International Contracts Slide Set 3 Contracts of Sale and Carriage in International Trade Matti Rudanko

2 International Contracts 3

3 Trade and Transport Seller Carrier Buyer Carrier Buyer Transport Contract SALESALE Goods Payment A) Incoterms C-DB) Incoterms F International Contracts 3

4 Incoterms 1 Delivery clauses published by the ICC for international trade applicable only if a a reference to them is made in the contract, e.g. –FOB Marseille Incoterms 1990 the following aspects are dealt with (see transp.) –passing of risk (cf. CISG art. 36,1 and ) –responsibilities of parties for taking measures –responsibilities for costs International Contracts 3

5 Passing of Risk 1 What it means: the responsibility for the accidental (non-negligent) damaging of the goods the conformity of the goods is assessed as at the time of passing of risk The risk passes, if no carriage is involved, on delivery of the goods, consisting of placing the goods at the buyer´s disposal on specified date International Contracts 3

6 Passing of Risk 2 Determines who is to bear the loss arising out of a damage that occurred during carriage the carrier has liability for the goods that can cover the damage however, the liability of the carrier is limited the compensation cannot always be collected from him International Contracts 3

7 Passing of Risk 3 If carriage is involved, the risk passes: –when the goods is handed over to the first carrier –if the contract states that the goods is to be handed over to the carrier in a specified place (e.g. DAF) the risk passes when the goods is handed over to the carrier at that place International Contracts 3

8 Incoterms 2 E: sale where the buyer calls for the goods –the risk passes on delivery at S’s place of business –carriage and all costs are B’s responsibility F: carriage is B’s responsibility –export formalities: B (FAS) / S (FCA, FOB) import formalities: B –the risk passes on handing the goods to the first carrier (FCA) / main carrier (FAS, FOB) International Contracts 3

9 Incoterms 3 [see transp.] C: the carriage is S’s responsibility –the risk passes when the goods passes the ship’s rail (as in FOB) / to the first carrier –S carries out at his expense the export formalities but B the costs accruing after that –insurance: S / B D: S’s total responsibility for delivery at a specified place where the risk passes –Import formalities B’s responsibility except DDP, DEQ International Contracts 3

10 Delivery: Passing of the Risk Case 1: CIF Helsinki –delivery at the port of shipment –port of shipment: Tukholma Case 2: FOB Marseilles –delivery at the port of shipment –port of shipment: Marseilles International Contracts 3

11 Parties to the Carriage Shipper: agent of the seller (C and F) Stevedore / Forwarder Carrier International Contracts 3

12 Carriage arrangements I Incoterms C - D Consignor: seller (shipper as agent) the carrier hands a bill of lading to the seller / shipper who for- wards it to the buyer the goods are available against the bill of lading II Incoterms F Consignor: buyer (shipper as agent) the carrier hands a bill of lading to the seller / shipper who for- wards it to the buyer the goods are available against the bill of lading International Contracts 3

13 Trade and Carriage: case 1 (CIF) Seller Carrier Contract of Carriage Charter-party Buyer SALESALE Bill of Lading BL1 BL2 BL3 International Contracts 3

14 Trade and Carriage: case 2 (FOB) Seller Carrier Charter- party Buyer SALESALE Bill of Lading BL2 BL3 BL1 C a r r. C o n tr. International Contracts 3

15 Bill of Lading 1 A bill of lading is –a formal receipt stating that goods alleged to be of certain species, quantity and condition are shipped / received by the shipowner –a memorandum of the contract of carriage –a document of title to the goods International Contracts 3

16 The Role of the Bill of Lading Determines the terms of carriage and delivery of the goods between the carrier and other bearer of the document than the consignor / shipper Terms of carriage that have not been included in the bill of lading may not be referred to against the above mentioned bearer if there is no reference to them in the bill of lading stands for the goods and is negotiable (transferable) making them tradable while still in transit International Contracts 3

