recognition and enforcement of judgments in civil and commercial Matters Official Journal C 13 of16.01.2001, Commission Regulation (EC) No 1496/2002, of 21 August 2002 amending Annex I (the rules of jurisdiction referred to in Article 3(2) and Article 4(2)) and Annex II (the list of competent courts and authorities) to Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [Official Journal L 225 of 22.8.2002], The Netherlands  also notified the Commission of an amendment to the rules of jurisdiction set in Annex I and to the list of competent courts and authorities set out in Annex II and Germany has notified the Commission of an amendment to the list of competent courts and authorities set out in Annex II. Regulation (EC) No 44/2001 has had to be amended accordingly. [Official Journal C 311, 14.12.2002]

 

In conclusion, despite the problems in enforcement of Regulation 44/2001, it is still an important piece of regulation in the Private International Law. This was seen in The Deichland[21], where it was opined that the regulations and the Brussels convention were very relevant in addressing the issues of jurisdiction. But, there is need to harmonize the rules to apply across all member states of the European Union especially when it comes to questions concerning liability.

 

[1]council regulation (EC) no 44/2001 OJ L 12, 16.1.2001

[2]1968 Brussels convention on jurisdiction and the enforcement of judgments in civil and commercial matters

[3]No’s 1 and 2 [1990] 1 AC 723

[4]Case 29/76 LTU Gmbh v Eurocontrol [1976] E.C.R. 1541

[5][2007] 2 ALLER (COMM) 57

[6][2007] EWCA Civ 953

[7]SI 2001/3929, Schedule 1 Paragraph 9

[8](1869) Lr 1 sc & Div 442, at 448

[9]Schedule.1, Paragraph 10

[10][1995] 1 Lloyd’s Rep. 302

[11]Schedule 1 to the Civil Jurisdiction and Judgment Act 1982

[12]Case 34/82 [1983] ECR 987

[13][2007] EWCA civ 263

[14][2000] I.L.P.r 706

[15][1996] 4 ALLER 970

[16] Supra 12

[17]Case 21/76 [1976]ECR 1735

[18]Case 220/88, [1990] ECR 1-49

[19]Case 51/97 BV [1998] I ECR 6511

[20]Case C-98/06 [2007] ECR I – 8319

[21][1990] 1 QB 80

Domicile: The International perspective

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

Domicile is a principle that is difficult to define. The idea behind the law of domicile is the concept of a permanent home. In the case of Whicker v Hume[1], Lord Cranworth said that,

“By domicile we mean home, the permanent home, and if you do not understand your permanent home, I am afraid that no illustration drawn from foreign writers or foreign languages will very much help you to it.”

Although domicile equates to the permanent home of a person, a person may live in one country and have domicile in another. To illustrate further, in the African setting domicile could be understood as where a person would want to be buried when they die. This would most likely be the place where his family has lived and where he has strong family ties. In Uganda for example, culture is a big part of the community and when a person dies he is buried on his ancestral land. So, even when one dies in another country, usually the will contains instructions that he would like to be buried ‘home’.  This preposition was seen by the Law Commission in their report on Jurisdiction in Matrimonial causes[2] where it was said noted that,

“The vast majority of persons do have a close connection with the state of which they are nationals. If ‘belonging’ is the test, nationality occupies a position very close to that now filled by domicile and is entitled to consideration as a basis of jurisdiction.”

There are four general principles associated to the English law of domicile. These are that,

Firstly, no person can be without a domicile and this springs from the simple notion of connecting every person with some system of law. This principle was best seen in the case of Udny v Udny [3]where Lord Westbury held that it is a settled principle that no man shall be without a domicil.

Secondly, no person can at the same time have more than one domicile, at any rate for the same purpose.

Thirdly, an existing domicile is presumed to continue until it is proved that a new domicile has been acquired. In this instance, the burden of proving a change of domicile lies on the one who asserts it. In the case of The estate of Fuld[4], Scarman J. opined that,

“..The acquisition of domicile of choice is a serious matter not to be slightly inferred from slight indications or casual words”

And lastly for the purpose of a rule of the conflict of laws, domicile means domicile in the English sense. The question as to where a person is domiciled is determined solely in accordance with English law.

Domicile serves various purposes. In the United Kingdom for example, domicile is used as a ‘connecting factor’ when issues as to what jurisdiction should be used to adjudicate certain issues arise. Originally domicile was a good idea of law but, this position has changed over the years and cases involving domicile have multiplied mainly because of the complexity of the principle of domicile. In particular, inconsistencies have been seen in the judicial determination of ‘permanency’ and ‘intention’ when considering the acquisition of a domicile of choice.

Generally, one acquires a domicile in three ways. The first is by origin, and this is termed as a domicile of origin. In the Udny v Udny[5] case, Lord Westbury was noted saying that the law attributes to every individual as soon as he is born the domicil of his father if the child is legitimate, and that of his mother if the child is illegitimate. Developments have been many in this area with the law Commission in its 1987 report[6]  recommending that a child should be domiciled in the country with which he or she is, for the time being most closely connected. This has been adopted in Scotland by the Family Law (Scotland) Act 2006.

The second way of acquiring a domicile is by dependency and this is called a domicile of dependence. It follows a premise that dependent persons cannot acquire a domicile of choice by their own act and as such, their domicile changes with the domicile of the person to whom they are legally dependent. Such persons include children, mentally disabled and formerly included married women.

As seen above, a child takes up either the domicile of the father at birth or the mother if the father is not available or if the child is illegitimate. But, this rule is not enforced strictly as was seen in the case of Re Beaumont[7] where a widow who was domiciled in Scotland with her children who were minors, remarried and moved to England to live with her husband. She took all but one who was left in the care of a trusted aunt. It was held that the domicile of said child remained Scottish.

A child under English law can lose this domicile if he or she attains 16 years of age or gets married and this is enshrined in the Domicile and Matrimonial proceedings Act 1973[8]. Section 4 of the latter, provides that the domicile of a dependent child whose parents are alive but living apart shall be that of his mother if he has his home with her and not with the father.  But, this section also raises a question as to what a ‘home’ would be in this instance. Adopted children are now treated by law as if they had been born as the legitimate child of the adopter or adopters[9]. A mentally disordered person retains the domicile which he or she had before becoming mentally disabled. This was seen in the case of Cruptons judicial Factor v Fitch-Noyes[10]. A married woman, now does not acquire the domicile of the husband at marriage and this was introduced by section 1 (1) of the Domicile and Matrimonial proceedings Act 1973. This section is one of the few laws that act retrospectively.

The third way of acquiring a domicile is by choice and this is known as a domicile of choice. Every independent person who is not a child or mentally incapacitated, can get a domicile of choice by the combination of residence and the intention of permanence or indefinite residence. This type of domicile is the most widely criticized by scholars because of the problems associated with intention and permanence. These two cannot exist without each other.

A new domicile of choice cannot be attained until there is a fixed intention of establishing a permanent residence in some country and this intention is followed by the actual residence in that country. In Bell v Kennedy[11] and Udny v Udny[12], it was seen that a domicile cannot be acquired ‘in itinere’.

In other words the travel and settlement must be completed. If one died on the way to another country where he intended to settle, he would not have acquired a domicile of choice in that country. Cheshire and North’s Private International Law[13] provides a situation of a taxpayer who spends ten to twelve weeks a year in Quebec for the purpose of maintaining her links with that province with the view of returning to live there but who would not be held to be a resident of Quebec since permanent settlement has not been fulfilled.

The length of domicile in this instance is not required but rather the intention and arrival. Even living in a hotel would suffice as settlement as long as intention is proved. This was seen in the case of Mark v Mark[14] where it was held that unlawful residence would not prevent the acquisition of a domicile of choice. This was further elucidated by Hoffman J in Plummer v IRC[15], that the distinction between an inhabitant and a person casually present is of limited value in cases of dual or multiple residence and that a person who retains a residence in his domicile of origin can acquire a domicile of choice in a new country only if the residence in that country was his chief residence.

But, these explanations all seem to derogate the issue of what a ‘home’ is. I would believe, domicile of choice in this instance should be determined not just by arrival but by actual settlement in a proper residence. This is so because, I would find it so difficult in proving intention if residence was determined so. Even though Udny v Udny[16] proposes that residence must be indefinite in its future contemplation, the burden of proof in this instance would be unrealistically high in each case as the state of mind in that moment of contemplation could be so that a propositus would see himself in no other location till this situation changes.

In fact, it was seen by the First report of the private international law committee[17] that trials are apt to long and expensive, for since a man’s state of mind must be investigated, evidence of the smallest matter is relevant and the difficulty in reaching decisions in matters of domicile is a serious inconvenience. Case law has suggested this to be true as of the 13 cases involving domicile that have reached the House of Lords since 1860, only two have been held to fulfill the conditions of losing a domicile of origin[18].

The intention mostly referred to as the animus manendi is the mens rea to reside permanently in a particular country. The shorter Oxford English Dictionary defines permanence as lasting or designed to last indefinitely without change. If a person intends to reside in a country for a fixed period for example a contractor working in Iraq, the intention necessary to acquire a domicile there is lacking, however long the fixed period may be.

It is also clear that a conditional intention will not suffice as was seen in Cramer v Cramer[19] where court proposed that conditional intention as in the case where a woman went to England intending to remain there and marry an English man who was already married would not suffice as her stay was dependent on the man divorcing his current wife. But, in the case of Re Fulds estate[20] Scarman J opines that if a man intends to return to the land of his birth upon a foreseen contingency, such a state of mind would be consistent with the intention required by law. This would not be the case if the contingency is unrealistic. Two decisions in particular have attracted much criticism. One of them is Winans v AG[21], where, a certain Mr. Winans was born in the United States with a domicile of origin in Maryland or New Jersey. The two ruling passions of his life being his hatred for England, and care of his health. His opportunity to show this hatred for England came in 1850 when he was employed by the Russian government to construct gunboats to be used against England in the Crimean war. He later became ill and was advised to spend the winter in Brighton. He accepted this advice reluctantly and in 1860 he took lease of a house there but he lived distantly from the English people. Although he harbored a dream of moving back to Maryland, he never did and he lived a total of 37 years in England. On these facts, six judges held he died domiciled in England but dissenting, Lord Macnaghten said that he never lost his domicile of origin as he died a stranger in England.

This was also the case in Ramsay v Liverpool Royal Infirmary[22] where, George Bowie, born in Glasgow in 1845 had a Scottish domicile of origin. In 1882, at the age of 37, he gave up his employment and moved to his sisters in Glasgow and later moved to sponge off his brother and sister in Liverpool in 1892. He died unmarried in 1927. Thus, he lived in England for 36 years and although he often referred to himself as a proud Glasgow man, he expressed his determination not to set foot there again and arranged to be buried in Liverpool. His will which gave the residue equally between three Glasgow charities and one Liverpool one, was valid if he died domiciled in Scotland but invalid if he died domiciled in England. The House of Lords surprisingly held he died domiciled in Scotland giving a rather flimsy reason that his residence was colorless and thus lacked the necessary intent to change his domicile.

This was also the case in other decisions like IRC V Bullock[23], where it was held that a Canadian with a domicile of origin in Nova Scotia who had lived mainly in England for more than 40 years had not acquired an English domicile of choice because he intended to return to Canada after the death of his English wife. Also, in Re Furse[24], An American with a farm in England was held to have an English domicile of choice even when he had intended to go back to the United States had he become unable to live an active life on his farm.

Evidence of intention is one which as shown above is difficult to show. In Drevon v Drevon[25], Kindersley V.C eloquently said that there is no act, no circumstance in a man’s life, however trivial it may be in itself, which ought to be left out of consideration in trying the question whether there was an intention to change the domicile.  A circumstance that is treated as decisive in one case may be disregarded in another and such is the nature of the law of domicile.

The questions considered by court are where the propositus lived and how long? If it was in a fixed place or several different places? Did he build or buy a house or live in a hotel? What was his lifestyle? Was he married, did he have children? Did he vote? Was he naturalized? Did he arrange to be buried there? Such questioning shows that court considers every aspect of a propositus day to day life to prove intention. The person whose domicile is in question may give evidence of his or her intention but court views this evidence with a lot of suspicion. Motive, has to be distinguished from intention. It will not matter whether a person’s motive in leaving one country and settling in another is good or bad.

The question is whether or not there is the requisite intention for a change of domicile. One may rightly argue that this is why decisions as those in the Ramsey case[26] and Winans[27] case were reached. But the fact still remains that all these factors place a lot of uncertainty on intention and that is why change is needed in this area of law. In order for a person to acquire a domicile of choice, there must be a residence freely chosen and not prescribed or dictated by any external necessity, such as the duties of office, demands of creditors or relief from illness. I find this reasoning unrealistic as people often move because of such and other factors and intention to remain can still be formed when they find how comfortable the place of choice is. Also, a person who resides in a country from which he or she is liable to be deported may lack the necessary intention unless it can be shown that he has satisfied the requirements. But, if he is deported, then that domicile acquired is lost.

Domicile of political refugees

Consider the genocide in Rwanda and the war in South Sudan where many refugees have fled to Uganda. in Re Lloyd Evans[28] it was held that a refugee who had decided not to return even when the political situation does change, may acquire a domicile of choice in the country of refuge.

