The CIF Contract: An Analysis of Responsibilities in Cost

INTRODUCTION

The CIF contract or contracts pertaining to Cost, Insurance and Freight has been under consideration since the nineteenth century as put forward by Lord wright as an agreement specifically used primarily in agreements arising from commercial activities involving the trade via sea. The question regarding whether the CIF is to be considered as a contract for the sale of goods or acts as a document even though it is in constant use by traders engaged in sea borne commercial activities. It turns out to be difficult to come to a conclusion based on authoritative judgments which is seen to constantly shift notions with every case. The responsibility solely lies on the seller as the name suggests with respect to the cost in order to supply the goods required, allotment of insurance against the goods being sold and lastly, the freights which deals with shipping the goods. The entire onus lies on the seller, therefore, making the seller to engage into a wholesome contract specifying the future date of delivery, insurance partaken and the contract to carry on the carriage. Given these responsibilities, it absolutely lies on the seller again to take charge of fixing the costs and prices that may arise including the possibility of bearing risk which may arise due to the fluctuations and changes in both the freight and insurance costs. It is of utmost importance that the seller is responsible for all the contingencies that ay arise during transporting the goods to the contracted destination wherein the buyer generally pays against the tender of the documents as opposed to the actual goods. Perhaps, this could extenuate the discussion towards the payment being made against the documents and not goods. The onus of the seller does get dismissed as soon as he completes tendering the documents and does not have to carry the burden until the goods are physically delivered but it somehow entails an underlying duty that the goods are not prevented from being delivered. This can ensure him the full payment against the documents.

1. All Answers Ltd. November 2018. Critically Evaluate Whether a CIF Contract Is a Contract for the Sale of Documents or a Sale of Goods Related in International Trade Law.. [online]. Available from: https://www.lawteacher.net/free-law-essays/general-law/saleofdocuments.php?vref=1 [Accessed 22 September 2020].

Nature of Contracts



The nature of the contract is highly debated as the sale of documents but multiple questions were raised and critically evaluated whether the nature of the contracts were mutually exclusive or not. In the case of Couturier v Hastie, saw a similar instance where the documents procured as under CIF did not clarify the position of the buyer at the first instance in the matter of payment when the commodities or goods were incorporated under the documents, it had stopped to exist at the agreement date, as and when the agreement developed. The agreement surmised the presence of those products. Albeit an offer of merchandise contract, the character of a CIF contract as a narrative deal is with the end goal that the dealer's physical obligations are suspended until the narrative exchange has been finished. Now what are these obligations since the seller in this scenario is not bound to deliver the gods physically to the buyer directly or through the agent of the buyer rather legislation requires that the parties are bound by the contract, especially the seller has the obligations to fulfill as determined by the parties regarding the shipment of the goods or receipt of the same and then procure documents that shall then be forwarded to the buyer. Then the rights of the seller is bound under the contract between the two parties and the obligations that arose pertained to the shipment and the receipt of shipment which would adjust according to the products and move the documents holding the purchaser at a higher position having the rights to claim against both the guarantor as well as the transporter.

Documents were given larger importance that the physical transportation and delivery of the goods and commodities. This has been highlighted well in the case of Arnold Karberg and Co. v. Blythe, Green, Jourdain and Co., wherein a contractual agreement between the two parties, one being the port of china and the other of Naples to Amsterdam. The product in question were certain kinds of beans that were dispatched in the month of July. However, at that time, there was war going on and the conveying vessels were in need of a secure port other than the one agreed by the parties. The goods were then stored in another port but the purchaser was not in favor of the scenario and denied the existence if documents and held it void. This was a turning point in the area of precedents and the courts held that there were many hindrances in deciphering and ascertaining what the CIF contracts entail and the existence of a difference between the meaning of CIF contracts and it is more a sale of documents than that of goods. Howver, this principle was later identified and overturned by the court of Appeals.

2. Couturier v Hastie (1856) HLC 673
3. Arnold Karberg and Co. v. Blythe, Green, Jourdain and Co. [1915] 2 KB 379

Documents were given larger importance that the physical transportation and delivery of the goods and commodities. This has been highlighted well in the case of Arnold Karberg and Co. v. Blythe, Green, Jourdain and Co., wherein a contractual agreement between the two parties, one being the port of china and the other of Naples to Amsterdam. The product in question were certain kinds of beans that were dispatched in the month of July. However, at that time, there was war going on and the conveying vessels were in need of a secure port other than the one agreed by the parties. The goods were then stored in another port but the purchaser was not in favor of the scenario and denied the existence if documents and held it void. This was a turning point in the area of precedents and the courts held that there were many hindrances in deciphering and ascertaining what the CIF contracts entail and the existence of a difference between the meaning of CIF contracts and it is more a sale of documents than that of goods. Howver, this principle was later identified and overturned by the court of Appeals.