17 Bill of Lading as a Security You cannot receive possession of the goods but by presenting the document You can receive the goods despite a possible better title to it of another (legitimation effect) International Contracts 3

18 Controversy between documents Bill of lading: Paramount clause:Charter-party exemptions from liability adopted by the Hague-Visby rules No liability of the carrier for slight negligence in handling and stowing the goods supersedes conflicting terms in the charter-party BuyerCarrier International Contracts 3

19 Controversy between documents 2 Bill of ladingDocument of title of a third person Gives a better title to a holder in goof faith Buyer Third person International Contracts 3

20 Controversy between documents 3 Bill of lading Sale contract Description of Goods 20 containers, 4 of which slightly damaged Goods sold Spare parts of industrial machines, packaged in 25 flawless containers no liability to the carrier for the damage because of the “claused” B/L Carrier Buyer International Contracts 3

21 Controversy between B/L and Goods Bill of lading Goods Clean bill of lading: When discharged at destination, some packages are flawed the goods are in apparent good order and condition The carrier is liable for possible flaw damage Carrier Buyer International Contracts 3

22 Clean / Claused B/L The Carrier should check the goods to be loaded and make in need reservations about defects Unqualified information need not be taken that cannot reasonably have been checked if checking has been possible a reservation does not exempt from liability as a rule, a general reservation (”quantity, contents, condition and quality unknown to the carrier”) will not suffice [transp.] International Contracts 3

23 Bill of Lading 2 The following forms of document holder protection require acquisition of the document in good faith –protection against lack / loss of title (legitimation effect, see above) –protection against objections regarding the information in the document: the goods must comply with the information International Contracts 3

24 B/L in CIF Trade The seller cannot be in good faith: B/L is a mere receipt of the goods received the seller cannot alter the freight contract by referring to the B/L; yet Hague-Visby rules apply International Contracts 3

25 B/L in CIF Trade, cont. The buyer can be a transferee in good faith –The carrier cannot refer to liability exemptions in the charterparty –the buyer can claim goods conforming with the B/L the carrier may not bring evidence to rebut this International Contracts 3

26 B/L in FOB Trade As the shipper, the seller cannot be in good faith as to the goods: no protection by the B/L concerning the goods the seller can be in good faith concerning the charterparty between the buyer and the carrier; protection by the B/L? –protection only as a transferee of the B/L International Contracts 3

27 B/L in FOB Trade, cont. The buyer is the consignor and has no protection (no good faith) as to carriage terms in the c/p; but as to restrictions of liability, the compulsory Hague-Visby rules apply concerning the goods, the buyer can be in good faith and have protection based on the B/L International Contracts 3

28 The B/L System: the Protection of the Buyer The holder is entitled to the possession of the goods at destination The buyer can rely on the information in the B/L and can claim goods conforming to it International Contracts 3

29 The B/L System: the Protection of the Buyer, cont. The buyer can check the documents before paying the buyer can refuse to pay for a claused B/L he can reject non-conforming goods in the letter of credit system: the bank monitors the conformity of the documents International Contracts 3

30 The B/L System: the Protection of the Seller The buyer is not entitled to receive possession of the documents but against payment –the letter of credit system right of stoppage in transit International Contracts 3

31 Right of Stoppage in Transit The seller may not plead a breach of contract by the buyer against a holder of the B/L in good faith but the seller can present a duplicate of the B/L (that can be obtained from the carrier on shipment) to the carrier at destination it prevents delivery to the consignee International Contracts 3

32 The B/L System: the Protection of the Carrier The buyer cannot base claims on the trade contract against the carrier (but the seller) if the buyer rejects the goods the carrier can deposit it in a public warehouse liability of the carrier –CIF: B/L (buyer); charterparty (seller) –FOB: B/L seller (conditions of carriage) ; charterparty (buyer) –Observe the compulsory B/L liability rules International Contracts 3