In cases of health, courts have reached different decisions as to persons that move to live in a new country for health reasons. No general rule has been laid down but in cases like Hoskins v Matthews’s[29] court held that a man domiciled in England had acquired a domicile of choice in Tuscany because he had gone there following a spinal injury. This decision was reached even when his servant had given evidence that he had intended to return to England had he gotten better.

Domicile for “Nkuba Kyeyo” and diplomats

For employers seeking to attain a domicile of choice, the question is one based entirely on fact. This is so because if for example a diplomat stationed in a country may want to remain there permanently, a domicile of choice may be refused. But, an army officer may acquire a domicile of choice in a country he is stationed as was seen in the case of Stone v Stone[30]. A domicile of choice is lost when both residence and intention necessary for its acquisition are given up.

So, it is evident that law on domicile is confusing in the least and needs reform in key areas. When it comes to the domicile of origin and domicile of dependency, the whole concept is contradictory and only seeks to add more uncertainty to an already fragile premise of law. I would suggest one or both of these be abolished and a single test that ties the child’s domicile to the jurisdiction with which he is most connected be adopted to fill the gap. This view is shared by the English and Scottish Law commissions and North and Fawcett[31], who observe that the abolition of the domicile of origin and the domicile of dependency would greatly simplify the law of domicile.

More so, I believe there is a lot of stigma put on children with the question of illegitimacy and the domicile of origin and dependence aggravate this further as I cannot comprehend why the domicile of a child should lie on the marital status of his parents.  So, I would recommend the distinction between illegitimate and legitimate children be removed in domicile.

When it comes to a domicile of choice, the existing rules on domicile of choice are artificial and create uncertainty as shown herein. It is illogical that a person’s domicile can persist long after he has ended any connection with the country concerned it is difficult for him to establish a change in domicile. This is so because the burden of proof placed on proving intention is unrealistically high. I would thus recommend this unnecessary burden be reduced by setting a set criterion of factors that should be considered rather than leaving it to the mercy of the courts to interpret. I believe this would reduce the confusion surrounding this area. But, it is worth noting that an adult’s domicile should in fact continue to be considered on his acts and intention.

I would also recommend that a more favorable approach be given to the understanding of the word ‘home’. And this should be approached in the line of a home being where a propositus is more connected to. I agree with the proposal set forward by the Hong Kong commission[32] that a test be adopted for ‘making a home’ rather than settling.

A rebuttable presumption should also be adopted as is the case in Manitoba[33], where a person is presumed to have the intention to reside indefinitely where his principle home is, subject to evidence of a contrary intention.

In conclusion thus, the idea of the law of domicile was one that was urgently needed when issues like conflict of laws had to be addressed. However, the problems associated with this law have clouded this once brilliant idea and reform is urgently needed in various areas in particular the domicile of origin and dependence and the issue of intention and permanency. One may argue that the law of domicile has become an archaic vestige of Victorian era rights but, I still believe even with its shortcomings it is a law that cannot be ignored. Once it is tweaked and tuned in the areas mentioned above, then it will once more be a guiding light in the rough waters that is Private international Law.

END NOTES.

[1](1858) 7 HLC 124,160

[2] 1972 Law commission no.48

[3](1869)lr 1 SC & Div 441, at 448, 453,457

[4](no.3) (1968) p. 675 at 686

[5] Ibid 2

[6]joint report of the Law Commission and the Scottish Law Commission, The Law of Domicile  1987, Law Com No 168, Scot Law Com No 107

[7](1893) 3 ch 490

[8] In section 3 (1)

[9](section 67(1) Adoption and children’s act 2006

[10](1918) SC. 378

[11](1868) L.R. 1 SC.& Div. 307

[12] Ibid 3

[13](North.P.M, Fawcett.J.J. Cheshire & North’s Private International Law, 13^th Edition, Butterworth’s at page 137)

[14][2005] UKHL 42

[15](1988) 1 WLR 292

[16] Ibid 3

[17]1954 England Cmd 9068 para 9

[18]Mcclean.D and Beevers.K, The Conflict of Laws, 7^th Edition, Sweet and Maxwell at page 35 paragraph 2-015.

[19][1987] 1 FLR 116 (CA)

[20] Ibid 4

[21][1904] AC 287

[22] [1930]. AC 588

[23](1976 )3 ALLER 353

[24](1980) 3 ALLER 838

[25](1864) 34 LJ CH 129 at 133

[26] Ibid 22

[27] Ibid 21

[28][1947] 1 Ch. 695

[29][1855] 8 De GM & G 13

[30](1958) 1 WLR. 1287

[31] Ibid 13

[32]The Law Reform Commission of Hong Kong, Domicile Sub-Committee, Rules for Determining Domicile, February 2004.

[33]Section 8(2) of the Domicile and Habitual Residence Act 1983, Manitoba.

 

Doing Business overseas: Contracts of carriage of goods by sea

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

A contract is an agreement giving rise to obligations which are enforced or recognized by law[1]. Contracts of carriage of goods by sea are applied with more or less the same principles as those of ordinary contracts. Contracts of carriage have been standardized to make trading easier and The Uniform General Charter Code name GENCON is the most widely used standard contract for voyage charter party agreements.

This charter was first issued by The Baltic and International Maritime Council Uniform Charter BIMCO in 1992 and only a few amendments have been made to it to make it at par with changes in the shipping industry.

Imagine a scenario where a ship, leaves Brisbane on the 17^th October but is held up by bad weather. On the 25^th when it is clear it will not reach by the cancelling date provided in the contract of carriage, the chatterer is notified of a new cancelling date.

This new cancelling date is provided for in clause 9 of part 2 of GENCON which gives the owner of a ship the mandate to issue a new canceling date. At this point, the chatterer could have also cancelled the contract as provided for in clause 9 above. They would however, be estopped from cancelling it when they do not object to the new date.

It was held in Cf. the Democritos[2] that the cancelling clause does not of itself form any basis for liability in damages although, the owner may be liable for missing the cancelling date.

Now it is a well known fact that weather can be unpredictable and that is why, most parties in calculating Lay time put into consideration frustrations such as the above.  Clause 3 of part 1 of the GENCON, provided for Lay time as being 3days for both loading and unloading.

What is the arrival date

Imagine another scenario where the ship above finally arrives at 2pm Monday, 1^st November and the master immediately gives notice of readiness to load. But, no berths are available and the ship has to wait for 5days before it is allowed to load.

‘Arrival’ is the most frequently disputed issue on commencement of laytime. Under Berth charters, arrival is seen as when the ship reaches the berth. In other charters involving ports, the ship is said to have arrived when it is at the port and it is at this point that notice can be given for readiness to load. Clause 6 of the GENCON provides that if the loading berth is not available on the vessels arrival, the vessel will still be allowed to give notice of readiness to load and laytime will begin to run at this point as the ship will be treated as if it is berthed.

In Dias Compania Naviera v Louis Dreyfus[3], lord Diplock defined laytime as the days which parties have stipulated for the loading or discharge of the cargo, and if they are exceeded the charterers are in breach.

In this instance, demurrage would be the agreed damages to be paid for the delay. From this case, it can be rightly argued that the ship in our scenario will in fact be liable for the days where there was delay in loading.

In EL oldendorf & Co GmbH v Tradax Export SA[4], a test was put forward by Lord Reid that the essential factor before a ship can be treated as arrived is if she is within the port and at the immediate and effective disposition of the charterer.

This was also the case in Federal Commerce and Navigation Co Ltd v Tradax Export SA[5], where the decision in the Johanns case was affirmed and it was seen that in a berth charter, the effect of the clause is that a waiting vessel which cannot berth because of congestion is treated as though she were in fact in berth.

Randall v Lynch[6] confirmed the fact that congestion cannot be treated as a notable exception to laytime running as opposed to bad weather which could suffice.  Notice of readiness to load, deems the ship at the disposition of the chatterer and laytime would start to run at that point when such notice is given.

The chatterer can only escape liability is if it can show that its ship was not actually ‘arrived’ and as such could not possibly give notice of readiness to load. In Stag Line v Board of Trade[7] it was seen that in the case of a berth charter, a notice of readiness given before berthing will be invalid in the absence of a special agreement to the contrary.

But, in interpreting the above cases, it is essential to note that there is a significant difference between port chatters and berth chatters.

Now, imagine that during the loading, the ship was damaged by the stevedores and the voyage was then delayed for a further five days. The question then arises as to whether laytime was still running during those five days and whether the shipping company is liable for demurrage. According to Harvey Williams[8], hindrances usually expected as regards running of laytime for dry cargo vessels are riots, strikes, cargo supply difficulties and machinery breakdowns.

The GENCON under Clause 4 (c) makes the chatterers liable for damage to any part of the vessel caused by the stevedores. It goes on to further state that any time lost on account of this damage shall be owed by the chatterers to the owners at the demurrage rate. The chatterers might escape liability if they can show the damage was due to the negligence of the owners. This was seen in the case of William Alexander & Sons v A/S Hansa[9], where it was held that if a delay is by the fault of the owner then the chatterer is exempted from paying any demurrage during the period of delay.

So, what happens when our ship finally sets sail on the 13^th November but on the second day it responds to a distress signal and loses four sailing days and also stops at five ports, two of which are unscheduled stops.

Departure from an ascertained route may be justified by an express clause much like the Clause 3 of part 2 of the GENCON charter which stipulates that a vessel has the liberty to deviate from its agreed course for the purpose of saving life. This type of clause is called the ‘liberty’ or ‘deviation’ clause.  Deviation is said to derive its name from the Latin word de via whichmeans ‘from the way’. In this instance HSCL would not be liable for any damage or delay caused by this deviation. It was seen in the leading case of Scaramanga v Stamp[10] that deviation for the purpose of saving life is protected and involves neither forfeiture of insurance nor liability to the goods owner in respect of loss which would otherwise be within the exceptions of ‘peril of the seas’. The UK also imposes a statutory obligation to save life at sea and this is enshrined in Section 93(1) of the Merchant Shipping act 1995 which provides that:

“The master of a ship, on receiving at sea a signal of distress or information from any source that a ship or aircraft is in distress shall proceed with all speed to the assistance of the persons in distress….”

However, in Davis v Garrant[11], Chief Justice Tindal stated that the law imposes a duty in the owner of a vessel to proceed without any unnecessary deviation in the usual and customary course. So, in this respect, the deviation to those unscheduled stops stated in the scenario (Calcutta and Malaga) were in breach of the charter agreement and as such HSCL would be liable to SSL.

Also, in Reardon Smith Line v Black Sea and Baltic General Insurance[12], it was seen that it is the duty of a ship, at any rate when sailing upon an ocean voyage from one port to another, to take the usual route between those two ports. In this case, the chatterer can claim that the deviation to Rotterdam and the other ports was in breach of the contract and it would be entitled to damages unless, the shipping company can show that these routes are in fact the customary routes of the ship.

This was seen in the Reardon case above when a ship chattered to proceed from a Black Sea port to Sparrow point in the USA deviated from the direct geographical route in order to bunker in Constanza where cheap supplies of oil were available. On evidence that ships of that nature involved in the same practice took the same route, it was held that there was no deviation from the agreed course. So, all HSCL has to do is show that the stop for a safety check at Rotterdam was the practice with other ships and HSCL will escape liability in this instance.

The effect of unjustified deviation is damages to the party who has suffered loss. In Koufos v C Czarnikow Ltd[13], the appellant had deviated from the set course and as a result loss was occasioned to the chatterer. The House of Lords held that the owner ought to have foreseen that the delay would involve a serious possibility of a real danger that the price of the sugar (which was the cargo) would decline and awarded damages being the price the sugar would have fetched had there not been a delay.

The other consequence of unjustified deviation is that the contract may be displaced and if this happens the ship owner will lose the benefit of all the clauses in the contract that are for his benefit[14]. This was seen in Joseph Thorley Ltd v Orchis Steamship Co Ltd[15], where Lord Collins MR stated that the undertaking not to deviate has the effect of a condition and that if that condition is not complied with, it displaces the contract.

The logic behind this holding is that once parties enter in to contractual obligations that as sensitive as is the case in Carriage of Goods by Sea agreements, any time lost in the course of shipment usually will have adverse effects on the chatterer. Hence, even when a clause exists to protect this deviation, a ship owner ought to have the commonsense not to deviate too much from the directed course and if he does not stick to the assigned route even when he knows time is of the essence, then he should be held accountable. This logic was further shown in US Shipping Board v Bunge y Born[16], where it was held that a right to demurrage at the port of discharge was lost because this had occurred after the deviation. But, the Scramaga case[17] deviates slightly from the cases above as it was held at page 229 that a deviation did not give the cargo owner the right to put an end to the contract of carriage, unless it deprived him of the whole benefit from it.

Finally, imagine our ship finally, arrived in London on the 15^th of December but couldn’t be unloaded because of snow. As such, there is a delay of two days with the unloading taking a further three days. Clause 18 (a) of the GENCON stipulates that at the port of discharge, should ice prevent the vessel from reaching port of discharge the chatterers shall pay demurrage as the ship waits for the ice to clear. However, Harvey Williams[18] writes that bad weather is excluded from laytime calculation depending on the duration of the weather.

During unloading some of the cargo is dropped and it suffers water damage. Again here the question would be who is in charge of the unloading and according to GENCON, in clause 5, all cargo discharged by the chatterers shall be free from any risk, liability and expense whatsoever to the owners.

