This article is written by Anaya Jain, a student of BA.LLB(Hons) from NMIMS School of Law, Bangalore. This is an exhaustive article in which a critical analysis of the right of stoppage in transit is done.
Table of Contents
Introduction
It is the right of an unpaid seller to forestall the delivery of the merchandise to a buyer after such goods have been delivered to a common transporter for shipment. This right is an extension to the right of lien. Stoppage in transit implies halting or stopping products over the span of their delivery at a distance. At the point when the purchaser of merchandise becomes insolvent, an unpaid dealer who has left behind the ownership of the products has the privilege of halting them in travel, in other words, he may continue ownership of the merchandise as long as they are over the course of transit and may hold them until payment or tender of the price.
By halting the products over the span of their travel, the dealer puts the transporter or carrier under an obligation to redeliver the merchandise to him and in this manner re-obtains the right of possession of the merchandise. The activity of the right of stoppage in travel doesn’t itself end the contract of sale, it simply keeps the purchaser from getting possession of the products and puts the seller in a place wherein he can successfully practice his legal intensity of resale.
Merchandise is regarded to be over the course of transit from the time when they are delivered to a carrier or other bailee or custodier with the end goal of transmission to the purchaser until the purchaser or his agent for that benefit takes delivery of them from the carrier or other bailee or custodier. If the products are subject to dismissal by the purchaser and the carrier or other bailee or custodian proceeds possessing them, the travel or transit isn’t regarded to be at an end, regardless of whether the dealer has refused to get them back.
Elements of the right of stoppage
The right of stoppage requires a seller to be unpaid and no longer possessing the merchandise while the purchaser is indebted (or there is a doubt the purchaser will get insolvent) and the products are in the course of transit.
The “course of transit” implies that from when the merchandise is delivered to a transporter or other bailee with the end goal of transmission to the purchaser until the purchaser or the purchaser’s agent takes delivery of the products from the bearer or other bailee. On the off chance that the purchaser or the purchaser’s agent gets delivery of the merchandise before their arrival at its destination, the products are no longer in transit and the purchaser can’t claim to stop the merchandise.
The right of stoppage doesn’t require an actual breach of contract to have happened all together for the honest party to practice the right. The right necessitates that it must be apparent that one party to the agreement won’t conclusively satisfy its commitment because of that party’s insolvency.
Further, the right of stoppage doesn’t repeal the sale contract or re-establish property in the merchandise to the dealer. It just gives the merchant the option to hold possession until payment. The seller, having obtained possession of the merchandise by halting them in travel to the purchaser, is then in a position to practice its seller’s lien for the unpaid price of the products.
When can this right be exercised
Section 50 of the Sale of Goods Act, 1930 explains this very well. According to this section, an unpaid seller can exercise this right in the most straightforward manner when –
The buyer gets indebted
The purchaser is supposed to be bankrupt when he has denied paying his obligations or debts inside the normal course of business, or in the event that he can’t pay his cash, at that point it will be due. [Section 2(8)].
The property has surpassed the purchaser
In the event that assets have not outperformed or surpassed the purchaser, at that point this right is known as the “right of withholding shipping”.[Section 46(2)]
The goods are within the course of transit
This implies products ought to be neither with the merchant nor with the purchaser nor with their agent. The good must be within the custody of a bearer or carrier as an intermediary. Around then, the transporter or carrier need not be either a dealer’s agent or client’s agent. Since, in the event that he is the dealer’s agent, at that point the goods are still in the possession of merchant or seller in the eye of guideline and thus there might be no transit, and on the off chance that he is the client’s agent, the customer gets transport in the consideration of the law and consequently, a query of stoppage does not now arise.
Duration of the transit
Section 51 of the sale of goods act explains this. According to it, Products are over the course of transit from the time the seller delivers them to a carrier or a bailee for transmission to the purchaser until the purchaser or his agent takes the delivery of the said merchandise.
A few situations of the transit ending
- The purchaser or his agent obtains delivery before the products arrive at the destination. In such cases, the transit ends once the delivery is obtained.
- When the merchandise arrives at the destination and the transporter or carrier of bailee advises the purchaser or his agent that he holds the products, at that point the transit ends.
- In the event that the purchaser rejects the merchandise and even the seller won’t take them back, the travel isn’t at an end.
- In some cases, merchandise is delivered to a boat sanctioned by the purchaser. Contingent upon the case, it is determined that if the master is working as an agent or transporter of the products.
- If the transporter or other bailee improperly refuses to deliver the merchandise to the purchaser or his agent, the transit ends.
- If a part delivery of the products has been made and the unpaid dealer stops the rest of the merchandise in travel, at that point the travel closes for those products. This is provided that there is no agreement to surrender the possession of a considerable number of products.
How is the stoppage affected
Section 52 of the sale of goods act explains this. According to it, there are two different ways of halting the travel of products:
- The seller takes actual possession of the products.
