CIF contract - Lecture notes 10-16 PDF

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lecture notes on CIF contracts...

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UNIVERSITY OF BIRMINGHAM Birmingham Law School LLB COMMERCIAL LAW Prof Nelson Enonchong 2018/19

INTERNATIONAL SALE OF GOODS Introduction -Distinguish international sale of goods from domestic sales -Trade term: CIF, FOB, FAS, C&F etc.

I. CIF CONTRACTS

Reading Chua, Clarke et al, Schmitt off, Todd

pp. 63 – 94 pp. 543-552 pp. 32 - 50 Ch. 2

Benjamin,

Ch. 19 (very detailed)

Tritely, “Rights of rejection under c.i.f. sales” [1984] LMCLQ 565

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In the case of domestic sale of goods, both the buyer and the seller are in the same country International sale of goods, both buyer and seller are in different countries International transportation of the goods, and international insurance of the goods in that transportation There are also an increase in additional risk of the parties Increased risk for the seller, if the buyer refuses to pay, there can be difficulties as they can refuse to pay Increased risk for the buyer, if the buyer pays and seller fails to deliver the contracted goods, buyer may have difficulties exercising any legal remedies that he might have English law applies to transactions which have an international element There is a UN convention 1980, known as the Vienna convention, the UK has not ratified it, therefore it is not law The terms agreed upon by the parties, remain important

A. NATURE OF CIF CONTRACT

The CIF contract “is more widely and more frequently in use than any other contract used for purposes of sea-borne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under CIF contracts.” -

The seller of buyer in England is allowed to decide where they want to have CIF incoterms apply to their contract Apart from that, trade terms under English law apply CIF stands for Cost, Insurance and Freight The seller would give single quotation for prince, which will include these three elements A number of different consequences flow from having a different price It is the seller who makes the contract of carriage with the carrier of the goods It is the seller who will make the contract of insurance for the goods, to cover the gods for the voyage And because this responsibility falls for the seller Means that the seller takes the risk of insurance and freight rates going up Duty of seller, is to cover the goofs, during the voyage Seller must tender shipping documents for the buyer, in exchange for payment. CIF buyers duty is to pay in exchange for the documents

Myth & Co. Ltd v. Bailey Son & Co. Ltd. (1940) 56 T.L.R. 825, 828, per Lord Wright. 1. Definition “a 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 price” Arnold Karberg & Co. v. Blythe, Green Jourdain & Co. [1915] 2 KB 379, 388, per Scrutton J. - This definition shows the important components of a CIF contract 2. Delivery (three stages) School Fils & Co v. Scriven Bros & Co. (1924) 19 Ll. L Rep. 118 - there are three different delivery stages in the CIF contract - CIF seller is only bound by first two

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(i) Provisional delivery (shipment or purchase afloat) Seller must ship goods that comply with contract requirement

(ii) Symbolic delivery (documents) -bill of lading, insurance policy or certificate & invoice -parties may prescribe other documents that seller must tender - in a CIF contract, there are three documents that have to be delivered: the bill of lading, the insurance policy, the sellers commercial invoice. - seller could be required to deliver additional contract e.g. certificate of origin of goods - seller must deliver these additional documents at an agreed time

(iii) Complete delivery (goods) -Seller not bound to deliver at the port of discharge Manbré Saccharine Co. Ltd v. Corn Products Co. Ltd. [1919] 1 KB 198 -- under the CIF contract, the seller is not bound to deliver the goods, this is not the duty of a CIF seller, - seller is under duty, not to obstruct delivery of goods, -but bound not to interfere with delivery by carrier The Rio Sun [1985] 1 Lloyd’s Rep. 351 -