However, in the event that it is discovered that some of the cargo was destroyed by the ship being damp. In this instance the shipping company would be liable for the goods destroyed.

Clause 2 of GENCON makes the owner responsible for loss or damage of goods caused by the unseaworthiness of the ship. Seaworthiness in this instance would include fitness for the intended cargo and a damp storage for such cargo as in the scenario is clearly a sign of wanting in due diligence on the part of the ship owners. A test was adapted to discuss this issue in McFadden v Blue Star Line[19], where court asks a question, “would a prudent owner have required the matter to be made good before sending the ship to sea on that voyage, had he known of it?” If this question is answered in the affirmative then the owner would be held liable for lack of due diligence. This duty is an absolute duty and is non-delegable.

Hence, in light of the above, if the chatterer found that the buyer due to delay had made alternative arrangements and as such the goods are sold at a much lower price than previously agreed. The question that would arise at this stage is whether the shipping company would be liable for the delay. As already discussed herein, the shipping company is liable in respect to the deviation which occasioned delay. It is an implied term that in all contracts of carriage, the ship owner undertakes that his vessel shall be ready to commence the voyage agreed on with reasonable dispatch. This term was discussed in Suzuki & Co Ltd V T Benyon & Co. Ltd[20] as a term that exists to ensure a ship owner saves time in the course of voyage. The chatterer can be right in claiming that in spite all the delays at the start of the voyage, the shipping company still made unnecessary stops which cost them money seeing as the ship owner should have known the goods were transported in anticipation of the Christmas holiday. The effect of breach of this in nominate term will most likely be damages.

Demurrage.

It is common practice in voyage charters for a demurrage rate to be calculated and stipulated. If the demurrage period is not fixed, the demurrage rate applies not just for a reasonable time but for as long as the ship is in fact detained under the contract. This was seen in the case of Western Steamship v Amaral Sutherland[21], where the issue of demurrage was discussed as above.

The gist of the principle of demurrage is to prevent the ship owner from recovering from the chatterer more than the agreed sum for the detention of his vessel. But, the right to demurrage does not prevent the ship owner from claiming damages for other breaches in the contract.

It was held in Suisse Atlantique v NV Rotterdamsche Kolen Centrale[22]  that there is no rule of law which deprives demurrage provisions of the effect when the breach for which the chatterer is responsible is such as to entitle the ship-owners to treat the charter party as repudiated.

In this case, this means that although the ship owner is entitled to demurrage in certain respects, they are not restricted by law to sue for damages if they can show probable cause that the voyage caused them damage in one way or another.

END NOTES.

[1]Peel,E, The Law of Contract, Twelfth Edition, Sweet & Maxwellat page 1.

 

[2][1976] 2Lloyds Rep 149 (CA)

[3]The Dias ]1978] 1 Lloyds Rep 325,HL

[4]The Johanns Oldendorff [1974] AC 479

[5]The Maratha Envoy [1978]AC

[6](1810) 2 Camp 352

[7][1950] 2 KB 194, CA

[8]Williams.H, Practical Guide Chattering Documents, Third Edition, Lloyds of London Press Ltd at page 26, Practical Guide Chattering Documents, Third Edition, Lloyds of London Press Ltd at page 26

[9][1920] AC 88

[10](1880)5 CPD 295 CA,304

[11](1860)6 Bing 716, 725

[12](1939) 64 Ll LR 229

[13](The Heron) [1969]1 AC 350

[14]Girvin.S. Carriage of Goods by Sea, Oxford university press, 2007

[15][1907]1 KB 660 CA

[16](1925) 42 TLR 174

[17] Ibid 12

[18] Ibid 10 at page 29

[19](1905) 10 Com. Cas.123

[20](1926) 24 ULR 49 (HL) 54

[21][1913]3 KB 366

[22][1967] AC 361

Doing business in the UK: Duties of directors under the UK Companies Act

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

 

A company is a legal entity separate from and not the agent of its shareholders. This definition was given by the land mark case of Salomon v Salomon & Co Ltd[1]. In this case, Mr. Salomon sold his shoe business to a company which he had set up for that purpose. The formalities under the then Companies Act of 1862 were followed and the members of the company were Salomon, Mrs. Salomon and their five children. But, the company hit bad times and business declined to the point of it having to go into liquidation. The liquidator sought to make Mr. Salomon liable for the debts of the company. But, this claim failed and the House of Lords held that he was not liable with Lord MacNaghten opining,

“The company is at law a different person altogether from the subscribers to the memorandum…..the company is not in law the agent of the subscribers..Nor are the subscribers as members liable”

The shareholders or directors of the company are given freedom from liability from any decisions that they might make on behalf of the company. In this way, a company can grow as a legal entity with the guidance of its directors who may make either wise or unwise decisions on behalf of the company. But, although a company is regarded as a legal entity under the law, it could not possibly run itself. And as such, it would need people, to run things for the company.

These people are known as directors. And these are responsible for the day to day running of the company. These directors get their power or mandate from the company’s constitution which is the Memorandum or Articles of Association of the company.

In the United Kingdom, the Companies Act 1985 does not give a specific definition of a director but only says that director includes any person occupying the position of director, by whatever name called. This act has since been replaced by the Companies Act 2006, but it is a shocker that still no definition has been suggested by this new act. In practice generally, there are three types of directors and these are De jure directors who are directly or formally appointed by the board of a company, De facto directors who assume the status and functions of a company director so as to make them responsible as if they were De jure directors. And finally, Shadow directors who were defined by the Companies Act 1985 under Section 741 as persons in accordance with whose directions or instructions the directors of a company are accustomed to act.

From the above, it is easy to tell that a director is a very important position in the workings of the company. But, this importance seemed not to have been recognized till recently in 2006 with the enactment of the Companies act 2006.

The duties of a director were left mostly for common law to dictate. As such, over the past decade, scholars and legislators in the United Kingdom had endless discussion about codifying these duties. In particular, the Company Law Steering Group was very instrumental in shaping the new law and initiating the “revolution” to remit the substance of directors’ duties under common law.

It recognized that the issues of directors’ duties lay at the heart of corporate governance and as such needed to be clearly defined and refined. Under common law, the directors owe their duties to the company and not to the shareholders. This was seen in the case of Percival V Wright[2], where the directors purchased shares from existing members without disclosing that they were in the process of negotiating a takeover at a higher price. It was held that since the directors owed no fiduciary duty to the shareholders, they could not be held liable for non disclosure. Even if this case has been heavily criticized it still established the principle that directors owe allegiance to the company and the company alone.

The companies act, 2006 was originally named the Company Law reform Bill and as already said above, was created out of the compilations of the Company Law Reform Review Steering Group and the Department of Trade and Industry. A Bill was then introduced to the House of Lords on 11^th January 2006 and in particular a curious proposal in the Bill was in part 10 which proposed various reforms to company law and in particular the law relating to the duties of directors. It was hoped that codification of this Bill would help give clarity on what was expected of directors and to make the law more accessible, to make developments of the law relating to directors and their duties more predictable and most importantly to correct what the company Law Review saw as defects in the duties relating to conflict of interest. But, critics still sling rotten eggs at the Act. It was in fact said by Lord Sharman that,

“The clauses in Chapter 2 of Part 10 in particular are flawed and not workable…the provisions are inflexible and will restrict the courts. The code has not adopted common law terminology and introduces new concepts that will make remedies more difficult to apply”[3]

The purpose of this paper thus, is to consider the provisions of the Company Act 2006 that relate to directors duties and compare them with the common law provisions which have been for the last century been enshrined in Case law and statute. These duties are classified as Fiduciary duties and Conflict of interest. A fiduciary was defined in Bristol & West BS V Mothew[4]as someone who has undertaken to act for or on behalf of another person in a particular matter in circumstances which gave rise to a relationship of trust and confidence. So, seeing as directors are in fact signatories to company assets among other things, they fall under this definition of a fiduciary. The law commission had even recommended that there should be a statutory statement of the fiduciary duties and these were taken up and find their home in the Company Act 2006.

Director to act within his powers

Section 171 of the Company Act 2006 is the starting point for these duties and provides that a director is to act within his powers. This section merely codifies the common law principle that a director should exercise his powers in accordance with the terms on which they were granted by the company’s Articles of Association. This duty was also present in the Company’s Act 1985 in section 35 (3). In Hogg V Cramphorn ltd[5], the directors allotted shares to prevent a takeover because they honestly believed that the takeover would not be in the interest of the company. But, it was held that the fiduciary power to issue shares had been exercised for an improper purpose which was to prevent a takeover and not for the purpose for which the power was given to the directors. The shares allotted were thus not validly issued. Buckley J in considering whether the allotment of shares was an improper use of powers by the directors said,

“Unless a majority in a company is acting oppressively towards the minority….this court…will not…permit directors to exercise powers which have been delegated to them by the company in circumstances which put the directors in a fiduciary position when exercising those powers, in such a way as to interfere with the exercise by the majority of its constitutional rights…”

The dictum in this case provides for the said duty and calls for a strict approach to this duty. It was also seen in Howard Smith Ltd v Ampol Petroleum Ltd[6], where the defendants and another company owned 55%of the issued share capital of R.W Miller (Holdings) Ltd.  The defendants and the plaintiff Howard Smith were making competing takeover bids for miller. Miller preferred the higher bid of Howard Smith but Ampol petroleum and Bulkships would not accept Howard Smiths offer. The directors of Miller then resolved to allot new shares to Howard Smith to raise capital needed and to reduce the power held by Ampol and Bulkships so that Howard Smiths bid would succeed. Ampol then challenged the validity of the allotment. Lord Wilberforce held that the allotment to Howard Smith was improper.

So in line of this duty, the Company’s Act seems to clearly provide for this duty however both cases above and the section itself cannot be applied lock stock and barrow. This is even more so in situations involving group companies where decisions are in most instances made in the interest of the group rather than a company itself as is seen in the Howard case above.

Director should act to promote the success of the company

Section 172 of the Companies act 2006 provides that a director should act to promote the success of the company. This duty emanates from the common law premise of directors acting Bona fide in whatever they do for the company. This duty under common law was based on the directors themselves and what they would see as bona fide and not what court would consider bona fide.

It was thus seen in Regentcrest plc v Cohen[7], where the directors of a company waived a clawback claim valued at 1.5 million pounds which the company had agreed to under an agreement with the vendors of certain property to it. The vendors were however on the board of the company and in return for this waiver, they undertook to work for the company without pay. In winding up the liquidator sought to hold them liable saying they had acted in breach of their duty. It was held that they had acted bona fide and it was further noted by Jonathan Parker J that the question is not whether viewed objectively by the court, the act or omission which is challenged is in the interests of the company and whether if the court had been in the position of director at that time would have acted differently. But, whether the director honestly believed that his act or omission was in the interests of the company.

Hence, under common law, the issue in determining whether a director was acting bona fide would be determined by his/her state of mind or by borrowing from criminal law his  ‘Mens Rea’. In particular, the definition put forward by R v Daviault[8] where mens rea was defined as a particular state of mind such as intent to cause, or some foresight of the result of the act or the state of affairs.” The approach in the Regentcrest case[9] was also followed by Extrasure Travel Insurances ltd V Scattergood[10], where the directors of a company had caused a company to transfer money to another company in their group to enable that company to pay a pressing creditor without any honest belief that the transfer was in the interests of the transferor company. Court held that a director’s duty is to do what he honestly believes to be in the company’s best interests. But, the fact that this belief was unreasonable may provide evidence that it was not. Court thus concluded the directors were in breach of their fiduciary duty to the company because there was no honest belief.

However, in Neptune (Vehicle Washing Equipment ) ltd v Fitzgerald[11], court held that a sole director was not acting bona fide when he made the company pay him a remuneration of 100,000 pounds on termination of his contract of service with the company.  From the above case law, each decision seems to differ in a way especially when the decision in the Regentcrest case[12] is compared to the one in the Howard Smith case[13].

As such, the director may exercise his duty to promote the success of the company but this decision may be looked at in a negative light by the subscribers to the company. It will also be difficult to ensure that the director promotes the success of the company without any perceived or foreseen benefit to the members. And, it is hard to see from this section what would happen if the decisions taken to promote the success of the company are taken without consideration of employees or for example the environment if it is a company that emits a lot of waste for example an oil company. This section seems to reinforce the legal premise of the corporate veil and makes it harder to make a director liable as there is no line drawn as to where actions that promote the success of the company should stop.

In line with the above, Common law also proposed a duty to exercise power for a proper purpose. This was seen In Punt V Symons & co ltd[14], where court granted an injunction to prevent the company from holding a meeting when an improper allotment had been made for the purpose of securing the passing of a resolution at that meeting.

A director should exercise independent judgment.

This duty is codified in section 173 of the companies’ act 2006.  This section was enacted to codify the common law principle that directors must exercise their powers independently without subordinating their will to third parties. This is seen as a duty for the director not to fetter his or her discretion. In Thorby v Goldberg[15], the directors of a company agreed as part of a greater transaction to allot shares in a particular manner at a later date. When that date reached, they failed to do so and claimed that action to force them to allot shares was an invalid fettering of their discretion. Court threw out this argument holding that the time when discretion could be exercised was at the time when the agreement was being entered into.