Role of Documents

The cardinal role is played by the documents at stake in any CIF contracts and the role played by these contracts are so crucial that the documents being an important part of the sale is recognized rather than the goods and the documents like the Bill of lading or the invoices or the insurance attached to the goods represent the goods and ultimately protects the buyer from being disadvantaged in case any risk arises during the period of transit. The Bill of lading is important since it is the operative document for the constructive delivery of goods. In future, this is then overturned especially the buyer’s position in the goods further the place of ownership given to the buyer.Also, if need arise the buyer has the right to take any action he deems fit against the carrier of the goods if any loss incurred by the buyer. Th documents hold a massive importance by the single most important principle is that the seller has the right to tender the necessary documents when any unpredictable scenario has come over and the goods have been suffering a loss. The documents also has the power to force the buyer to accept the documents if they bide by the terms accepted and if the buyer rejects such then he stands in breach of the contract confirmed.

The fundamental records in a CIF agreement of offer are Bills of Lading, Insurance strategy, Commercial Invoice. The cost that was agreed is reflected in the receipt and the entire compensation depends on the records that are created however, the only advantage of the contracts created under CIF are that the ultimate responsibility does not lie on the purchaser and the relevant costs are not looked after by the purchaser. The entire costs are covered by the purchaser only if the goods reach the conveyance port as the buyer has the idea and knows the exact values of the commodities bought. There is sufficient risk in the property while it is on the cargo or are in the process of being shipped but the actual ownership is determined as per the reports and if needed are adjusted as per the cost. The assumption is property goes in CIF agreement of offer when reports are conveyed to the buyer. The bill and the insurance policy against the products actually look out for the commodities while they are on their way and are shipped but it might be so that the commodities may suffer some unpredictable loss and the documents shaped against the products are genuine and remain authentic and may be offered and valued at the original price of the cost.

4. Philip W. Thayer, C.I.F. Contracts in International Commerce (1940) 53 Harvard Law Review, 792 at 795
5. The Miramichi [1915] P 71

Duties of the buyer and seller in a CIF contract

The primary duty of the seller of the goods is to make sure that the goods are on its way as per the contract and it ensures a separate contract of carriage of goods including the journey till it reaches its destination at the mentioned port and all of the necessary expenses are to be borne by the seller. The documents are to be obtained correctly including the bill of lading or the insurance policy, the bill to the buyer.

The buyer has the responsibility and duty to pay the due price of the goods as entered into the contract on the delivery of the documents of the contract from the seller. The payment must be ensured on time to the seller extended till the inspection of the goods. The buyer must also pay the prices required for unloading the goods, the lighterage costs and the cost to land the goods at the destination of delivery. Not only these, the buyer must also pay all import duties and charges related to warfare if any were to accrue. The risk that may arise during the voyage shall be borne by the buyer since due insurance has been done against the good sold by the seller. If the goods were to be destroyed due to any peril which are not insured, even then buyer has to pay up the charges agreed on the delivery of documents. In the case of Groom Limited v. Barber, 100 bales of cloths were sold to the buyer, the plaintiff in the case and a CIF contract was agreed into. The goods were shipped but the insurance policy did not cover risks arising from war and the ship had faced a huge war risk, sunk by a Warship of German. This did not relieve the buyer from paying the agreed price on tender of the documents. This also entitles the seller to be paid all the price of the goods despite knowing that the goods were lost right at the time when the documents were tendered. It had been held in Mabre Company v. Corn Products Company, that the buyer has to accept all liabilities and pay the prices as must arise. The need to make out a receipt for the products and to delicate inside a sensible time after shipment the bill of filling, the strategy of declaration of protection and the receipt to the purchaser so the purchaser may get conveyance of the products, in the event that they show up, or recuperate for their misfortune on the off chance that they are lost on the journey. The bill of filling offered should effectively express the date of shipment in any case the purchaser can dismiss the merchandise. Under a CIF contract the purchaser has the option to dismiss the reports and furthermore an option to dismiss the merchandise.

6. Ademuni-Odeke, 'The nature of CIF Contract- Is it a Sale of Documents or Sale of goods?' 161
7. Groom Limited v. Barber (1915)
8. Mabre Company v. Corn Products Company (1919) 1 KB 198

In Panchand Freres, S.A. vs Etablissement General Grain Co., a certain yellow maize was to be sold by Panchand to General Grain Co. wherein the contract entered to claimed that the shipment must take in the period of June 1965 and the date of shipment was to be established by the bill of lading. The ultimate contract showed discrepancy and the bill of lading was outdated since the goods were shipped in August 1965. It was held that as the documents were taken up and paid as well as the buyers were aware of the delay in shipped goods still were estopped from complaining against any such delay or inconsistency in the bill of lading.

Buyers right to reject goods

The purchaser has the absolute right to deny any such document provided by the seller if the primary description failed to match with the agreement. In situations where the bill had clearly stated that when the commodities were boarded and ready to be shipped, they were not in conditions as was discussed and as they were supposed to be and contains greater irregularities, it becomes difficult to segregate and consider the depicted deal as an offer. Now, the purchaser does have the right to dismiss but not if the records are taken up despite having error. A genuine case of this rule by and by can be found on account of Panchand Freres, S.A. vs Etablissement General Grain Co. wherein for this situation the agreement of offer was for an amount of Brazilian maize, to be shipped in 1965. However, certain discrepancies were seen to have as the maize was stacked in August but the bill that was filed contained certain discrepancies as it was covered to have shipped in July which was most certainly not the case. The value that was put up against this had the declaration as per the goods in August. Now the actual scenario of the shipment records came into light due to the transportation records were taken and paid bringing out the actual time frame in which the goods were really shipped. Thus the purchaser could not argue or raise complaints over the late shipment.