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A CIF contract is not a contract for the sale of goods, but for the sale of documents These documents give buyer the rights to sue third parties if the goods are damaged, e.g. carrier Court said that CIF contracts for sale of documents representing the goods. 3. Sale of goods or documents Arnold Karberg (above) SIAT di del Ferro v. Tradax Overseas SA [1978] 2 Lloyd’s Rep. 470 Courts said that a CIF the CIF contract is for the sale of documents, contains more than ‘a grain of truth’ But the CIF contract is not purely for the sale of documents, one actually has to ship the goods Congimex Companhia etc SARL v. Tradax Export SA [1983] 1 Lloyd’s Rep 250 It Is a contact for the sale of goods to be performed by the delivery of contracts - goods shipped in Brazil - documents required in England - goods were not correct to description - where was the breach committed, Brazil or England 4. Construction The Parchim [1918] AC 157 Parties specified that they were engaging a CIF contract The contract did not include the cost of insurance In included the cost of insurance as a separate item, Buyer was given right to cancel any shipping arrangement by the seller if he was not happy with it In light of the terms, the court held that this was not a CIF contract, even if the parties had called it that way, The cost of insurance was made by the seller on behalf of the buyer The Julia [1949] AC 293 The buyers obligation was to bay an agent of the seller, at the country of destination An agent of seller with receive goods from the carrier and the buyer will collect goods from that agent of the seller in London This contract was not a CIF contract, it was an on sure contract, as a result the buyer was under no duty to pay contract price in exchange for the documents, he was only obliged to pay after the delivery of the goods. The Gabbiano [1940] P. 166

- what makes something a CIF contract is the terms made by the parties, just simply calling it a CIF contract does not make it a CIF contract B. SHIPMENT AND APPROPRIATION - the shipper is the person who gives the goods to the carrier for transportation, that person will normally be the seller - when the shipper brings the goods to the carrier, and the carrier takes goods from the shipper, the carrier will give documents for the proof of shipping - the shipper needs to provide information of the name of the person who the bill of lading will be issued to, the shipper will take the document back to the carrier, the carrier will use the details provided in order to issue a bill of lading back to the shipper - the bill of lading is normally what the seller gives to the buyer - in the case of international sale of goods, buyer sometimes requires another document known as the notice of appropriation, the seller will send documents, before the bill of lading reaches the buyer - bill of lading will outline the person who is to receive the goods, known as the consignee the seller can ship these goods in one of three different ways, the first way, is by putting goods on board the ship after the contract - the seller can buy goods that are already afloat on another ship - seller can allocate goods he had earlier shipped to the buyer - seller must make sure that the goods themselves comply with the requirement of the contract in relation of description, quantity, quality and fitness for purpose 1. Shipment -one of three ways Johnson v. Taylor Bros [1920] AC 144 -the goods must conform to the contract requirements Description, quality and quantity

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-Shipment period Re Anglo-Russian Merchant Traders and John Batt & Co. (London) Ltd [1917] 2 KB 679 It was held in this case, that ordinarily the seller is not bound to ship the goods within any specific period or any specific time If something were to happen to make shipping impossible in a particular time frame, then seller would not be in breach of contract due to impossibility of illegality Ross T. Smyth & Co. Ltd (Liverpool) v. W.N. Lindsay Ltd (Leith) [1953] 1 WLR 1280 Shipment of good was to be in October or November, on November 1 st, the goods that were in question were to be prohibited. It was no longer possible to ship these goods, the seller shipped goods before the time period given, in order to escape this ban

Tradax Export SA v. André & Cie [1976] 1 Lloyd’s Rep. 416 - where the goods ‘maybe’ banned

2. Appropriation - contractual appropriation after seller, has selected the goods and he informs the buyer of what goods they are, then he becomes contractually bound - appropriation her is different to the passing of appropriation - a notice of appropriation is given, telling the buyer that these are the goods that are coming to you - the bill of lading is largely on paper, it takes a long time to reach the buyer in context of good - before the bill of lading reaches the buyer, the seller can send the notice of appropriation - bill of ladings other function is that buyer may need time to recover from - if the buyer rejects notice of appropriation, that does not indicate revocation of contract -meaning in this context -notice of appropriation Purpose of requiring notice Buyer’s right of rejection Kleinjan & Holst NV Rotterdam v. Bremer [1972] 2 Lloyd’s Rep. 11 Acceptance of defective notice Bremer Handelsgesellschaft mbH v. Deutsche Handelsgesellschaft mbH [1983] 2 Lloyd’s Rep. 45