It was also seen in Fulham Football Club Ltd v Cabra Estates plc[16], where the directors had entered into an undertaking to support and to refrain from opposing the planning applications by another party for the development of certain land in return for the receipt by the company of large sums. The directors then wanted to give evidence to a planning inquiry opposing the development and prayed for a declaration that they were not bound by the undertakings and were entitled to give such evidence to the inquiry as they considered being in the interest of the company. It was held that since the undertakings were contractual in nature, and that they conferred some benefit on the company, then the directors had not improperly fettered the future exercise of their discretion by giving those undertakings.

From this case, it is necessary for a distinction to be drawn between directors fettering their discretion which is prohibited under common law in comparison to directors exercising their discretion in a way which restricts their future conduct. And in going back to the facts, the directors had in fact already exercised their discretion at the time when they gave their undertaking not to oppose the planning. So, a director under statute is prohibited from fettering his future exercise of his powers unless such an action is authorized either by agreement or by the Articles of Association of a company. But, in applying this sections, problems may still arise especially when it comes to private limited companies where authorization to fetter such powers may be made by the director on behalf of the company under the pretence of a member who by exercising his voting power may secure an authorization so as to act by way of a provision in the articles.

The duty to take reasonable care, skill and diligence.

This duty is codified by section 174 of the Companies Act 2006. In the past, professional occupations like doctors and lawyers have been associated with expertise. And with this expertise, a professional is expected to be learned in his field and as such is required to take reasonable care, skill and diligence in the course of his trade. But, over the years, as company’s make turnovers of millions of pounds, this requirement has also been required of directors. In October 2001 for example, an American energy company Enron filed for bankruptcy.

The fall of Enron was partly attributed to the decisions the directors had made but even if fingers were to be pointed the fact still remained that the shareholders lost out on Millions of Dollars. So, with directors at the helm of multibillion dollar companies, it was necessary to ensure that they did not take their position lightly and hence the duty to take reasonable care and skill.

The duty under common law was first majorly seen in the case of Re Brazilian Rubber Plantations & estates ltd[17], where a rubber company made serious financial losses in a ruinous speculation in rubber plantations in North Brazil and the directors of the company who had no expertise in the business of rubber plantations were sued on grounds of negligence. Neville J laid down a semi-subjective standard of duty of care and skill to be measured according to the expertise of the directors and held that a director’s duty was laid down requiring him to act with such care as is reasonably expected of him, having regard to his knowledge and experience.  And that such reasonable care must be measured by the care an ordinary man might be expected to take in the same circumstances on his own behalf and as such, such a man would not be responsible for the damage occasioned by errors of judgment.

In Re City Equitable Fire Insurance co. ltd[18], a company suffered a great financial loss as a result of fraud by the chairman, the liquidator then brought an action against other directors for negligently failing to detect the fraud. The directors were saved by a clause in the company’s articles which exempted the directors from liability for negligence except losses caused by their own willful neglect or default. However, such clauses did not see the light of day under the companies act 1985 in section 30 as they were negated under the act. This position has been taken in Australia as it was seen in the case of Daniels v Anderson[19] where it was held that directors must take reasonable steps to place themselves in a position to guide and monitor the management of a company. In a report by The Law Commission and Scottish Law commission[20], a test was proposed to be codified by the new act on how to gauge the level of skill and care.

Firstly, it was seen that a subjective test as one in the Re Brazilian case[21] would be inappropriate because most businesses required a certain level of skill and expertise. So, a more suitable test was proposed in the form of the dual objective/subjective test. This test was first seen in Re D’jan of London Ltd[22], where Mr.D’jan was held liable to the company for loss caused by the company’s insurers repudiating liability on a fire policy, he having signed an incorrectly completed proposal form without first reading it.

This breach was described by Hoffman LJ as not being a gross breach but the kind of thing that would happen to a busy man. So, from the case, it was seen that for a director to owe a duty to his company to exercise the care, diligence and skill that would be exercised by a reasonable person in the same circumstance he should have the knowledge and experience that may reasonably be expected of a person in the same position as director and his own knowledge and experience.

Hence, a director would be judged objectively and subjectively. Moving on to  the companies act 2006, the standard of competence expected of all directors will be that currently expected of a director with the expertise and experience of the director in question. The standard thus, is that of dual objective and subjective as proposed by the Law Commission paper above. But, in my view this provision still lacks clarity because the nature of each business is different and shareholders who are disgruntled may still bay for the blood of a director who fails a company regardless of whatever experience he is expected to have.

The duty to avoid conflict of interest.

This duty is codified in section 175 of the companies act 2006. The rules of Equity had ensured prior to the coming in of this law, archaic consequences for directors who placed themselves in a position where their interests conflicted with the interests of the company.

This rule replaces the well known no-conflict rule which was proposed by Lord Cranworth LC in Aberdeen Railway co  V Blaikie Bros[23], in this case, Aberdeen railway co agreed to buy chairs from a partnership Blaikie Bros. A member of the partnership was also a director of the company and when the partners of Blaikie bros sough to enforce the contract, the defendant company successfully claimed the contract was voidable. Conflict of interest can also arise when a director makes profit from his position.

This was seen in the case of Regal Hastings ltd v Gulliver[24], where Regal owned a cinema. A subsidiary Hastings Amalgamated Cinemas Ltd was set up to buy long leases of two other cinemas so that all three could be sold as a going concern. The owner of the two cinemas was only willing to grant a lease if the amalgamated company’s fully paid up share capital was 5000 pounds. The directors themselves raised the money and the deal went through.  After regal was sold, the new controllers caused regal to bring an action and successfully required the directors to account for the profit they had made in the sale. It was then noted by Lord Russel of Killowen that directors may be liable to account for the profits which they have made if they made it in the course of a fiduciary position.

But, under section 175 (4) b of the Company act 2006, the authorization of any conflict of duty or interest may be authorized by the directors of the company in a quorate meeting and in line with conditions set out in S175 (5). The purpose of S175 (4) was explained by Lord Goldsmith that it sought to recognize the unexpected situations that may arise when a conflict was to occur.  And that in such an instance breach could not be seen to occur but that if one knows there is a conflict then something has to be done about it[25].

The duty not to accept benefit from third parties.

This is codified in section 176 of the Company Act 2006. The effect is that a director of a company cannot take a bribe or anything that would be regarded as a benefit. But, such benefit can still be authorized by the company as per Section 180 (4)

The duty to declare interest in proposed transaction or arrangement.

This is provided for in Section 177. Common law and Equity have always determined that directors could not enjoy an interest in any proposed transaction or arrangement which involved the company unless it had been authorized by the members.  But, this section replaces this rule and makes it a duty to declare any interest regardless. However, there are no rules provided as to how this disclosure can be made and when. And according to section 177 (6), a director also need not make disclosure if the situation cannot possibly give rise to conflict of interest.

In conclusion thus, the provisions of the Company’s act 2006 in relation to directors duties, may list the duties but they fail to give clarity to Common law rules. The act uses simple and straightforward words for the duties and is ambiguous in most and as such is and will be difficult to enforce.  But, the significance of these duties cannot be ignored especially in these times of economic turmoil and increasing public demand for accountability from directors. In July 2011, for example, News of the world the oldest newspaper in Britain closed shop over allegations of phone tapping and corruption. Directors who sanction such controversial decisions need to be held accountable and in the future the public will demand a revision of these duties to include duties they think need to be codified.

END NOTES

[1][1897] AC 22, HL

[2][1902] 2 ch 421

[3]Hansard vol.677 No. 85 Col.194

[4][1996] 4 ALLER 698 at 711

[5][1976] Ch 254

[6][1974]AC 821

[7][2001]2 BCLC 80 at 85

[8] [1994]3 SCR 63 at Para 74

[9] Ibid 7

[10][2002] ALLER 307

[11][1995] BCC 1000

[12]Supra 7

[13] Supra 6

[14][1903] 2 CH 506

[15](1964) 112 CLR 597

[16][1994]1 BCLC  363

[17][1911] 1 CH 425

[18][1925] Ch 407

[19](1995) 13 ACLC 614,

[20]Company’s directors: Regulating Conflicts of Interests and formulating a Statement of duties Law commission No. 261, 1999

[21] Supra 16

[22][1993] BCC 646 AT 648

[23][1843-60] ALLER REP 249,H.O.L

[24][1942] 1 ALLER 378

[25]Hansard Vol 678 No. 100 Col.G c289

Doing Business in Europe:-Legal implications of clauses in distributorship agreements

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

A contract is an agreement giving rise to obligations which are enforced or recognized by law[1]. Imagine a scenario where a business owner in Uganda seeks to expand his business beyond borders into Tanzania. In such commercial transactions, a manufacturer will usually look for a suitable firm to handle his products as he may face problems like language barrier and knowledge of that new territory.

In this case, he will either look for a company that will only act as a “go between” to reach customers or, one that will buy his product and sell it to the final consumer. In the former, that kind of agreement would be an agency agreement and title in the goods does not pass to the agent. The manufacturer would retain ownership of the goods and as such would determine how the goods should be sold. In the later, title in the goods passes to the distributor who buys the goods and then sells them as his own to the final consumer. This type of contract is called a distributorship agreement.

Prima facie, if a distributor has bought goods, then he should be able to do with the goods as he wishes. However, in practice, in order for a new product to succeed in a new market, certain restrictions are inserted in the commercial contracts. These restrictions (conditions) in distributorship agreements are usually called Vertical restraints and are divided into two groups, non price restraints and price restraints.

 

Article 1(1) (a) of the Block Exemption Regulation defines a “vertical agreement” as:-

 

“An agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services”.

 

But, although these restraints may be allowed, some of these clauses are viewed as harmful and a hindrance to trade. As such, the Treaty of Lisbon was signed on 1^st December 2009 to address these issues in particular, through Article 81 and 82. This treaty is now called The Treaty on the Functioning of the European Union (TFEU) and, Article 81 became Article 101 which prohibits as incompatible with the common market, agreements and concerted practices between undertakings that may affect trade between member states of the European Union. This treaty is however, only applicable within the European Union .

Distribution agreements are characterized with exclusive distributorship clauses. The logic behind exclusive distribution is to create and maintain a particular brand image for goods. But, exclusive distribution also has competition risks like reduced intra brand completion and market partitioning that may cause price discrimination[2].

But, such clauses are potentially in violation of Article 101 as they can be viewed as being in restraint of trade. Parties in violation risk their agreements becoming voidable as provided for in Article 101 (2).

The European Commission’s notice on agreements of Minor Importance[3] requires the use of market thresholds to determine what is and isn’t an appreciable restriction of competition under Article 101.

The Block exemption was introduced to avoid placing unnecessary burdens on such agreements. However, for the block exemption to apply, the agreement must be covered under Article 101. The effect of the block exemption is to create a ‘safe harbor’ for agreements by exempting them from the application of Article 101. Also, for the block exemption to apply the companies must be operating at a different level of the production or distribution chain.

The companies should also have a market share not exceeding 30% and the agreement must not contain any hardcore restrictions which will be discussed below.

Advertising is also a crucial aspect in promoting a business and as such, Article 101 does not make void a restriction on active selling, but does so when it comes to passive selling. Active sales are defined by the commission Notice on Vertical Restraints[4] as the situation where a company actively approaches individual customers for example by direct mail or unsolicited emails or visits; or actively approaching a specific customer group or customers in a specific territory through advertisement in media, internet or promotions.

Passive sales are also defined to mean responding to unsolicited requests from individual customers including delivery of goods or services to such customers. Clause that restrict selling might be seen to fall under the Hardcore Restrictions clause.

Article 4 (b) of the Block Exemption regulations concerns agreements that have as a direct or indirect object, the restriction of sales by a buyer party to the agreement or its customers, in as far as those restrictions relate to the territory into which or the customers to whom the buyer or its customers may sell the goods.

Restrictions on advertising can be seen as indirect restriction of sales as without it, customers will not be able to know about a product or buy it. This restriction will only be allowed, if the party enforcing the clause has another exclusive distributorship arrangement in another country or territory.  And in this case, this restriction would be seen as a means to prevent infringement on the other distributors’ territory[5].

Certain agreements also have clauses that restrict a party from seeking customers outside their territory. Such a clause would only be legitimate if it allows sale of products to nationals of the new territory outside that territory. This is seen as passive selling which is legitimate under Article 101. The issue of passive selling was seen in a Bulgarian case of Diageo Brands B.V, Justerini and Brooks Limited and R & A Bailey & Co v. Commission for Protection of Competition[6] where, the Bulgarian commission for protection of Competition fined three foreign based beverage suppliers for preventing imports of certain alcoholic beverages into Bulgaria.

There are also clauses that have resale price restrictions. Such clauses falls under the hardcore restrictions set out in Article 4 (a) of the Block exemption regulations. This restriction concerns resale price maintenance and under the above restrictions, such an agreement would fall outside the parameters of the block exemption clause and would thus make the agreement void.

In fact, prior to the TFEU resale price maintenance was seen as nothing more than a means of collusion. But, some viewed it as a way of forcing the seller to maintain a certain level of class for a product. And, it can be argued that resale price maintenance is good for business and viewed in its entirety, it would not make the agreement illegal as if the clause is supplier driven, it may lead to efficiencies. This was the view in the U.S Supreme court decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc[7], which held that Resale Price Maintenance in the US was no longer a per se restriction of competition, but one governed by the rule of reason, which requires the balancing of pro and anti competitive effects.  But, it is still risky and that is why it is viewed as a hardcore restriction by the European Community.

