Stoppage in transit

Stoppage in transit

The unpaid seller in the UK has for many years enjoyed special rights to stop goods being delivered to an insolvent buyer. The rights are statutory rights set out in The Sale of Goods Act and the principal provisions are as follows:

"When the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price."

"Goods are deemed to be in the course of transit from the time when they are delivered to a carrier ... for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from the carrier."

"The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods or by giving notice of his claim to the carrier ... in whose possession the goods are."

"When notice of stoppage in transit is given by the seller to the carrier... in possession of the goods, he must redeliver the goods to, or according to the directions of the seller, and the expenses of the re-delivery must be borne by the seller."

Typical bill of lading terms in relation to stoppage in transit

"Once the goods have been received by the carrier for carriage the merchant shall not be entitled either to impede, delay, suspend or stop or otherwise interfere with the intended manner of performance of the carriage for any reason whatsoever including but not limited to the exercise of any right of stoppage in transit conferred by the merchant's contract of sale or otherwise".

The clause purports to override rights under the Sale of Goods Act -"or otherwise" but the follow on clause below suggests that the clause above may not always be enforced against the shipper.

"The merchant shall indemnify the carrier against all claims, liabilities, loss, damages, costs, delay, attorney fees and/or expenses caused to the carrier, his subcontractors, servants or agents or to any other cargo or to the owner of such cargo during the carriage arising or resulting from any stoppage (whether temporary or permanent) in the carriage whether at the request of the merchant, or in consequence of any breach by the merchant of this clause, or in consequence of any dispute whatsoever in respect of the goods".

Position under international conventions

Neither the Hague, Hague-Visby or Hamburg Rules deal with the issue, which is left to national law or contract. In the UK, there is clear national law in the form of the Sale of Goods Act. However, the provisions on stoppage in transit are among those which can be excluded from operation if the parties so choose in their specific contract. Therefore, sea carriers are entitled to seek to exclude the Sale of Goods Act right to stoppage in transit and shippers are entitled to seek to maintain it.

In the bill of lading term set out above, the carrier seeks both to exclude the right and also to modify it, which could give rise to problems of ambiguity to be interpreted against the carrier under the contra proferentem rule.

Practical measures by shippers

Contract stage

Shippers may seek to delete the prohibition on exercise of the right to stoppage in transit where they are able. The question of the carrier's indemnity against all consequences of exercising the right also needs to be considered. The bill of lading term probably appears because carriers would otherwise not be confident of being able to recover costs from the shipper. The Sale of Goods Act only refers to the carrier being able to recover costs for the expenses of the redelivery to the seller. This is arguably limited to the costs of physical redelivery and not to the wide range of ancillary costs mentioned in the bill of lading term. Other costs may be regarded as falling to the carrier as part of its statutory obligation under the Act, hence the apparent need to override this in the bill of lading term. There may be scope for a compromise clause in this area rather than leaving all the costs with one side or the other.

Claim stage

If the right to stoppage in transit is maintained, it should be exercised by the shipper with due consideration to the carrier to minimise disruption. Where the carrier has disregarded the shipper's instructions to stop the goods, it should be possible to bring an action for damages against the carrier for losses incurred. It will be prudent to involve specialist lawyers both in the process of exercising the right of stoppage and in dealing with any subsequent court proceedings.