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Time of notice The Post Chaser [1981] 2 Lloyd’s Rep. 695 Cie Continentale d’Importation v. Handelsvertretung der Union der Soviet Republic in Deutschland (1928) 138 LT 663 the contract stated that the notice must be given within 7 days, but it was not sufficient for the seller to send the notice within the 7 days it was necessary that the buyer receives this notice within seven days Daulatram v. European Grain and Shipping Ltd [1971] 1 Lloyd’s Rep. 368 contract required notice of approbation to be given by cable, but the seller sent the notice by air mail, the notice arrived within the specified time the buyer rejected good and argued that the seller used a different method than what was agreed, thus seller cannot comply with rules of strict adherence court argued that the notice was valid because the buyer received this notice within the time period, it does not matter that a different method was used

Vitol SA v. Phibro Energy AG (The Mathraki) [1990] 2 Lloyd’s Rep. 84 the contract required the notice of appropriation to reach the buyer by a specific date, the notice reached the buyer after office hours, the buyer rejected this notice the courts held that the CIF seller ha full 24 hours to deliver the notice

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it did not matter that the notice arrived after the close of business, if it did arrive in the first place. ERG Petroli SPA v. Vitol SA (The Ballentina) [1992] 2 Lloyd’s Rep. 455 notice was supposed to arrive 3 days before ship it actually came 2 days before it was a breach of contract but this was not a breach of condition in this case, but a breach of warranty, meaning seller could not reject shipment but claim damages Contents of notice Kleinjan & Holst case Cie Continentale d’Importation case Bremer H v. Toepfer [1980] 2 Lloyd’s Rep. 43

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Withdrawal of notice Defective notice Borrowman, Phillips & Co. v. Free and Hollis (1878) 4 QBD 500 the seller, realised that the goods were not in accordance with the contract, so he decided to withdraw notice of appropriation he gave a different notice, outlining goods on board a different ship which fit the description buyer said that he cannot withdraw application court said that the notice can be withdrawn and second one can be accepted. Gertreide Import Gesellschaft mbH v. Itoh & Co. (America) Inc [1979] 1 Lloyd’s Rep. 592 in this case seller was also allowed to submit a second notice of appropriation ERG Petroli Spa v. Vitol SA (The Ballentia) [1992] 2 Lloyd’s Rep. 455

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Valid notice Kleinjan & Holst case Warren Import Gesellschaft Krohn & Co. v. Toepfer (The Vladimir Ilich) [1975] 1 Lloyd’s Rep. 592 in the absence of a contractual obligation, seller does not have the right to withdraw and seller cannot reserve that right for himself Coastal (Bermuda) Petroleum Ltd v. VTT Petroleum SA (The Marine Star) [1993] 1 Lloyd’s Rep. 329 it was held that even if he seller does not have right to withdraw, the seller may be able to reserve for himself, the right to withdraw the decision of the court in that case contracts this Kleinjen AND Wreen iMPORT

- If the seller provides information, but the notice of appropriation does not mirror this information, and the information is incorrect, buyer can reject goods.

- if this information is incorrect, the buyer does not have the right to reject the notice, because the contract did not require the notice of appropriation - the notice issued by the seller contained the incorrect number, buyer could not reject this contract because it was information that was not required in the contract - does seller have the right to withdraw the notice of appropriation - If the buyer repudiate the contract, seller will have right to accept repudiation, the contract becomes terminate. The seller can accept of refuse the repudiate - A CIF buyer who incorrectly repudiate the contract, seller can choose to terminate, in addition to the right of termination, seller also has right to claim damages - Thus buyer has to be careful before rejecting the notice of appropriation - there is uncertainty in the law, as to whether a seller the seller with have that right in the absence of the terms and condition C. DOCUMENTS 1. The main documents (i) Bill of Lading Arnold Karberg & Co v Blythe Green Jourdain & Co (above) (bill of lading contract frustrated by supervening illegality) The Galatia [1980] 1 W.L.R. 495, 511 Re Weis & Co [1916] 1 K.B. 346 Land auer v Aser [1905] 2 K.B. 184 (ii) Insurance Policy C Groom v Barber [1915] 1 K.B. 316 (ii) Commercial Invoice - the seller’s commercials invoice is the document in which the seller sets out the quantity of goods, unit price of goods, and total amount that is owed to the seller from the buyer - in some cases where payment is through a letter of credit, where that invoice does not conform to the letter of credit