We can also look at clauses concerning after sales services. Under Article 101 such clauses may be seen as a restraint to trade and would thus void the agreement. Article 4(e) of the Block Exemption Regulations concerns agreements that prevent or restrict end users, independent repairers and service providers from obtaining spare parts directly from the manufacturer of those parts and classifies such agreements as hardcore restrictions. But, this provision would not apply if the economic advantages of the agreement outweigh its anti competitiveness. Also, even if the block exemption regulations in Article 4(b) refer to any clause that restricts sales as a hardcore restriction, this clause can be looked at as an obligation relating to the display of the supplier’s brand name. Hence, it may not be classified as hardcore.

 

In conclusion, contracting parties must thus be wary of the terms of their agreements that may infringe Article 101.

END NOTES

[1]Peel, Edwin. The Law of Contract, Twelfth Edition, Sweet & Maxwell.

[2]Commission Notice guidelines on vertical restraints (OJ C 130/1, 19.05.2010.

[3] OJ C368, 22.12.01.P13

[4] Ibid 2

[5] Article 4(b) (I) block exemption clauses.

[6] Decision no 136 of 22 June 2006

[7] 551 U.S. 877 (2007 )

Doing Business in the UK: What you need to know about Agency

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

Agency is a relationship which arises when one person, called the principal, authorizes another, called the agent, to act on his behalf, and the other agrees to do so.[1] This definition is also used in The Commercial Agents (Council Directive) Regulations 1993[2], although the word “self employed intermediary” is added to explain the function of an agent. In the case of AMB Imballagi Plastici v. Pacflex Ltd[3], Judge Raymond averred that the term self employed is akin to the term independent contractor in English law.

In 1986, the council of ministers enacted Directive 86/653 on self employed commercial agents and the co-ordination of the profession of self-employed commercial agents[4]. This directive was implemented by the 1993 regulations (ibid) which came into effect on January 1, 1994. The purpose of these regulations was to clearly establish the legal protection to be enjoyed by commercial agents. However, although the regulations were enacted with good intentions, they have been plagued with ambiguity. Before the 1993 directive, commercial agents in English law were only entitled to receive damages. Now, that the regulations provide for indemnity and compensation as remedies, ambiguity notwithstanding, the difference of these two from traditional remedies is what has caused confusion. This is so especially concerning termination of agency agreements and the meaning of compensation and indemnity.

Termination is not given a precise meaning under the 1993 regulations[5]. But, it takes place in a number of ways like notice, inconsistent conduct, insanity, death and bankruptcy[6]. The regulations give remedies to agency agreements that have been terminated. Under section 17 (2) of the regulations, a commercial agent is entitled to compensation rather than indemnity. However, section 17(3) extends the remedy of indemnity. The effect of this is that an agent has two remedies, compensation and indemnity and this is what has caused problems for the courts as an agent, will still get compensation even when he is the one that has committed the breach. In fact, Severine Saintier an author in various journals commented that the effect of this clause made an agency agreement similar to an employment contract rather than a commercial one[7]. And, since there is no definition of damage in the Directive[8], UK courts seem to agree with Saintier. In King V Tunnock[9], court noted that the only guidance as to the circumstances that give rise to compensation is contained in regulation 17 (6).

If it can be shown that there is damage, then compensation will arise and the only remaining question will be the amount of compensation. Court of appeal in Lonsdale v Howard & Hallam ltd[10], agreed with the decision in the King case[11] and Moore Bick L.J, commented that the purpose of regulation 17 is not to provide compensation for damage caused by breach of duty but to provide compensation for the loss of goodwill for which a claim would otherwise arise. The regulations only take away the right to compensation in three instances which are; when the principal has terminated the commercial agency relationship with just cause, secondly when the agent terminates the agreement also without just cause and when the agent does not claim compensation or indemnity within one year of termination[12].

The principle of indemnity is influenced by Article 89 b of the German Commercial code. In the case of Moore v Piretta[13], court held that the main purpose of the Directive as to harmonize member states on the subject of commercial agency and court  also suggested that German law be used as guidance for the purpose of “construing the English Regulations”. On the other hand, when it comes to compensation, the influence of the French legal system cannot be ignored. This is seen in cases like AMB Imballagi Plastici srl v. Pacflex ltd[14], where court seemed to rely on French legal principles. This was also the case in Roy v. M.R. Pearlman ltd[15] and King V Tunnock[16], where French law was used in calculating compensation. However, in Jeremy Duffen v FRA BO SPA[17], the plaintiff was appointed to act as the exclusive commercial agent for an Italian manufacturer. This arrangement was to last for three years but, two years later, following the nonpayment of commissions, the claimant terminated the contract relying on the terms of the contract that gave him authority to do so. The claimant then started proceedings and claimed unpaid commissions and liquidated damages pursuant a contract clause. Court of Appeal allowed the sum prayed for in unpaid commissions but held that the liquidated damages clause unenforceable.

When the case reached the Central London County Court, the claimant now sought to recover unpaid commission, a retainer and compensation for damage suffered relying on the Agency Regulations (ibid). In interpreting the regulation, court held that regulation 17 (6) is not meant to duplicate what may otherwise be recoverable at common law. In this case, French law was also used as a guide but it also seemed to slowly move away from the French methods of calculating compensation.

The case of Barrett Mckensie & co ltd v Escada (UK) Ltd[18], seems to also move away from the French system as Bowers J. held that the High court did not accept that he had to follow the French approach and found that compensation provisions have to be UK based, without requiring an expert in French Law to determine a particular case. This was also the case in Tigana Ltd v Decoro [19]where Davis J held that the decision in King V Tunnock (ibid) was not binding on English courts and that French law need not be applied.

The Tigana case[20] also set out a number of factors to be used in calculating compensation. These include the length and terms of the contract, the nature of history of the agency, the manner in which the agency is terminated, and loss caused by breach. It was also suggested that assessment of compensation be based on the “balance sheet” of relevant considerations, by reference to specific circumstances of the matter in question. The case of PJ Pipe & Valve Co v Audco India ltd[21] also distanced itself from the French approach  and instead , a “broad brush” approach be used in interpreting the regulations as this approach would ensure court opined in a principled and logical way. It is clear from all these cases the confusion surrounding calculation of compensation as courts in Wales, Scotland and England have all taken different approaches and it is safe to note that following the Lonsdale decision, the French approach is becoming unpopular especially when it comes to the French Approach of calculating awards equal to two years gross commission.

Regulation 17(6)[22] also brings further issues in that it stipulates that a commercial agent is entitled to receive compensation for the damage suffered as a result of the “termination of his relations with the principal”. The issue here is that when this clause is related to regulation 17(1)[23], it becomes unclear whether the regulations mean the agency contract is the one that is terminated or the relations are the one that are dissolved. This issue can be seen in a scenario where parties enter into several renewable fixed term contracts and if the regulations were to be applied lock, stock and barrel, then regulation 17 (1) would apply only to the last contract and not the agency agreement from the beginning. But, this issue was resolved in the case of Duncan Moore v. Piretta ltd[24], where it was held that the relationship as a whole (as in the scenario above) should be considered in order to evaluate the amount of indemnity to pay.

In conclusion, it is still a mystery as to whether the number of cases involving calculation of indemnity and compensation will go down. What is clear is that the decisions that are passed in this fragile area of law are not addressing the matter in detail. In light of this, it is not surprising that the judiciary has been plagued by confusion in implementing the regulations and that the English courts still rely on other Legal systems for guidance on how to adjudicate cases involving indemnity and compensation. This not only undermines the regulations but also buries their objectives of protecting agency agreements. But, blame does not fall entirely on the courts as it has been shown that the difficulty lies in the ambiguous nature of the regulations and the inability to apply them verbatim. There is need to properly define indemnity, compensation and termination. Also, working out the kinks and other loopholes in the regulations would help reinforce its mandate. But, the problems of the regulations may soon be forgotten as the House of Lords in 2007 granted leave to appeal in the Lonsdale case[25] and as such, try and find a proper definition and assessment of compensation in English and European law. A European court of Justice ruling on this matter would go a long way in redeeming the regulations.

END NOTES.

[1] Peel, Edwin. The Law of Contract, Twelfth Edition, Sweet and Maxwell, at page 752

[2] 1993 no. 3053

[3] (1999) 17 Tr.L.R. 557

[4] [1986] O.J. L382/17

[5] Ibid 2

[6] Peel, Edwin. The Law of Contract, Twelfth Edition, Sweet and Maxwell, at page 802

[7] Severine, Saintier. ‘A remarkable understanding and application of the protective stance of the Agency Regulations by the English Courts’, Journal of Business Law, 2001.

[8] Ibid 2

[9] [2000] Eu.L.R

[10] [2006] EWCA Civ 63

[11] Ibid 9

[12] Regulation 17 (9)

[13] [1999] 1 All E.R. 174

[14] Ibid 3

[15] [1999] 2 C.M.L.R. (3) 1155

[16] Ibid 9

[17]No. 1, see [1999] E.C.C. 58. The case was upheld by the Central London County Court on 21-10-1999 (case No. 2), see [2000] 1 Lloyd’s Rep. 180

[18][2001] All E.R. 73

[19][2003] Eu. L.R. 189

[20] Ibid 19

[21][2005] EWHC 1904

[22] Ibid 2

[23] Ibid 2

[24] [1999] 1 All E.R. 174

[25] Ibid 10

Doing business across borders: Multimodal transportation

By Kenneth Muhangi Esq.

LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

Multimodal transportation has become a major driving force of the world’s economy. The innovations in this field, like the invention of the modern intermodal containers, by Malcolm Mclean[1], which gave rise to containerization, have revolutionalized international multimodal transportation.

International multimodal transportation is defined by Article 1 of the United Nations Convention on International Multimodal Transport of Goods[2], as the carriage of goods by at least two different modes of transport on the basis of a multimodal transport contract from one place in one country at which the goods are taken in charge by the multimodal transport operator to a place designated for delivery situated in a different country.

The key element is the carriage of goods by ‘two’ or more modes of transport. A multimodal transport operator (MTO) is defined in Article 2[3] as a person who on his own behalf or through another person acting on his behalf concludes a multimodal transport contract and who acts as a principle, not as an agent or on behalf of the consignor or of the carriers participating in the multimodal transport operations, and who assumes responsibility for the performance of the contract.

This position has been taken over by freight forwarders who usually provide packing services, warehousing, customs clearance and arrange the transportation. A good illustration of Multimodal transport can be taken from Schmitthoff[4], where a scenario is presented of a merchant in Bradford, England, who sells knitwear to an importer in Canberra, Australia; the goods are loaded into a door to door container in Bradford, taken by lorry or trailer to Liverpool; there the container is loaded on a vessel which proceeds to Sydney where it is unloaded and taken by land to Canberra. From the scenario we see that the goods are transported by land, then sea, then by land again. The combination of these modes is what is known as multimodal transport.

Multimodal transportation has various advantages like the obvious easy and speedy transportation of goods which has in turn reduced handling costs and gives additional protection to the goods whilst being transported.

The door to door nature of delivery ensures goods are transported with one single contract which is less cumbersome in terms of paperwork. Most of the modes are also environmentally friendly and also reduce congestion in cases of containerization as one container can carry a lot of cargo at one go.

The rise of multimodal transportation has also caused problems particularly legal issues in containerization, like who to sue when issues arise, seeing as one container, would be used on a ship, a train, a truck or even a lorry. Risks associated with each different mode were different and the issue was who would be liable in that respect. Questions would arise as to whether it should be the carrier or the owner of the container usually the freight forwarders who should be held accountable for any problems during transit of the goods.

But, regardless of the various attempts to establish a uniform legal framework governing multimodal transport, which will be discussed herein, no such framework has been established mainly because of the technicalities involved regarding issues like jurisdiction. Conventions like the MT convention failed to achieve this unification and rules like the UNCTAD/ICC rules for Multimodal Transport Documents, which came in force in 1992, do not have the force of law in jurisdictions like the United Kingdom. This is because, they only serve as standard contracts to ease the navigation of contractual obligations in this area and as such lack what can be termed as the ‘X Factor’ to become localized law.

Since jurisdictions like the  United Kingdom does not have a recognized framework of law on Multimodal transportation, parties to multimodal contracts use basic law of contract based on common law rules and tort. It was noticed at a seminar held in London, by the then United Kingdom Law Commissioner Faber D, that:

“The multimodal transport industry is investing heavily in improving its services. It is a very sophisticated industry but the same cannot be said of its legal infrastructure. There is a large number of transports conventions which are potentially applicable to any contract. This means that enormous sums, which would be better applied commercially, are spent in legal disputes as to whether the contract terms or a convention and, if so which convention, should apply to govern relations between contracting parties.”

 

The conventions mentioned above that have tried to address this void in legislation include, The International Convention For the Unification of Certain Rules of Law Relating to Bills of Lading, 1924 ( Hague Rules), Protocol to Amend the International Convention for the Unification of Certain Rules Relating to Bills of Lading 1924, ( Hague/Visby Rules 1968), Protocol Amending the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1924, as amended by the protocol of 1968,1979 and the United Nations Convention on the Carriage of Goods by Sea 1978 ( Hamburg rules) which all address transportation by sea.

