Contractual structure of CIF arrangements
...d hence the existence of a bill of lading does not necessarily mean that a contract of carriage has been made or that the terms stated in the bill actually reflect the true contractual position: The Ardennes [1951] 1 KB 55 - Provided that it satisfies certain requirements, it is a document of title to the goods in both common law and by statute. Possession of the bill of lading gives its possessor constructive possession of the goods and, if transferred with the intention of passing, the transferor's property in the goods will also give the transferee that property: Lickbarrow v Mason (1787) 2 Term Rep 63 A carrier is not bound to part with possession of the goods except on production of the bill and is liable to the holder of the bill if he wrongfully delivers the goods to someone else. Similarly, a carrier's failure to deliver the goods to the holder of the bill renders him liable in tort for conversion under the Torts (Interference with Goods) Act 1977 and he will also usually be liable for breach of contract of carriage. The bill must be tendered by the seller to the buyer in a reasonable time after shipment in the absence of contractual stipulations to the contrary. Late delivery of the bill of lading may have an effect on the contract of sale and if there is an express stipulation that time for tendering of the document is of the essence, failure to comply with this term amounts to a repudiatory breach for which the buyer may reject the goods. The other types of documents which are commonly substituted for a shipped bill of lading, provided that the terms of the contract so permit, are as follows: i. a ship's delivery order ii. a delivery warrant iii. an ordinary delivery order iv. a container bill of lading v. a through bill of lading vi. a mate's receipt vii. a combined transport document The policy of Insurance Unless otherwise agreed between the buyer and the seller, the buyer is entitled to a policy of marine insurance covering the goods against the usual marine risks, and such other risks as may be specified in the contract. The buyer is entitled to reject the policy if it covers goods other than those comprised in the bill of lading. Where the contract allows, a certificate of insurance may be substituted for delivery of a specific policy but if there is no such provision the buyer can reject such documents because they do not give the holder a direct right of action against the insurer: Wilson v Belgian Grain & Produce Co [1920} 2 KB 1. A policy of marine insurance is assignable by indorsement and delivery, or in any other customary manner: s.50 Marine Insurance Act 1950 The commercial invoice A commercial invoice describes the goods and their price. It is required by the buyer to clear the goods through customs since it is on the price charged that customs duties are usually assessed. The commercial invoice should identify the buyer's order and should set out the full details of the parties, the goods, the price and payment terms, shipping marks and numbers, and the shipment itself including the port of loading, the route and the port of discharge. Other documents required by the buyer Other documents may be required by the express terms of the contract, the most common being export and import licences and certificates of quality. The obligations of the cif buyer Since the seller bears so many obligations under a cif contract, the obligations of the buyer are relatively few. Nevertheless, it should be borne in mind that the buyer will pay a greater price to the seller in return for the seller fulfilling his obligations under the contract. a. to pay the seller on tender of the documents. In a cif contract, the duty of delivering the goods, which rests with the seller, in return for making payment of the price, which rests with the buyer, are separated which amounts to a deviation from the presumption set out in s.28 SGA 1979. Payment of the price becomes due when the documents are delivered to the buyer. The buyer must pay the price if the documents conform and cannot delay until he has examined the goods. If the buyer knows that the goods are not in accordance with the contract, he must nevertheless pay against the documents if they are in accordance with the contract. This is subject to two exceptions: i. the rule does not apply where the non-conformity of the goods can be attributed to fraud on the part of the seller: Gill & Duffus v Berger [1894} AC 382 ii. where the goods actually shipped differ fundamentally from those that have been sold, the buyer need not pay against the documents. The position is fundamentally different where the documents do not conform with the requirements of the contract. This may arise in two ways: i. the documents may indicate on their face that they are not in conformity with the contract, ie the bill of lading is claused or the shipping date is outside the contract period. ii. The documents may contain a latent defect, ie the terms of the documents are false so as to appear consistent with each other and with the requirements of the contract. If the documents are correct, the buyer must pay the price in the manner specified by the contract. This is usually a strict obligation and the unauthorised use of another mode of payment will enable the seller to reject the buyer's purported performance. Where the goods have been properly shipped and the requisite documents tendered to the buyer, the subsequent loss or deterioration of the goods is at the buyer's expense: Manbre Saccharine Co. Ltd v Corn Products Ltd [1919] 1 KB 198. In such an event, the buyer's remedies are not against the seller but against the carrier, insurer or guilty third party depending on the circumstances of the case. b. To take delivery of the goods Unless the buyer has rejected the documents, he or she is required to take delivery of the goods. At this point, the buyer has rights, under ss.34 and 35 SGA 1979 to inspect the goods and to reject them if he or she can show that the goods did not conform when the seller shipped them. c. Additional duties. A cif contract may impose other duties on the buyer. For example, if the contract specifies several potential destinations for delivery of the goods, the buyer must notify the seller of his choice of destination. Such a notice must reach the seller within a reasonable time before the beginning of the shipment period in order to allow the seller an opportunity to comply. Buyer's rights to reject the goods or the documents The buyer has the right to expect that both the goods and the documents conform to the terms of the contract and accordingly has two separate rights of rejection: a. the right to reject the goods; and b. the right to reject the documents. The difference in the two rights was explained in Kwei Tek Chao v British Traders & Shippers Limited [1954] 2 QB 459. Passing of property s.17 SGA 1979 declares that property in goods pass according to the intention of the parties expressed in the contract. In cif contracts, the presumption is that property does not pass until delivery of the shipping documents to the buyer or his authorised agent. Risk Although property prima facie passes to the buyer when he makes payment against the documents, in a cif contract the presumption is that the risk in the goods passes as from the time of shipment: Johnston v Taylor Bros [1920] AC 144. This is because the parties have regulated the prospect of loss or damage in transit and covered it by the contracts of carriage and insurance which the seller is required to take out and subsequently transfer to the buyer. The divorcing of the passing of risk in the goods from the passing of property is an example of where the parties have agreed to disapply the general rule stated in s.20 SGA 1979. F.O.B The fob international sales contract is a flexible instrument but, in its most basic form, requires the seller to place the goods on board a vessel nominated by the buyer within the stipulated contractual period. Obligations of the parties under an fob contract a. identification of the port of shipment the due deleivery point is the port of shipment, usually designated by the buyer in the contract of sale. Failure on the part of the buyer to nominate the port of shipment when specified in the contarct, or alternatively failure to notify the seller of the nomination by an agreed date, may amount to a breach of condition precedent: Gill & Duffus v Societe pour l'Exportation des Sucres [1985] 1 Lloyd's Rep 621. b. date of shipment in an fob contract a date or period of shipment for the goods will normally be specified. Until the buyer has made an effective nomination of the date of shipment, the seller's obligation to have the goods ready to load at the port does not arise: Cunningham v Munro (1922) 28 Com Cas 42. Unless the contract provides that the buyer's nomination is final, he or she is not confind to the single nomination and may substitute an earlier nomination with a subsequent one provided that the substitute nomination is made in time: Agricultores Federados Argentinos v Ampro SA [1965] 2 Lloyd's Rep 157; Cargill UK Ltd v Continental Can [1989] 2 Lloyd's Rep 290. However the parties may also expressly or impliedly preclude substitution. If the buyer substitutes one nomination for another one, the seller's expenses incurred by reason of the substitution are his own loss in the absence of an express or implied contractual stipulation to the contrary. In order to protect the seller from such an eventuality, three terms may be used: - a clause is incorporated which restricts the parties' ability to substitute nominations to a specific period. - A clause may be included to extend the shipping period in the event of a substituted nomination - A prohibition on substituted nomination may be added to the contract. ...