9. ibid
10. Panchand Freres, S.A. vs Etablissement General Grain Co., ( 1970)
11. Supra 10

In other situations when the documents of a certain goods that are included in the contractual agreement , it makes no place for the buyer to change his position and make changes or deny putting the sole reason forward that the goods are not as desired and contains certain harms however, this may lead the buyer to change his stand and be in complete denial of the argument and that may be a move that might be in breach of the agreement. In a particular case of Berger and Co. v Gill and Dufus SA, the buyer had a similar place like this wherein he had denied and dismissed the records and had tried to make places where the denial confronted by him could fit into the legal scheme of the agreement only because the commodities that were ensured had differences and did not completely match with the original description. The House of Lords had put in the view that the buyer failed to adhere by their previous original agreement. Thus, the courts had major role to quantify the differences and survey while figuring out the differences. The purchaser was definitely on a privileged position since the power to dismiss the commodity was not held at a higher place and the true power is to dismiss the documents and the agreements in CIF contracts rather than dismissing the products as such. However, the right to dismiss is certainly reserved by the purchaser in cases when the documents that are provided along with the products have differences than the agreements that was previously entered into keeping in mind all the detailed requirements.

The buyer has a clear understanding of the knowledge of the products that were agreed and accepted within the contractual framework and once the goods are at the ports for delivery, the buyer has the capacity to oversee the product and check them and if the need arises, the products can be changed if such does not comply with the contract. There is a high possibility that the buyer himself does not retain the same position to deny the commodities that are delivered and he does not have the title to deny the commodities in cases of appeared differences. It is then not left on to the buyer to deny the products once he has confirmed the details. It may be so that the buyer and the seller gets into the agreement of fixing the differences and the damages are such that the buyer would seek t help recoup the costs that have been gone into the damage of the products. Now it is important have a fair transfusion of the damages that actually happened and the costs that acne be recouped an such shall be done as per the conditions that are put up by the buyer, the worth of the goods and overall loss that may be caused. Once the costs are assessed it has to be seen that the costs are as per the market share and the buyer and seller are not deprived at any cost. The fair share of the losses are to be recouped and no amount of damages are to be overlooked.


12. Supra 10

Conclusion

It is imperative to consider that in case any deformity may arise be it under any situation that is not predicted then it is considered that the documents that were generated are inspected and acknowledged by the buyer and the records will likewise be not able to dismiss the products if they appear to be slightly different. The CIF contracts are very delivery oriented and the responsibility of the buyer and seller are clearly determined which keeps the commodities at bay and helps protect the goods against any deprivation for the buyer and no unnecessary losses ofr the seller. The documents are the king and becomes essential for any buyer to have a clear understanding of the documents once the contractual agreement are entered into.

Take a deeper dive into The Case of Little Dessert Shop with our additional resources.

ARTICLES/ WEBSITES

• All Answers Ltd. November 2018. Critically Evaluate Whether a CIF Contract Is a Contract for the Sale of Documents or a Sale of Goods Related in International Trade Law.. [online]. Available from: https://www.lawteacher.net/free-law-essays/general-law/saleofdocuments.php?vref=1 [Accessed 22 September 2020].
• Philip W. Thayer, C.I.F. Contracts in International Commerce (1940) 53 Harvard Law Review, 792 at 795
• Ademuni-Odeke, 'The nature of CIF Contract- Is it a Sale of Documents or Sale of goods?' 161
• Global agricultural marketing management. (Marketing and Agribusiness Texts - 3) (1997), < http://www.nzdl.org/gsdlmod?e=d-00000-00---off-0aginfo--00-0----0-10-0---0---0direct-10---4-------0-1l--11-en-50---20-about---00-0-1-00-0--4----0-0-11-10-0utfZz-8 00&cl=CL2.13&d=HASHebb417febddba7178b257d.17.7>=1 > accessed on 7th September, 2020
• Essa Alazemi Passing of Risk in International Contracts of Sale of Goods; A Comparative Study Between the United Nations Convention on Contracts for Sale of Goods 1980 and the English Sale of Goods Act 1979

CASE LAWS

• Couturier v Hastie (1856) HLC 673
• Arnold Karberg and Co. v. Blythe, Green, Jourdain and Co. [1915] 2 KB 379
• The Miramichi [1915] P 71
• Groom Limited v. Barber (1915)
• Mabre Company v. Corn Products Company (1919) 1 KB 198
• Panchand Freres, S.A. vs Etablissement General Grain Co., ( 1970)
13. Essa Alazemi Passing of Risk in International Contracts of Sale of Goods; A Comparative Study Between the United Nations Convention on Contracts for Sale of Goods 1980 and the English Sale of Goods Act 1979
14. Ibid