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Variants of a CIF contract
Merchants frequently vary the CIF terms.Terms such as CIF&C (cost, insurance, freight and commission), CIF&E (cost, insurance, freight and exchange) and CIF&E&I (cost, insurance, freight and commission and interest) are commonly found in sale contracts. No established practices exist in respect of these terms, and it is very much a matter for the parties to agree on what the variations to the CIF theme are meant to cover. For instance, exchange could refer to fluctuations in the exchange rate, or it may refer to the commissions that may be charged by banks in the process of conversion. Similarly, the reference to commission may mean a number of things: it could be the commission charged by export houses (in the exporting country) acting as purchasing agents for the buyers, or commission charged by the bank when the seller negotiates the bill of exchange accepted by the buyer.101
CIF and arrival contracts
Frequently, arrival contracts tend to be confused with CIF, as illustrated by Comptoir d’Achat et de Vente SA Luis de Ridder Limitada (The Julia).102 The important point to remember about a CIF contract is that the documents are symbolic of the goods, so that delivery of the documents (bill of lading) is constructive delivery of the goods. In the case of arrival (also known as ex ship port of arrival) contracts, the seller undertakes to deliver the goods on arrival of the goods at the destination. In other words, ‘the seller has to cause delivery to be made to the buyer from a ship which has arrived at the port of delivery and has reached a place therein, which is usual for delivery of goods of the kind in question’.103 Risk in these types of contracts will pass on delivery of the goods to the buyer.
Under INCOTERMS 2010, where the contract is on DAP (delivered at place) terms, the seller delivers the goods when they are placed at the disposal of the buyer ‘on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period’ (A4 DAP). The seller bears the risk of loss or damage to the goods until delivery at the destination (A5 DAP), unless the buyer fails to meet the formalities, such as the obtaining of import licences and other customs formalities (B2 DAP) or fails to notify or give sufficient notice to the seller of the agreed period of delivery and/or the point of taking delivery within the named place of destination (B7 DAP).
CIF contracts under INCOTERMS 2010
Under INCOTERMS 2010, the obligations of the parties to a CIF contract are, to a large extent, similar to those found in English law.The important difference, however, is that INCOTERMS 2010104 accommodate the increasing use of electronic documents in commercial transactions. So, where the parties have agreed to communicate electronically, they can agree to substitute documents, such as transport documents and invoices, with their electronic equivalents. Equally, where it is the custom, electronic equivalents can be used. Although INCOTERMS allow for the use of transport documents, such as an electronic bill of lading, it must be stressed that the Carriage of Goods by Sea Act 1971 (legislation implementing the Hague-Visby Rules which unifies the law relating to bills of lading) will not automatically govern the electronic bill, unless incorporated expressly.105 There may also be problems on
101See Chapter 15.
102[1949] 1 All ER 269. See also ‘Judicial definition of a CIF contract’, above.
103Per Lord Sumner in Yangtsze Insurance Association v Lukmanjee [1918] AC 585, at p 589.
104The recognition of electronic documentation was first introduced by INCOTERMS 1990.
105See Chapter 8, Scope of application. Also see the Rotterdam Rules (Chapter 9).
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the admissibility of computer-generated documents in legal proceedings, in the event of litigation in some jurisdictions, although this question seems to be adequately addressed in England.106
Obligations of the seller
(a)Goods answering to contract description
The seller, under the rules, must provide goods in conformity with the contract of sale (A1 CIF).
(b)To procure and prepare documents
Invoice and pre-shipment inspection certificates
The seller must provide a commercial invoice, or its equivalent in electronic form, and obtain other evidence of conformity, such as pre-shipment inspection certificates and certificates of quality, if required by the contract of sale (A1 CIF). As stated earlier, the documents may be electronic equivalents if customary or agreed on by the parties (A1 CIF).
Contract of carriage
The seller must contract or procure a contract for the carriage of the goods to the named port of destination or, if agreed on, any point at that port. This contract must be made on the usual terms at the seller’s expense. It must provide for the carriage by the usual route and in a vessel that is used normally for the transportation of the type of goods to be shipped. (A3(a) CIF).The transport document must:
•be dated within the shipment period agreed by the contract;
•cover the contract goods;
•allow the buyer to take delivery of the goods at the port of destination; and
•unless otherwise agreed, enable the buyer to sell the goods during transit through transfer of the document, or by notice to the carrier (A8 CIF).
The transport document normally obtained by the seller is likely to be a bill of lading and issued in several originals.Where this is the case, under INCOTERMS, all originals must be presented to the buyer (A8 CIF). The rules do not exclude the use of other types of transport documents. The parties are free to agree to a non-negotiable sea waybill or an inland waterway document, and the use of electronic equivalents is also recognised.
Contract of insurance
The buyer must procure at his expense, in the absence of express agreement, minimum insurance cover from the point of delivery to the named port of destination, in accordance with Clauses
(C) of the Institute Cargo Clauses (or another similar set of clauses), from a reputable insurance company. The insurance cover must enable the buyer, or any other person with insurable interest in the cargo, to claim directly from the insurer. The seller must provide the buyer with the
106See Chapter 6, Electronic Date Interchange (EDI) and the Carriage of Goods by Sea Act 1992. See also Civil Evidence Act 1995 and Abeyratne, ‘Some recent trends in evidential issues on electronic data interchange – the Anglo American response’ [1994] Trading Law 103.