- If the merchandise is in the possession of a transporter or other bailee, at that point the dealer or seller gives notification of stoppage to him. On accepting the notification, the bearer or bailee must re-deliver the products to the seller. The seller bears the costs of the re-delivery.
It is the duty of the bearer or carrier, in the wake of getting due notification, not to deliver the merchandise to the purchaser but to redeliver them to, or as indicated by the directions of the seller. On the off chance that unintentionally he delivers the products to the purchaser, he can be made liable for conversion. The costs of redelivery are to be borne by the seller.
Effects of Stoppage
Regardless of whether the unpaid dealer practices his privilege of stoppage in transit, the agreement remains substantial and valid. The purchaser can ask for delivery of the merchandise in the wake of making the payment.
What issues can arise in exercising the right of stoppage
Conflict with a bearer’s lien or carrier’s lien
The effectiveness of the right of stoppage will to a great extent rely upon the attitude of the bearer of the merchandise.
For example – the merchant attempts to practice his right of stoppage while the products are in travel or transit, anyway the transporter or carrier has not been paid for the cargo expenses and wants to practice its bearers’ lien over the merchandise to make sure about payment. Does the right of stoppage or the bearer’s lien take priority?
The case of Gilgandra Marketing Co-Operative Limited v Australian Commodity and Merchandise Pty Ltd and Ors [administrator appointed] [2011], outlines this issue. Gilgandra Marketing Co-Operative Limited (Gilgandra) made 10 contracts to sell wheat to Australian Commodity and Merchandise Pty Ltd (ACM) between 1 February 2010 and 12 March 2010. Each agreement consisted of a sale note attaching standard terms (GM contracts). Gilgandra delivered the wheat under the GM agreements to a container terminal and ACM arranged shipment.
Gilgandra gave a receipt or invoice to ACM who didn’t pay and notification of stoppage was given by Gilgandra while the merchandise was in travel or transit. The Court recognized two issues relating to the right of stoppage:
- The first is whether the travel of products under the GM contracts had stopped when they showed up in Sydney or whether transit (and subsequently the right to stoppage) continued to Bangladesh? The Court held that the wheat stayed in transit after it left from Sydney as the wheat containers were on different vessels by reason of the directions of ACM.
- The second is whether Gilgandra’s exercise of its right of the stoppage was dependent upon the operation of the bearer’s lien to recover the cargo charges.
The Court held that the exercise of notification of stoppage by an unpaid merchant is to encourage the seller in stating its seller’s lien for unpaid purchase money and that a transporter’s lien or carrier’s lien for cash due for the carriage of and different charges upon the merchandise being referred to would outweigh everything else.
In like manner, a seller looking to practice its right of stoppage must anticipate that it will need to provide an undertaking or something to that effect to the bearer to pay any outstanding cargo costs, including the expenses of storing the products and/or re-delivering the merchandise to the dealer.
Bearer’s or carrier’s compliance with the notification of stoppage
In this case, the dealer gives notification of stoppage to the transporter, however, the bearer overlooks the notification and keeps on delivering the products to the end buyer.
In the case of Toll Holdings Ltd v, Stewart [2016], an overseas supplier (Stewart) delivered TVs to a buyer in Australia utilizing a transporter or carrier, Toll Holdings Pty Ltd (Toll). While the TVs were in travel with Toll, administrators were designated to the neighbourhood purchaser, leaving the dealer unpaid.
On the day after the appointment of the administrators, Stewart emailed Toll advising that merchandise being shipped under 12 bills of lading were the property of the supplier and directed Toll to ‘hold’ the goods and help ‘recall’ those merchandises.
Toll didn’t adhere to those guidelines. Toll’s concern was the storage costs it would incur if the merchandise stayed at the container terminals and subsequently lodged requests to distribute centre the containers with Australian Customs for the under the bond movement of the containers and gave delivery orders to the purchaser’s unpacking contractor to empower it to collect the containers. The products were then placed into Australian Customs’ distribution centres. The main issues under the watchful eye of the Court were two-fold:
- Whether the provider or the administrator was entitled to the merchandise in the distribution centres; and
- In the event that the administrator was entitled to the products, Toll was liable for damages in conversion to the provider, since it discharged the merchandise despite accepting a notification under the stoppage in transit provisions.
The Court found that Stewart’s email to toll contained a notification of stoppage in transit and in light of the fact that the merchandise was discharged to the purchaser’s contractor, they were no longer in transit and, therefore, Stewart lost the right of stoppage.
By Toll failing to comply with the notification and discharging the merchandise to the purchaser’s contractor, Toll had acted inconsistently with Stewart’s right to possession of the products and was liable to Stewart for conversion.
Conclusion
Practicing the right of stoppage is a valuable solution for secure payment for an unpaid merchant of merchandise, but the right coincides with other legal principles, like a bearer’s lien. When practicing the right of stoppage, due consideration must be taken of the interests of all other affected parties to guarantee the merchant isn’t bearing any unintended expenses.
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