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2. Tender of documents Manbré Saccharine case Sharpe & Co. Ltd v. Onawa [1917] 2 KB 814 The parties did not specify the time of the tender, Parties said that document payment is to be made before, Where the contract says that the payments to be made before exchange of documents and it specifies the time of the payment, then that is the time that the payment must be made. The seller is under no duty to ensure that the goods are actually delivered Toepfer Lenersan-Poortman NV [1980] 1 Lloyd’s Rep. 143

D. PAYMENT OF THE PRICE - in CIF contracts the buyer must pay full price before receiving goods - the CIF buyer must pay the contract price, even if he knows that the goods have been lost in transit 1. Upon presentation of documents General rule – s. 28 SGA Delivery of goods (1)This section applies to any sales contract. (2)Unless the trader and the consumer have agreed otherwise, the contract is to be treated as including a term that the trader must deliver the goods to the consumer. (3)Unless there is an agreed time or period, the contract is to be treated as including a term that the trader must deliver the goods— (a)without undue delay, and (b)in any event, not more than 30 days after the day on which the contract is entered into. (4)In this section— (an) an “agreed” time or period means a time or period agreed by the trader and the consumer for delivery of the goods; (b)if there is an obligation to deliver the goods at the time the contract is entered into, that time counts as the “agreed” time. (5)Subsections (6) and (7) apply if the trader does not deliver the goods in accordance with subsection (3) or at the agreed time or within the agreed period. (6)If the circumstances are that— (a) the trader has refused to deliver the goods, (b)delivery of the goods at the agreed time or within the agreed period is essential taking into account all the relevant circumstances at the time the contract was entered into, or (c)the consumer told the trader before the contract was entered into that delivery in accordance with subsection (3), or at the agreed time or within the agreed period, was essential, then the consumer may treat the contract as at an end. (7)In any other circumstances, the consumer may specify a period that is appropriate in the circumstances and require the trader to deliver the goods before the end of that period. (8)If the consumer specifies a period under subsection (7) but the goods are not delivered within that period, then the consumer may treat the contract as at an end.

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Section 28 of Sale of Goods Act Sellers duties to deliver the goods and the buyers duty to pay the goods re interdependent The time of delivery of the goods buy the seller, is the same time that the buyer has to pay for the price Section 8 of SGA says that this is the position, unless the parties have agreed differently

A CIF contract is different from section 88

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Contracting out of general rule Clements Horst Co. v. Biddell Bros [1912] AC 18 In cases where it is not specified outright, payment from the goods, can be implied In a CIF contract payment for exchange of documents in the norm Unless the parties make it clear that different rules will apply, then one must apply the norm

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Elliot & Co. v. Candor Manufacturing Co. (1920) 3 Ll. L R 105 In this case, it was explicitly said that payment is cash against documents It said that payment must be made upon arrival of the ship buyer said that he should not have to pay before arrival of the goods

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Stein, Forbes & Co. v. County Tailoring Co. (1916) 115 L.T. 215 in cases whether these is ambiguity, normal rules will apply contract required payment against documents on arrival of the ship because of this ambiguity was not clear that the parties excluded normal CIF rules Soon Hua Seng Co. Ltd v. Glencore Grain Co. Ltd [1996] 1 Lloyd’s Rep. 398 Non-genuine bill of lading (i) Where the bill of lading is manifestly defective – buyer can refuse to pay. (ii) Bill of lading that appears on its face to conform but which contains a material false statement – can buyer refuse to pay?

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(a) Where the bill of lading is presented to a bank under a letter of credit United City Merchants Ltd v Royal Bank of Canada [1983] AC 168 The bank is bound to pay, even though the bill of lading contains a statement that is fault In this case, BIL stated wrong date of shipment, that goods were shipped within contracted time The seller was not aware that this date was false, the seller had been deceived by the carrier, the HOL said that since the seller was not acting fraudulently, the buyer was bound to accept the document (b) Where the bill of lading is presented to the buyer directly James Finlay & Co Ltd v Kwik Hoo Tong [1929] 1 K.B. 400 The contract required goods to be shipped in September, Goods were shipped in September Bill of lading issued by the carrier said that the goods were shipped in September the buyer claimed for damages since the date was inccorect the COA held that the buyer lost opportunity to reject the goods, and thus was entitled to damages it made no difference that the seller was not acting fraudulently, what mattered was that the date of shipment was false. Kwei Tek Chao v. British Traders and Shippers Ltd [1954] 2 QB 459 The CIF buyer has t...