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insurance policy, or other evidence of insurance cover. The minimum insurance obtained must cover the contract price plus 10%, to be provided in the currency of the contract (A3(b) CIF).
Where the buyer requires insurance cover for risks such as wars, strikes, riots and civil commotions, the seller must arrange such cover at the buyer’s expense (A3(b) CIF).
(c)To check, pack, mark and deliver the goods
The seller is under an obligation to deliver the goods ‘either by placing them on board the vessel or by procuring the goods so delivered’.The shipper must do this on the date, or within the period, stipulated by the contract and in the manner customary at the port (A4 CIF). The seller must pack the goods and mark the goods at his expense. It is possible that the buyer may call for specific packaging before the conclusion of the contract, in which case the seller will have to package accordingly. In some trades, it may be customary to send the goods unpackaged. In this event, the seller will not be required to package the goods.
The seller is also responsible for the costs of checking operations, such as quality checking, weighing, measuring and counting, that take place prior to delivery (A9 CIF). Where mandated by the authorities of the exporting country, the seller must also bear the costs of any pre-shipment inspection (A4 CIF).
(d)Loading costs
The seller is to bear the costs of transporting the goods to the port of loading, and for loading the goods on board ship (i.e., until delivery), as well as for any costs for unloading the goods at the port of discharge levied by the shipping line when contracting for carriage (A6 CIF).
(e)Notice to buyer
The seller must inform the buyer of delivery of the cargo on board the ship, and provide any other information he may require to make necessary arrangements to take delivery (A7 CIF).
(f)Export licences and customs formalities
The party responsible for obtaining export licences, or the required official authorisation for the export of the goods, is the seller. He must do so at his own risk and expense. He is also obliged to carry out all the customs formalities (A2 CIF) and bear all the costs of customs formalities, as well as any duties, taxes, and other official charges payable upon exportation and ‘for their transport through any country that were for the seller’s account under the contract of carriage’ (A6 CIF).
(g)Risk
The seller bears all risks of loss or damage until the moment the goods have been delivered107 (A5 CIF).
(h)Other obligations
The buyer may require documents (or their electronic equivalents) or information, including security related information for the import of the goods or for their transportation to their final destination. Where the buyer requests the seller to obtain these documents and information, he must provide, in a ‘timely manner’, every assistance at the buyer’s risk and expense (A10 CIF).
Obligations of the buyer
(a)Notice to seller
Where the buyer has the right to determine the time of shipping or the port of shipment, he must inform the seller when and where he wants the goods in good time, so that the seller can make suitable arrangements (B7 CIF). If he fails to give notice, and the goods have been
107 See ‘(c) To check, pack, mark and deliver the goods above.
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duly appropriated to the contract, he is responsible for additional costs (for instance, storage charges) from the agreed date or the expiry date of the period fixed for shipment (B6 CIF).
(b)Insurance
The buyer must inform the seller, in a ‘timely manner’, of the requirements of security information to enable the seller to meet his obligation under A10. Where the seller has been asked to obtain relevant information, the buyer is under an obligation to reimburse the costs (B10). Where the seller requests assistance for documents and information, including security related information for exporting the goods or for their transport through any country, the buyer must, at the seller’s risk and expense, provide assistance.
(c)Obligations in respect of transport document and contract of insurance
The buyer must accept the transport document if it is in accordance with the rules set out in para A8 CIF and conform to the contract (B8 CIF). The buyer is not under any obligation to make a contract of insurance. However, the buyer is under an obligation to provide information to the seller if he requires additional insurance (B3 CIF).
(d)Payment of price
The buyer must pay the agreed price to the seller (B1 CIF).
(e)Risk
The buyer bears all risk of loss or damage from the time the goods have been delivered. If the buyer fails to notify the seller when and where to send the goods in accordance with B7,108 the buyer will bear the risk from the agreed date of shipment or the last date of the shipment period. The buyer will be placed under this risk only if the goods have been clearly set aside, or identified in some other manner as the contract goods (B5 CIF).
(f)Payment of other costs, duties, taxes
The buyer is responsible for the costs of any pre-shipment inspection, unless mandated by the authorities in the exporting country (B9 CIF). Where the buyer has requested documents or electronic equivalents from the seller for the importation of the cargo or for their transit through another country, he must reimburse the seller for the costs (B10 CIF).
The buyer is also responsible for any duties, taxes, official charges and other costs for carrying out customs formalities during transit and at the port of destination (B6 CIF).
The buyer is also responsible for the cost of the additional insurance that he may have requested the seller arrange (B6 CIF).
(g)Import licence and customs formalities
It is the duty of the buyer to obtain, at his own risk and expense, any import licence, or other official authorisation, that may be required for importing the cargo. He is also responsible for carrying out all customs formalities where the goods pass through another country in transit and at the port of destination (B2 CIF).
(h)Taking delivery
The buyer must take delivery when the goods have been delivered in accordance with A4 – that is, where the seller has delivered the goods on board the vessel at the port of shipment within the shipment period stipulated by the contract. He must receive the goods from the carrier at the port of destination (B4 CIF).The buyer is responsible for all costs from the time they have been delivered over the ship’s rail. This includes all costs incurred during transit and all unloading charges, which may include lighterage and wharfage charges (B6 CIF). It is possible that the costs of unloading, as well as others, at the port of destination may already be included in the freight charges.
108 See ‘Notice to seller above’.