 

Transportation by road was addressed by the Convention on the Contract for the International Carriage of Goods by Road (CMR) 1956. By Rail, Uniform Rules Concerning the contract for International Carriage of Goods by Rail ( CIM), Protocol to amend CIM-COTIF, 1999 and finally Transport by Air by the Convention for the Unification of Certain Rules Relating to International Carriage by Air (Warsaw Convention, 1929), The Hague Protocol 1955, Montreal Protocol NO.4 1975 among others.

 

The effect of having many conventions/rules and standard contracts is that parties with disputes will spend hours and funds in litigation in trying to figure out which convention should apply. Case in point is that of Quantum Corp Inc v Plane Trucking Ltd[5], where contract of carriage was signed for goods moving from Paris to Manchester then finally to Dublin but, in transit the goods were stolen before they could travel to Dublin. Issue arose as to which convention would be used, the Warsaw convention which concerned transport by air or the Convention on the contract for the international carriage of Goods by Road (CMR). It was held that neither of them would apply.

 

This was also the case in  Thermo engineers ltd v ferry masters ltd[6], where the issue was whether damage suffered by the cargo during loading was governed by the CMR or the Hague Visby rules and court had to consider which rules to use. It would be easier if there was a particular legislation to address multimodal transportation as a whole. This view is shared by a past study of the European Commission (International Transportation and Carrier Liability, June 1999 in section 1) where it was seen that the various conventions only add complication to Multimodal transport.

 

The first step at marrying the various conventions to suit multimodal transportation was seen in the 1930’s by the International Institute for the Unification of Private Law (UNIDROIT) which was approved by its governing council and later followed by the preparation and adoption by the Comite Maritime International (CMI) of a draft convention on Combined Transport Tokyo Rules 1969. The two were then combined into a single Draft in 1970 (and was then known as the Rome Draft). This draft was then modified by meetings of the Inland Transport Committee of the UN Economic Commission for Europe (UN/ECE) and acquired the name ‘Draft convention on the International Combined Transport of Goods ( the TCM draft). However, this draft never went beyond its name and died in its drafting stages. But, its provisions are reflected in standard bills of lading such as the Baltic and International Maritime Conferences (BIMCO) and contracts of the British International Freight Association.

It is worth noting, that it is the MT Convention[7] which has had the most impact in the UK. The main features of this convention that have made it popular in the UK are that it tackles key aspects of multimodal transport. In particular, Article 16(1) adopts a uniform system of liability of the Multimodal Transport Operator for both localized and non-localized damage.

 

This liability transcends throughout the MTO’s custody of the goods and this is from the time he takes the goods in his charge to the time of the delivery. The MTO is also made vicariously liable for the acts or omissions of his servant or agent or any other person of whose services he makes use for the performance of the contract[8]. Article 15 also goes on to calculate the liability of the MTO as being limited to an amount not exceeding 920 units of account per package or other shipping unit, or 2.75 Units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher.

 

The convention also provides for a limitation of actions in Article 25 for which a claim can be brought and puts it at two years as in most civil actions of tort in the United Kingdom. When it comes to issues of jurisdiction, the convention provides in Article 26, that the plaintiff can sue at the principal business place or residence of the defendant, the place where the contract was made, the place of delivery of the goods and any other place agreed in the contract.

 

The UNCTAD/ICC rules for Multimodal Transport Documents as mentioned above were also born from principles of The Hague Visby Rules and have also been incorporated widely in multimodal agreements. But, as stated above, these rules are mostly contractual in nature and only work if they are specifically incorporated into the contract of carriage. The liability of the MTO or carrier under these rules is similar to the MT Convention and is based on fault or neglect. It also puts forward defenses the carrier may raise in the situation of liability unless it can be shown loss was caused by unseaworthiness in which case due diligence has to be shown to escape liability[9]. The significant difference between this convention and the MT convention is that calculation of liability which is considerably lower in the former. So, even from these two, the difference can and has caused problems in zeroing in on what appropriate forum to use to sort out contractual liability.

 

In conclusion, it is recommended that, Uganda enact a specific piece of legislation on multimodal transportation as has been the case in South American countries like brazil , Argentina and Venezuela, that have localized the laws of ALADI ( Asociacion Latino Americana de Integracion ) and MERCOSUR ( Mercado Comun del Sur) to which Brazil, Argentina, Paraguay and Uruguay are signatories.

END NOTES.

[1]This was in 1955 with the help of Keith Tantlinger and the both of them came up with the brilliant idea of a shipping container and a method by which this container could be loaded and locked onto a ship or a truck

[2]Geneva 24 May 1980 to be referred to as “MT convention

[3] Ibid 2

[4]Murray. Holloway & Timson-Hunt, D. Schmitthoff’s Export Trade, Eleventh Edition, Sweet and Maxwell, 2010 at page 282

[5][2001] 1 ALLER comm. 916

[6][1981] 1 Lloyds rep.200

[7] Supra 2

[8]See Article 15

[9]this is also the case in other standard form contracts such as the GENCON Charter provisions

What is data protection and what it means for Uganda?

By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)

Defining “computer security” or data security is not as trivial as it makes its self out to be. The difficulty is enshrined in developing a broad definition that encompasses all the areas of data security, which cuts across what data, is and whether it can actually be secured in either a physical way or a “technological” way. Physical data security may require restricted access to rooms where computers are held and using data encryption to transfer or transport data safely. In a generic sense, security is “freedom from risk or danger.” In the context of computer science, security is the prevention of, or protection against,

• access to information by unauthorized recipients, and
• intentional but unauthorized destruction or alteration of that information

Data is defined as information which is being processed by means of equipment operating automatically in response to instructions given for that purpose[1]. Hence, data security involves various measures to ensure data is stored in a safe, non evasive way. The nature of online retail businesses requires it to collect and keep customer data. So, while companies themselves through due diligence might take steps to control and secure this data, legislation has also been enacted in countries like the UK to try and ensure data is handled properly. However, this has not been the case in Uganda notwithstanding the nature of information technology which is dynamic and constantly changing[2].

In Europe, the first steps taken towards regulating data protection were taken through the council of Europe convention 1981[3]. This opened the floodgates to countries specifically within the European Union to enact specific laws to address the issues of data security. In 1995, the UK, thus eventually adopted directive 95/46/EEC[4]. This directive, required through article three, for all member states to protect the fundamental rights and freedoms of natural persons and in particular the right to privacy with respect to the processing of personal data.  The gist of this article was to compel member states, to enact or supplement on already existing legislation recognizing the right to privacy in regard to personal data. In the UK for example, although the Data protection act, 1984, was existent, it had failed to address new issues that had evolved and as such needed to be strengthened. It had been designed, to control the storage and use of data in a computer. The road leading to the 1984 Act was paved with Parliamentary Bills, Reports and White Papers concerning privacy and data protection.[5] It finally came into force on 11 November 1987.[6]

Uganda is yet to enact a data protection law. Once enacted, it will most likely mirror the UK Data Protection Act 1998[7] which implements Directive 95/46/EC[8].The act[9]. However, Legislators must be wary of the ambiguities which have placed the act under scrutiny.

One such ambiguity is in the definition of the term “personal data”. The act defines it as data:-

“Which relate to a living individual who can be identified–

(a) From those data, or

(b) from those data and other information which is in the possession of, or likely to come into the possession of, the data controller, and includes any expression of opinion about the individual and any indication of the intentions of the data controller or any other person in respect of the individual.

Firstly, the effect of this seems to be that data security/protection only deals with the “living”. Also, it seems to indicate that as long as data relates to a person then that data is subject to the law. So, even if a data base contains only a number identifying someone, (like a national insurance number) then that is classified as personal data.

Another aspect is the term “data controller”. The Act states:-

“Data controller’ means . . . a person who (either alone or jointly or in common with other persons) determines the purposes for which and the manner in which any personal data are, or are to be, processed.

In the case of DURANT V FINANCIAL SERVICES AUTHORITY[10]the discussion revolved around what constituted “personal data” and who a “data controller was”. It was concluded that data will relate to an individual if it is information that affects a person’s privacy, whether in his personal or family life, business or professional capacity.

What is the Data Protection Act 1998 ?

The Data Protection act 1998 revolves around eight principles concerning data protection and these are the gist of this act. They propose that data should be collected in a lawful and fair manner; it should be adequate, and not excessive, accurate, shouldn’t be kept longer than necessary, should be secure and shouldn’t be transferred outside the EU.

A number of cases have come up concerning the principles like in Rhondda BC v Data Protection Registrar[11], where the Tribunal upheld the Registrar’s interpretation of the fourth Principle (third Principle under the 1998 Act) and confirmed the enforcement notice issued against the officers in charge of collecting information.

However, when it comes to data security, the seventh principle will be our main area of interest. It states that all personal data shall have appropriate security measures in place. However, the DPA 1998 falls short in defining what “appropriate” measures are. It is not disputed that a data controller should be always vigilant, and ensuring data is secure to the best of his ability. Also, it seems like the DPA 1998, places a lot of obligation on the data controller. In fact, in 1998, the European Commission forwarded a paper[12] on the implementation of Platform for Privacy Preferences (P3P) that tried to reduce this liability by proposing that data protection be between the internet user whose data is being collected and the data controller. If this were implemented it would reduce the influx of cases involving security breaches reported daily. In November 2007 for example, two CD-ROMs containing 25 million records of child benefit recipients, including names, addresses and bank details, were lost by Her Majesty’s Revenue and Customs (HMRC) when sent by courier.

In December 2007, sensitive data, including religious beliefs and sexual orientation, relating to junior doctors were accessible to anyone accessing a website of the Department of Health. In the same month, the Driving Agency’s US contractor lost a computer hard drive containing contact details of three million candidates for the driving theory test. In January 2008, the Ministry of Defense lost a computer containing 600,000 staff records[13].The information commissioner’s office, which has the mandate to handle data security, claims in the UK, has fined companies in the hundreds. In march2007 alone, 11 banks were fined for security breaches[14]. Data controllers have had sleepless nights over the seventh principle and how to come up with appropriate security systems.

Over the years, more and more ways are introduced to handle data security. And because change is inevitable, as a business grows, the risks also grow. The law, time and memorial has always held the employer vicariously liable for the acts of his employees. And, most often than none, it is the employees/contractors of a company that lose data even when state of the art security systems are in place.

The interpretative provisions set out in the data protection act 1998, Schedule 1, Pt II specify that where processing of personal data is carried out by a data processor on behalf of a data controller, compliance with the Seventh Principle requires the data controller to:

• choose an organization that offers guarantees about the security of the processing it is undertaking on the organization’s behalf;
• put in place a written contract setting out the requirement for appropriate technical and organizational security measures and restricting processing to carrying out the data controller’s instructions; and
• Take reasonable steps to ensure compliance with the security measures.

Hence, the data controller must take reasonable steps to ensure the reliability of any employees with access to personal data.

Cloud computing is another area that is affecting the application of principle 7. It has no specific definition but it can be defined as the process of storing, accessing and sharing company data and processes remotely on the Internet.

Most cloud services are offered on a shared server basis, that is, the IT resources on a given server are shared between multiple organizations. Some companies are going down the route of signing up for non-shared cloud services that are offered on a secure basis by the likes of IBM and Unisys.[15]

The promise of cloud computing even with its short comings is slowly being embraced not only in Uganda and the United Kingdom but worldwide, for example, the United States Of America Air Force has adopted a new project to design and demonstrate a mission oriented private cloud environment.

Cloud computing is also being used to combat malaria in Tanzania where by a cloud collaboration service is used to apply smart technologies including mobile phones and text messaging. In Canada, the McGill University Health Centre is implementing a private storage cloud to securely house patient Data. Over 800,000 patient cases at multiple sites are then provided to clinics around the clock, providing a strategic and single view of data, including clinical images[16].  But, cloud computing raises various concerns like where the data collected is stored and who can access that data. Directive 95/46/EEC in article 18 (1)[17] talks about cloud computing and states that if data is to be transmitted over a network,

“The controller must implement appropriate technical and organizational measures to protect personal data against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access.”

But, it would be rather difficult to control data that is in a network like the ones above. Especially, if it goes to a “third country” as provided for in Article 25 of the Directive[18]. However, it is imperative to note that although this area is relatively new, the current law needs to be reviewed to specifically define what cloud computing is and how it can managed.

Data security, in its entirety is one that many find to enforce. The problems with it lie in various factors. One of them is ignorance. Most companies fail to sensitize their employees about Data Protection laws and how to be vigilant .they view it as costly to introduce training workshops yet these would have saved them thousand s of pounds in the end. Sadly, ignorance of the law is not a defense and thus breaches by ignorant employees find the employers in breach of laws governing data security.

Poor password management is another problem. Weak passwords, shared passwords and unchanged passwords still plague most businesses. With current password cracking software able to decipher 10 alpha-numeric character passwords in a matter of minutes, poor password management practices can lead to a system being compromised in a matter of seconds. Account sharing is another problem as it makes a database an easy target for unauthorized access. Also, data access restriction is not looked at as well as it should. The more people with access to personal data, the more likely there will be for a security breach. Laptops and PDA’S like and the more recent introduction of the I Pad, encourage employees to take work home or to work from anywhere. But, these can be easily lost or stolen and with them personal data can be lost at the expense of an organization[19].

