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CIF Contracts - Notes
International Sale of Goods (08 22340)
University of Birmingham
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LLB: INTERNATIONAL SALE OF GOODS Seminar 1: CIF Contracts (Part I) Definition and Duties and Responsibilities of the Parties Essential reading M Bridge, The International Sale of Goods: Law and Practice, 3rd edn (OUP, Oxford 2013) Ch 4 OR F Lorenzon, C.I. and F.O. Contracts, 5th edn (Sweet Maxwell, London 2012, Chs 3, 4, 5 and 7 Schmitthoff: The Law and Practice of International Trade, 12th edn (Sweet Maxwell, London 2012) P Todd, Cases and Materials on International Trade Law (2003 Maxwell, London 2003) Ss 28, 32 and 34 SGA Further reading Sale of Goods 9th edn, Ch 19 Cases Manbre Saccharine Co v Corn Products Co 1 KB 198 Seller is under no duty to complete delivery Only to put goods on the vessel and deliver the documents Confirmed this Biddell Bros v E Clemens Horst Co AC 18 CIF contract impliedly agree to depart from s28 CoA gave two reasons why B bears the risk If B had the right to examine, that would put S in a position where he would have to do one of two commercially unattractive things 1) S himself would have to provide inspection facilities at the port of destination. This is not a practical option as S is normally of miles away 2) Or S would have to give B the before payment to enable B to gain access to the goods from C for inspection. Also unattractive as is security for payment. If B collects goods and refuses to pay then only option would be to go to court Arnold Karberg Co v Blythe, Green Jourdain Co 2 KB 379 Contract for the sale of goods CIF contract Goods put on German ship and a bill of lading was issued One of the insurance policies issued a german company Vessel set sail War broke out between UK and Germany Contract of carriage and insurance became illegal 1 Held: tender of documents in London was not a good tender not valid and effective Comptoir et de Vende v Luis de Ridder AC 293 The Julia Buyers obligation was to pay the agent in country after the goods arrived In some cases, because S and B are far away, S will take out the bill of lading in the name of agent in country So the agent could collect the goods upon arrival In a CIF contract, S must deliver the documents to B before the arrival of the vessel on the agreed date S gave a delivery order in favour of agent Held not a CIF contract Was a contract for the actual delivery of the goods at the port So B was only bound to pay after delivery of the goods Johnson v Taylor Bros AC 144 Shipment One of 3 forms 1) Put goods on board 2) Buy goods already afloat 3) Send own goods already afloat Must meet contractual requirements of goods failure breach of contract Bowes v Shand (1877) 2 App Cas 455 Contract provided for shipment in March and or April Most of the goods were loaded in Feb and the rest in March 3 bills of lading dated in February and only one in March Held: seller was in breach of contract as goods were shipped outside the period Smyth (Ross T) Ltd v Lindsay (WN) Ltd 1 WLR 1280 Sale of goods CIF Glasgow From Sicily Shipment period was in On 20th Oct, authorities in Sicily made export of goods in question banned from 1st Nov S did not ship goods before this Breach? Held where S had notice, S is bound to ship during period before prohibition M Golodetz Co Inc v Czarnikow Rionda Inc (The Galatia) 1 WLR 495 2 CIF Contracts Cost, insurance, freight Cost of goods Insurance of carriage Freight cost of transportation All inclusive contracts in 1 price Nature of CIF contracts Definition The CIF contract more widely and more frequently in use than any other contract used for purposes of commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under CIF Myth Co. Ltd v. Bailey Son Co. Ltd. (1940) 56 T.L. 825, 828, per Lord Wright. contract to ship goods complying with the contract of sale, to obtain . . . the ordinary contract of carriage to the place of destination, and the ordinary contract of insurance of the goods on that voyage, and to tender these documents against payment of the contract Arnold Karberg Co. v. Blythe, Green Jourdain Co. 2 KB 379, 388, per Scrutton J 2. What are the basic duties of the seller under a CIF contract? Was the contract in The Julia regarded as a CIF contract and why? Delivery Duty to deliver 3 main stages of delivery 1) Provisional delivery S puts goods on board a vessel 2) Symbolic delivery documents 3) Complete delivery of goods themselves Provisional In a CIF contract, seller can perform this duty in different ways S can ship the goods himself in some CIF contracts this is the only way if for the sale of a specific asset Sale for generic goods S can put the goods on board the vessel himself, or buy goods already afloat from a 3rd party (provided that the goods comply with contract specifications) Could also allocate to the contract own goods which are already afloat Symbolic duty to obtain insurance and enter into a contract of carriage for transportation of the goods S must then tender these documents to B Delivery of documents symbolic delivery of the goods Main documents are: bill of lading, insurance policy, commercial invoice 4 The Julia Buyers obligation was to pay the agent in country after the goods arrived In some cases, because S and B are far away, S will take out the bill of lading in the name of agent in country So the agent could collect the goods upon arrival In a CIF contract, S must deliver the documents to B before the arrival of the vessel on the agreed date S gave a delivery order in favour of agent Held not a CIF contract Was a contract for the actual delivery of the goods at the port So B was only bound to pay after delivery of the goods 3. What are the duties of the buyer under a CIF contract? Does the buyer have the right to examine the goods before shipment? No right to examine goods before payment Clements Horst CoA gave two reasons why B bears the risk If B had the right to examine, that would put S in a position where he would have to do one of two commercially unattractive things 3) S himself would have to provide inspection facilities at the port of destination. This is not a practical option as S is normally of miles away 4) Or S would have to give B the before payment to enable B to gain access to the goods from C for inspection. Also unattractive as is security for payment. If B collects goods and refuses to pay then only option would be to go to court Risk borne B So no right to inspect B must pay for goods even if he thinks they are or lost in transit B Has no right to refuse to pay for documents on the ground that goods are nonconforming When goods arrive, B can reject goods that are This is separate from the right to reject documents. The rights are successive: 1) The right to reject documents 2) The right to reject goods If B accepts documents, he still has the right to reject goods themselves if he later finds that they do not conform to the requirements of the contract 5 10. What is known as a bill of lading and what functions does it perform? What requirements must a meet? Bill of Lading Issued ship owner 1) Acts as a receipt confirms quantity, type of goods and condition 2) Evidence of the contract of carriage contains terms and conditions, B will have a contractual claim against the carrier if the goods are damaged during transport 3) Document of title lawful owner of the bill has title to the goods on the ship Must be valid and effective Will not be if the time of tender the CC has become illegal Contract becomes frustrated and void Supervening illegality Valid and effective mean B must have a good claim against C If valid, irrelevant that at the time of the tender B wont have a good claim against C for an event eg collision may include exceptions excluding liability for loss or damage In that case, S can still tender the to B and the tender is still good and effective as per The Galatia and it is irrelevant if B wont have a good claim against C 11. What is known as the and Delivery order order S to the carrier asking C to deliver goods to the person named on the delivery order, there are two types 1) When S writes it merchants delivery order and C is not bound to obey this 2) S can present the merchants delivery order to C for C to sign it, if he does it becomes a binding document which C must obey. This one delivery order receipt Consists of statements about quantity and condition of the goods Given when the goods are received the carrier It is on the basis of the receipt that the ship issues the bill of lading Not a document of title to the goods shipped Transfer does not transfer property in the goods Evidence of shipment on board the vessel 12. What is the purpose and effect of a notice of appropriation? What kind of information must this notice contain? 7 Appropriation when B knows for sure that goods are available through a Notice of Appropriation Notice of appropriation Kleinjan must comply strictly with requirements of the contract Eg certain info If S breaches, B can terminate This is only a right, B bound to terminate B can waive the breach and continue If B does this, he loses the right to terminate Cannot change his mind afterwards Doctrine of strict compliance Applies to the time of giving notice and he content of the notice If B decides to accept a defective notice, he loses the right to terminate as per Kleinjan Content S must provide all info contract requires to be in the notice and info must be as required the contract Usually required: 1) name 2) Date of bill of lading 3) Kind and quantity of goods Consider the following problems: 1. Mantu, a Kenyan exporter, contracted to sell robusta coffee beans to Benco, an English importer. The contract called for tonnes CIF London: shipment 10 March and payment in exchange for The goods were shipped on board The Ebony which was expected to arrive London on 25 April. On 10 April the insurer of the goods, Mumbo Insurance Ltd, a company incorporated in Ruritania, filed for bankruptcy. Consequently it could not pay any claims under the insurance policy arranged Mantu. On 15 April the goods were lost at sea following an accident involving The Ebony. On 16 April Mantu tendered all the required documents but Benco has refused to accept and pay for them. Benco is refusing to accept the documents on the grounds that (i) the goods have been lost, (ii) the insurer is insolvent and Benco has obtained evidence from a private investigator in Kenya which suggest that bill of lading is not genuine because although it states that the goods were shipped on 8 March in fact loading was only completed on 15 March. Mantu is threatening to commence legal proceedings in England against Benco to claim damages for breach of contract. Advise Benco. 8 So the claim in restitution will not succeed This will be a total failure because it was not within the shipment period rejection of the documents mean he has lost the right to reject goods because he has breached the contract terms 2. Peter agreed to deliver 100 tonnes of oil condensate to Vladimir on CIF terms. The condensate was to be shipped during October November. 90 tonnes were loaded in September and 10 tonnes in October. Of four bills of lading, three referred to a September shipment and one to an October shipment. Vladimir claims that Peter is in breach of the contract. Advise Peter. The goods were not shipped during the contract period as Bowes v Shand Contract provided for shipment in March April Most of the goods were loaded in Feb and the rest in March 3 bills of lading dated in February and only one in March Held: seller was in breach of contract as goods were shipped outside the period So if Vladimir has already accepted the documents he can claim damages through breach of contract or if he he can reject the documents at the 1st stage 10
CIF Contracts - Notes
Module: International Sale of Goods (08 22340)
University: University of Birmingham
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