The biggest challenge in data security comes down to interpretation. Principal seven of The Data Protection Act 1998, as already shown concerns data security. But, the problem manifests in the interpretation of what “appropriate “means. The act does not help show what would be appropriate and what would not fit that criterion. But, over the years, various practices have been developed and these can be considered to be appropriate when it comes to data security. I recommend Hayes international adopt some security measures like,

Firstly, only essential data should be collected. Principle three of the DPA 1998, in fact provides that personal data should be adequate and not excessive. The effect of this principle is that a company collects data that is manageable. In turn, this would minimize the risk involved with personal data.

Data should also not be retained for longer than necessary. Principle five of the DPA 1998 makes it mandatory for data not to be kept longer than necessary. Data controllers should not collect data with the hope that it may be useful one day. Hence, a data retention policy should be enacted within the organization to ensure data is not kept for long because the longer data is kept the more prone it is to security breaches.

Employees should also be well screened before they are hired. Those hired should be sensitized about data security and a policy enacted in that respect detailing what data security is and how it can be enforced and the repercussions for its breach. Care should also be taken when outsourcing. Firms should be properly vetted and appraised.

Data should be backed up regularly, and passwords changed as often as possible. It would be prudent, to review any security measures as often as possible. These measures can be in the form of anti viruses, malware, spyware, firewalls among others. And, in the event of a security breach, containing the breach should be the first priority. And in compliance with the breach notification law, all breaches should be reported in order to minimize losses.

The organization should also regularly monitor the Information Commissioner’s website[20] for guidance and watch for relevant codes of practice for data protection in relevant forms of business or other activity published, for example, by trade associations.

In conclusion, there is still much to explore before a conclusive data protection law can be enacted in Uganda. There is need for review particularly when it comes to the understanding of what personal data is and areas that have been introduced like cloud computing.

Outsourcing which is a new phenomenon in Uganda has also not been given its due recognition under the law. There is need for policies/ directives that outline what appropriate measures are and how they can be enforced.

In more developed jurisdictions, a lot of pressure is put on organizations to do all they can to ensure data security and even when all possible care has been taken and a breach occurs, they are punished severely. In the UK for instance, there was a public outcry in 2007 when Richard Thomas, the Information Commissioner, to the Justice Committee of the House of Commons suggested that breaches to the eight data protection principles be criminalized[21].

Such radical changes to the law would not help. Rather, a more proactive approach should be introduced where the law is implemented bearing in mind that it works better in practice, giving individuals an improved set of rights and protections whilst providing greater clarity and reducing unwarranted burdens for data controllers.

END NOTES.

[1] Data Protection Act 1998, Interpretation section

[2]This was observed in the Poynter report, 2007,where Poynter was quoted,” the speed with which IT has developed in recent years makes it imperative that security policies are regularly reviewed to ensure that they deal with all the types of IT processes undertaken within the organization.”

[3]convention 108 for the protection of individuals with regard to the automatic processing of tracts

[4] OJ L 281, 23.11.1995, p.31

[5]The Lindop Report Report of the Committee on Data Protection, Cmnd 7341, HMSO, 1978, was one of the key papers that influenced the need for a change.

[6]Bainbridge, David. Introduction to Computer Law, 2004, at 431.

[7]The Data Protection Act 1998,Came into force on 1^st March 2000

[8] Ibid 4

[9] Ibid 8

[10]Michael John Durant v Financial Services Authority [2003] EWCA Civ 1746, Court of Appeal (Civil Division) decision of Lord Justices Auld, Mummery and Buxton dated 8thDecember 2003.

[11](Unreported) 11 October 1991.

[12]Working Party on the protection of individuals with regard to the processing of personal data, European Commission, XV D/5032/98

[13]Journal of the European lawyer 2008.

[14] http://www.ico.gov.uk

[15]Tolley’s Practical Audit &Accounting The Monthly Key To Practical Audit And Accounting Solutions 21 PAA 1, 11 October 2009.

[16]The Economist. Is Cloud Computing secure computing ?, April 23^rd-29^th 2011, page 26

[17] Ibid 4

[18] Ibid 4

[19] Richard Hollis , Data security Part 1 — five factors leading to data compromise .Privacy and Data Protection Volume 10 Issue 2,2009

[20]www.dataprotection.gov.uk

[21]Article in The Sunday times, December 7 2007

 

 

 

 

BIBLIOGRAPHY

 

TEXTBOOKS

1. Bainbridge, David. Introduction to Computer Law, 5^th Edition, Pearson Education, UK, 2004.

 

2. Dickie, John. Internet and Electronic Commerce Law in the European Union, Hart Publishing, 1999.

ARTICLES

1. Adam, Bosnian. ‘Cloud Computing’, Tolley’s practical Audit & Accounting ( 1^st October ,2009)

 

2. Mark, Turner & Nick Pantlin. ‘Financial services in the cloud’, Journal of International Banking & Financial Law Volume 26/Issue 2, February 2011.

 

3. Encyclopedia of Forms and Precedents, ‘Data Protection and Freedom of Information Volume’ 12(2)

 

4. Stewart, Room. ‘The changing face of data security law’, Journal of Privacy and Data Protection, Volume 8, Issue 7, August, 2008.

 

5. Halsbury’s Laws of England, ‘The Data Protection Principles, The seventh Data Protection Principle. Confidence and Data protection’ volume 8(1)(2003)

 

6. Mandy, p. Webster. ‘Data Security and Outsourcing’, Company Secretary’s Review, Issue 21, February 2009.

 

7. Richard, Hollis. ‘Data security Part 1 — five factors leading to Data Compromise Privacy and Data Protection’, Volume 10,Issue 2,December 2009

 

8. Richard, Hollis. ‘Data security Part 2 — five factors leading to Data Compromise Privacy and Data Protection’, Volume 10, Issue 3, February, 2010.

 

9. Tim, Wright & Dominic, Hodgkinson. ‘Government response to House of Lords Science and Technology Committee Report on Personal Internet Security’ , Computer and Telecommunications Law Review2008

 

1. The Economist. ‘Is Cloud Computing secure computing?’ April 23^rd-29^th 2011.

 

1. The Sunday times, December 7 2007.

 

WEBSITES

1. http://www.pdpjournals.com

 

2. http://www.ico.gov.uk

 

3. http://www.data-archive.ac.uk

 

4. http://www.dataprotection.gov.uk

 

LEGISLATION

1. Data Protection Act, 1998

 

2. Data Protection Act, 1984

 

3. Directive 95/46/EEC

 

 

CASE LAW

1. Michael John Durant v Financial Services Authority [2003] EWCA Civ 1746, Court of Appeal (Civil Division)

 

2. Rhondda BC v Data Protection Registrar (Unreported) 11 October 1991

 

 

 

 

 

 

 

What is the legal implication of the statement “Offer Valid While Stocks Last”

By Kenneth Muhangi

LLB(HONS) UCU LLM(WALES)

Dip.Lp(LDC)

 

We have seen various advertisements in the media with statements such as SALE, DISCOUNT ON ALL STOCK. ALL SHIRTS AT UGX 10,000/-. And they all usually most likely end with a statement “offer valid while stocks last”
In order to clearly understand that statement, we must first address our minds to the nature of contract.
In law, when we talk of a contract, we mean an agreement enforceable at law. For a contract to be valid and legally enforceable there must be; capacity to contract, intention to contract, consensus ad idem, valuable consideration, legality of purpose, and sufficient certainty of terms. These can be summarized as offer, acceptance and consideration.
If in a given transaction any of them is missing, it could as well be called something else other than a contract.
From the foregoing, the assessment of whether the criteria above are satisfied is to be judged by the intentions of the parties. As a general rule, if the parties shared the same intention it is likely there was a valid contract. However, the existence of this intention is to be ascertained objectively i.e. leaving aside what the parties actually thought, by looking at their words or actions we can decide what their objective intentions were.

Is the statement an offer or invitation to treat ?

An offer is an expression of willingness to contract made with the intention (actual or apparent) that it is to become binding on the person making it as soon as it is accepted by the person to whom it is addressed. Under the objective test of agreement, an apparent intention to be bound may suffice. i.e the alleged offerer in this instance the shop owner may be bound if his words or conduct are such as to induce a reasonable person to believe he intends to be bound, even though he has no such intention. If say A offers to sell a book to B for UGX 10,000 and B accepts the offer, A cannot escape liability merely by showing that his actual intention was to offer the book to B for ugx 30,000/- or that he intended the offer to relate to a book different from that specified in the offer.

An offer can be contrasted with an invitation to treat (ITT) which is an invitation to the other party to enter negotiations as to what the terms might be if they contracted. The distinction between an offer and ITT can be difficult to see, particularly in cases involving advertisements, display of goods and auctions.

It can be difficult to tell whether a contract has been concluded, such as where there is uncertainty as to the terms or as to the precise time of the acceptance. The offer/acceptance formulation has been criticised for failing to reflect commercial practice and does not sit well, without modification, with unilateral contracts.

Has an Offer Been Made?

Cases turn on their particular facts and common sense is important. For example, in Harvey v Facey [1893] AC 552, the C sent a telegraph to D saying “will you sell Bumper Hall Pen for ? 900? Telegraph lowest cash price”. D replied saying “lowest cash price ?900”. The C replied saying “we agree to buy for ?900”. The D did not reply. The court held that there had been no contract to sell as the reply by the D was simply an answer to a question and not an offer to sell. The final telegraph by the C was however an offer to buy, though as the D did not reply there was no acceptance.

In the case of advertisements, the general rule is that with bi-lateral contracts the advertisement will be an ITT not an offer: Partridge v Crittenden [1968] 1 WLR 1204. The reason behind is this it to protect people who sell goods from being widely liable to anyone who wants to buy the goods. Thus if 10,000 people reply to an advertisement on the internet about a certain product, the seller would be liable to all 10,000 if the advertisement was construed as an offer and not an ITT. Thus when a customer contacts the seller stating that they would like to purchase a product, they are making an offer to buy which the seller must accept for a contract to come into existence. An alternate way in which the courts could have resolved this problem is by stating that the advertisement is an offer, but that it is subject to the term that it can only be accepted while stocks last. This would solve the problem of having a seller liable to thousands of potential customers. The court, however, preferred the ITT rationale.

Unilateral Offers

However, the courts will not always view advertisements as an ITT. Sometimes they will construe an advertisement as a type of offer, namely, a unilateral offer which is an offer to the world at large, as opposed to a bilateral offer which is an offer to an identifiable person. The courts will construe it as a unilateral offer rather than ITT when the wording of the ad supports it .

In Carlill v Carbolic Smoke Ball [1893] 1 QB 256, the court held that an advertisement was a unilateral offer and not an ITT. The Defendant company placed an ad in a newspaper stating that they would pay ?100 to anyone who used the smoke ball three times per day for two weeks and still contracted a cold. They deposited ?1000 in a bank to show their willingness to pay the money if anyone did contract influenza.

The Claimant did contract a cold and sued for the money. In order for Mrs Carlill to recover, the following questions had to be decided:
• Was the advertisement an offer? This depends on whether the Defendants intended to be bound by it (objectively judged).
• If so, did Mrs Carlill validly accept it?
• If so, did she provide consideration?

As regards (1), the defendant advanced the argument that the offer was too uncertain to be enforceable if accepted (i.e. the terms were so uncertain that the parties would be unsure as to what obligations, if identifiable at all, the contract imposes. And in any case, it would be too uncertain for a court to adjudicate upon.) This was rejected by the court. However, what would the answer to this question have been if Mrs Carlill had caught influenza months later? The court said a reasonable time afterwards was the cut-off.

As regards (2), the court discussed whether acceptance had been the buying of the ball, using it once or completing the course of usage. They tended towards the latter. This is significant when revocation is concerned as an offer cannot be revoked once it has been accepted. If the offeree embarks on an arduous course of performance and the offer is revoked right before completion, the offeree has arguably suffered an unfairness. This is considered in the acceptance section below. A further point is that acceptance must normally be communicated to the offeror. The court, however, disapplied this rule as the offer demonstrated that the need for communication had been waived.

As regards (3), the D argued that there was no consideration but the Court of Appeal held that there was on two grounds: firstly, the benefit gained by D from sales and, secondly, the use of the ball by Mrs Carlill three times daily constituted a detriment.

A good example of a unilateral offer where the owner of a lost dog puts a leaflet up stating that a reward will be given to anyone who finds the dog and returns it. This is not an invitation to treat because it promises something to the offeree in return for something. It’s not simply saying “I have lost my dog”, but rather “I have lost my dog and will pay you if you go out and find it”. Moreover, this is unilateral rather than bi-lateral because it is made to the world at large. Acceptance in this case would be for the individual to actually find and return the dog. The idea behind a unilateral offer is that the traditional offer and acceptance model doesn’t fit without some amendments. The court in Carllil amended the idea of offer/acceptance to make it workable by holding that performance of the thing stated in the offer constituted acceptance, rather than the traditional acceptance in the form of a statement saying “I accept your offer.” Moreover, the court didn’t require this acceptance to be communicated as this would clearly pose difficulties in many cases (how many people would write to a company saying that they are accepting the advertisement? Not many).

How about goods which are on display in a shop? The general rule is that goods on display in a shop constitute an ITT not an offer to sell. In the leading case Pharmaceutical Society of Great Britain v Boots Chemists [1953] 1 QB 401, the C brought a lawsuit in which they claimed that D had sold protected chemicals without being an authorised seller of those chemicals, in breach of a piece of pharmacy statute. The C argued that because the check-out was self-service, it could not be said that the chemical was sold under the “supervision of a registered pharmacist” which is what the legislation required. The C further argued that in self-service shops the transaction is completed when the customer places the items in their basket not at the counter. The court held that they had been sold under the supervision of a pharmacist. It said that the goods on the shelves were an ITT and when the customer brought those goods to the counter, they offered to buy them. Merely placing the goods into a basket was not an acceptance of an offer. If this were so, customers would be bound to purchase any goods put into their basket.

However, it is not always the case that goods/advertisements will always be an ITT. If, for example, the display is sufficiently precise and evidences an intention that it is an offer, the court will have no difficulty in enforcing that. In the Canadian case Leftkowitz v Great Minneapolis Surplus 86 NW2d 689 (1957), the court dealt with a newspaper advertisement which advertised fur coats for sale on a “first come first serve” basis. The C turned up at the shop but was turned away as the shop said it only sold the coats to women, the ad did not mention this. The court held in favour of the C and said that because C managed to turn up at the shop first, he should be served. There was an offer and his performance was acceptance.

Tenders
Sometimes parties are invited to tender (or bid) for a particular project, this is the case in many industries such as sciences, technology and construction industries. The employer will invite companies to place a bid, what is the status of this invitation; is it an offer or ITT? The general rule is that it is an ITT.

A court may hold that an invitation to tender amounts to a duty to consider the bids and not simply ignore them. Thus, while an invitation to tender is not the same as an offer, and thus cannot be accepted by submitting a bid, there can be a duty on the inviter to consider all bids. In Blackpool and Fylde v Blackpool Borough Council [1990] 1 WLR 1195, the Claimant was awarded damages because his bid was not considered. The Claimant was well known to the Defendant and had submitted his bid on time, however the Defendant failed to check their mail box and assumed that they had not submitted a bid and awarded the contract to someone else.

Auctions
An auctioneer will make an invitation to treat, and bidders will make offers of what they are willing to pay. The auctioneer will then accept an offer and a contract is formed. There is, however, in cases not involving a reserve price, an obligation by the auctioneer to sell to the highest bidder. This obligation arises from a collateral contract between the auctioneer and highest bidder under which the auctioneer offered to sell to the highest bidder and the highest bidder accepts: Barry v Davies [2000] 1 WLR 1962.

Acceptance
An acceptance is a “final and unqualified expression of assent to the terms of an offer”. The idea of finality and meeting of minds is important. However, there are many situations in which the meeting of minds will not be clear, e.g. what if:
• The terms of the acceptance are not identical to those of the offer,
• Acceptance hasn’t been communicated,
• There is a prescribed method of acceptance,
• Silence is used to accept,
• Can an offer be accepted if the offeree is unaware of it?

The terms of an offer and acceptance

The general rule is that the acceptance is an unqualified expression of consent to the terms the offeror has offered. Thus an acceptance which tries to vary the terms of the offer is not an acceptance. In fact it will be a counter-offer, which implies a complete rejection of the terms in the original offer. With counter-offers, the offeree then becomes the offeror. Thus inHyde v Wrench (1840) 3 Beav 334, the D offered to sell his farm to C for ?1000, C then offered ?950 but D refused. C then wrote back agreeing to pay ?1000 but D never replied. The court held that no contract had been formed as the offer to pay ?950 was a counter-offer which completely rejected the earlier offer and thus the C could not go back and later accept it.

It is important to be careful, however, when construing statements as counter-offers as they may in fact be requests for information. Thus if Claimant had written back saying “are you willing to pay ?950” rather than “I’ll pay ?950”, this would have been a request for information and the original offer would have remained open for acceptance.

In modern business, many industries will adopt their own standardised terms and modes of negotiating contracts. Thus it can be increasingly hard to tell whether there has been an acceptance. In Butler Machine Tool v Ex-Cell-O Corporation [1979] WLR 401, the C quoted D a price for some machinery and stated delivery would be within 10 months. On the back of the quotation was a set of terms, one of which provided for an increase in price if the cost of the machinery, delivery etc. increased. By the time the machinery was delivered there had been a massive increase in price and the D rejected the excess charge. They relied on a clause in their own terms and conditions on the back of their order (which they sent after the quotation) which did not contain any variation clause. The court held that the terms on the terms on the order had been different enough to constitute a counter-offer and the acknowledgment of order by C had been the acceptance. Thus the Defendant’s terms prevailed, notwithstanding that the Claimant had made reference to their own terms after the acknowledgement.

The court, however, has been criticised for adopting a strained view of the facts. The acknowledgment was simply a tear-off slip which C signed. If there had been no such slip what would the situation have been? The Claimant proceeded to refer to their own terms during the contract and the goods were produced and delivered. Would it have made sense to say that there was no acceptance and thus no contract? It is clear though that the parties thought there was a contract even though there was no meeting of minds as to the increased payment clause.

The courts will, however, hold that no contract existed in the absence of proper acceptance, making and delivering the machinery is not sufficient: conduct alone does not constitute acceptance. The reason for this is that the basis of contract is the agreement of the parties and conduct by one party does not evidence that agreement. The court must determine whether the intention was to perform task A or B, the fact that one party performs A and not B does not prove that this was the agreement between the parties: he may simply be acting in breach of contract.

Communication of an Acceptance
The general rule is that in order to be valid, an acceptance must be communicated to the offeror. Otherwise, an offeree would be unaware that they were bound in a contract. There are, however, exceptions to this. It is possible for a person making the offer to waive the right to receiving an acceptance as in Carlill v Carbolic Smoke Ball (above). In cases of unilateral offers the acceptance is performing the action specified by the offer and this need not be communicated to the offeror.

The general rule doesn’t apply when the reason for the lack of communication is the offeror’s fault. Thus in Entores v Miles Far East Corporation [1955] 2 QB 327, the C in London made an offer by telex (which is like a fax) to the D (who were in Amsterdam), who were acting as agents for an American company. The D sent their acceptance by telex. The C later applied to the court to be allowed to serve a claim form on the American company (where a party wishes to serve a claim form against a non-English party they need the court’s permission. One of the questions the court will ask is whether the contract was concluded in England). The court held that the contract had in fact been made in England when the acceptance was received by the Claimants in London.

The court distinguished between cases involving instantaneous communication (like a fax or email) and communication by post. In cases involving post the rules are different, as is considered below. In cases involving instant communication, the contract will be concluded in whichever country the acceptance fax or email is sent to. As the acceptance was sent to London, the contract was concluded there. A more intricate question is whether acceptance is at the moment that the acceptance arrives or only when it is read. It is likely that a court would hold that the moment of acceptance is the moment the message arrives, as long as it is within office hours.
Prescribed Method of Acceptance.

An offeror is permitted to state how the acceptance must be communicated. If the terms of the offer state that an acceptance must be in a certain format, then any deviation is likely to render th acceptance invalid. Whereas, it is possible that if the terms do not stipulate the mode of acceptance in a mandatory way, then any form of acceptance will be valid as long as it is not more disadvantageous to the offeror (e.g. if the offeror says acceptances by email or phone, but the offeree faxes and the offeror has no fax machine to receive the fax). The answer will depend on an interpretation of the term.

Can Silence be an Acceptance
Generally, silence cannot be an acceptance as, obviously, there would be extreme uncertainty as to whether a contract has been concluded or not. The rule seems less obvious in a situation where an offeror makes and offer and says that they will consider it accepted within 7 days unless the offeree rejects it. The offeree wants to accept the contract and so says nothing, but the offeror later seeks to assert that there is no contract. Arguably it is unfair to the offeree. In Felthouse v Bindley (1862) 11 CBNS 869, the C claimed he had bought a horse from his nephew. After negotiations C wrote to his nephew offering to bu the horse. He ended the letter saying “if I hear no more about him, I consider the horse mine at ?30 15s”. The nephew didn’t reply. The horse was sold by accident by an auctioneer and the C brought an action for conversion (the tort of taking a possession for which one doesn’t have ownership). The court held that there had been no valid contract.

Postal Rule
Acceptances mailed by post do not follow the general rule that an acceptance is only valid when it is communicated to the offeror. An acceptance is valid at the moment when it is put into the post box by the offeree in order to send it to the offeror: Adams v Lindsell (1818) 1 B&Ald 681. This validity upon posting is called the “postal rule”. This rule is well settled but has been frequently criticised.

Thus in Henthorn v Fraser [1892] 2 Ch 27, the Claimant was given a written offer in person. The next day, however, the Defendant tried to revoke their offer and the letter of revocation reached the Claimant’s office at 5pm. However, earlier that day the Claimant had mailed his acceptance of the offer and it reached the Defendant at 8.30pm. The Defendant refused to honour the contract and argued that because he had given the Claimant the offer in person, he had indicated that the postal rule did not apply to this case. The court held against the Defendant saying that the use of the post had been contemplated and thus the postal rule applied. The Claimant’s acceptance was valid when he posted it which was before the revocation.

In Holwell Securities v Hughes [1974] 1 WLR 155, the C tried to exercise an option to purchase some land by mailing a written declaration to that effect. The D never received the letter. C then sought the remedy of specific performance (where the court forces the party at fault to perform the action they contracted to do, in this case transfer land). The court rejected the claim on the grounds that the Claimant had failed to give notice. The reasoning for this was that the postal rule did not apply. Had the postal rule applied then there would have been a valid contract even if the letter had been lost in the post. The rationale of the court was that the wording of the clause said that C must give “notice in writing to” the Defendant which required communication to the Defendant and not just posting. Leaving the particular fact that there was a clause in this case, the decision of the court is authority for the principle that whether or whether not the postal rule applies depends on what the parties contemplated. Thus if the parties contemplated that the acceptance might be by post, the postal rule applies. If, however, as in this case, the parties say that the written acceptance must be “to” the Defendant, then the acceptance is only valid when it reaches him. It is still possible to send it by post but the postal rule doesn’t apply.

Acceptance in Unilateral Contracts
As mentioned in the discussion of the Carlill case, above, the courts are prepared to accept that in cases of unilateral contracts the offeror has waived their right to have an acceptance communicated to them. Another general rule would be that the offeree must perform the entire act specified by the offer before there has been acceptance. Thus a person who finds a leaflet for a missing dog cannot spend 10 minutes looking for the dog and claim that they accepted the offer of a reward upon finding the pet.

A different question is when a unilateral offer can be revoked. Arguably once someone has begun performance there should be an implied term preventing them from withdrawing the offer. Thus if the performance is long and arduous it would unfair for the offeror to withdraw it halfway through. In Errington v Errington [1952] 1 KB 290, the Court of Appeal considered the situation where a father bought a house and was paying the mortgage on it. He allowed his son and daughter-in-law to live there if they paid the mortgage. The father died and left the house to his widow in his will, she wanted the house back. The court held that a unilateral contract had arisen between the father and the son and his wife and the payment of the mortgage was performance of the contract. It was not possible for the widow to claim the house anymore than it would have been for the father to withdraw his offer once they had started. As long as they were performing the obligation and did not stop until it was complete, it was not possible to revoke the offer.

Acceptance of an Offer in Ignorance
Is it possible to accept an offer you don’t know exists? For example, if a person returns a lost wallet to its owner but wasn’t aware that the owner was offering a reward. As a general rule, you must have knowledge otherwise you may find yourself subject to contracts you didn’t know existed. But where the offeree performs the act in question unknowingly but then becomes aware of the offer right before speaking with the offeror, it is arguable that they should be allowed to assert a contract came into existence.

A more likely situation, is where a party performs an action which would constitute acceptance but they did so without any intention of accepting the offer. An example from an Australian case is where a man was arrested for murder, he was aware that there was a reward for information leading to the arrest of the murderers and he gave information to the police. The court did not allow him to recover the reward because they held that he had given information to the police “exclusively to clear himself” and not because he wanted the reward. It would seem, however, that as long as the offeree was aware of the offer then they will be allowed to assert there was valid acceptance, unless their motive was completely different. This would be hard for an offeror to prove.

Withdrawal or Termination of an Offer
When does an offer cease to be open for acceptance? As touched on above, the general rule is that an offer is capable of being revoked until it has been accepted. The revocation, however, must have been communicated to the offeree prior to their acceptance. Thus, inByrne v Van Tienhoven (1880) 5 CPD 344, the court held that an offer posted on 1 October was validly accepted by the Claimants in America. There had been a massive leap around 3 October in the price of tin and the offeror immediately sent a revocation of their offer of October 1 to sell tin at a low price. By the time the revocation reached America on 20 October the Claimants had already accepted.

An offer will expire after a period of time stated in the offer. However, a promise to keep an offer open for a certain period can only be enforced by the offeree if consideration is provided for that promise: Dickinson v Dodds (1876) 2 Ch D 473.
Beale, Chitty on Contracts (28 th ed 1999), para 2-024.
Household Fire and Carriage Insurance v Grant (1879) 4 Ex D 216.
R v Clarke (1927) 40 CLR 227.