CIF contracts

CIF contracts

Ross T Smyth and Co Ltd v TD Bailey, Son and Co: Lord Wright => CIF is "a type of contract which 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 under CIF contracts."
What is a CIF contract?
1. 'Cost, insurance, freight': price of goods is inclusive of freight (consideration, reward payable in respect of carriage) and insurance costs to the destination specified by the contract
2. Arnhold Karberg v Blythe, Green, Jourdain and Co: CIF contract is not a contract that goods shall arrive, but a contract to supply goods that comply with the contract of sale and to obtain a contract for carriage and contract of insurance (Scrutton J)
3. Advantages for S
  1. S can charge higher price taking into account extra services he provides
  2. Higher margin of profit: S may be able to obtain reasonable rates for freight and insurance
  3. Liquidity issue: S is usually paid before goods arrive at destination
    1. Vitol SA v Norelf Ltd: sometimes parties may have agreed that payment will occur 30 days after date of bill of lading so not always the case
4. Advantages for B
  1. Convenience: B does not have to undertake task of finding shipping space or insurance (may be difficult in foreign country) + risk of increase in transp and insurance costs stay with S
  2. Goods do not have to be paid for until rlvt docs are tendered; B can then sell goods to 3rd party on strength of docs
  3. B gets right to sue carrier under Carriage of Goods by Sea act 1992 with transfer of BoL
5. Where foreign currencies are healthy, people tend to use CIF but if not, they use FOB because this will result in a saving of freight and insurance payable to S in hard currency under CIF
  1. Colombia, Algeria, Pakistan and Iran prohibit imports on CIF terms
Judicial definition of a CIF contract
1. Johnson v Taylor Bros: Lord Atkinson, CIF contract => when S and B enter into CIF contract, S is bound to do the following
  1. 1) to make an invoice of goods sold
  2. 2) to ship at the port of shipment goods of the description contained in contract
  3. 3) to procure a contract of affreightment under which the will be delivered at the destination contemplated by the contract
  4. 4) to arrange for an insurance upon the terms current in the trade which will be available for the benefit of B
  5. 5) send to B invoice, BoL and policy of assurance, delivery of which will be symbolic delivery of the goods thus entitling S to payment
  6. If CIF contract does not specify tender of shipping docs, they must prima facie be tendered at residence or place of business of B
2. Hindley and Co Ltd v East India Produce Co Ltd: possible for S to contract on CIF terms for goods that are already AFLOAT where
  1. 1) S may have shipped goods prior to the sale, hoping to find Bs while cargo is on the seas; ship is floating warehouse. Advantages for S: S can take advantage of price fluctuations
  2. 2) S may have bought goods from 3rd party when they were already afloat (string of contract => CIF to CIF to CIF)
3. Law and Bonar Ltd v British American Tobacco Ltd: contract of sale was on CIF terms but also had clause stating that risk was to stay with S until actual delivery to B. Held: clause was inapplicable => where a contract is expressed to be on CIF terms, it should be construed as CIF contract and clauses repugnant thereto should be disregarded
4. Comptoir d'Achat et de Vente Boerenbond Belge SA v Luis Ridder Limitada (The Julia): S sold 500 tons of rye to B; HoL => even though contract was expressed on CIF terms, it could not be construed as CIF contract on reading all the terms of the contract since Ss never intended to part with property of goods until the moment of delivery. Not every contract which is expressed to be a CIF contract is such, the true effect of all its terms must be taken into account
  1. Lord Porte: vital question is whether B paid for docs as representing the goods or for the delivery of the goods themselves. It is not CIF contract even in a modified form but a contract to deliver at Antwerp.
  2. Question was whether the delivery order had imparted any rights of control over cargo to buyers; symbolic delivery of the goods had not taken place when delivery order was tendered to the buyers
Is a CIF contract simply a sale of documents?
1. Arnold Karberg v Blythe, Green, Jourdain and Co: CIF contract is not a sale of goods but a sale of documents relating to the goods. B buys documents, not goods (Scrutton J)
  1. CoA rejected this, saying a CIF contract is a contract for the sale of goods to be performed by the delivery of documents
2. May be possible to accept Scrutton's statement because a number of legal rights + abilities attach to the docs
  1. Mambre Saccharine v Corn Products: example => B's obligation to pay against tender of docs
  2. Kwei Tek Chao v British Traders and Shippers: right to reject bad tender
3. Hindley and Co Ltd v East Indian Produce Co Ltd: S sold goods to B, S had obtained BoL from third party. On arrival, no goods. S said not liable because a contract of sale under CIF was a sale of documents and performance took place with delivery of docs. Ss were merely parties in a strong of sales. Held: CIF contract is a contract for sale of goods to be performed by delivery of docs + no reason why Ss who were shippers should be distinguished from Ss who were not.
Duties of S under a CIF contract
1. s13 Sale of Goods Act 1979: where sale takes place by description, it is an implied condition that the goods will correspond to that description
2. Mambre Saccharine Co v Corn Products: contract was for sale of starch in 280 lb bags. Cargo was shipped partly in 280 bags partly in 140 bags. Held: packaging is part of the description of the goods.
3. Bowes v Shand: contract to take place during March and April 1874, but part was shipped in February and the rest in March. Held: buyers not bound to take rice shipped during Feb because time is part of the description of the goods
  1. Reason 1: funding + payment (if it arrives earlier, B may not be ready to pay yet)
  2. Reason 2: because these contracts are often entered into along with other contracts, might have been difficult to meet obligations with other contracting parties
4. Aron (J) and Co v Comptoir Weigmont: confirms Bowes, timing was more than a mere warranty (such as the description of the goods) but it was a condition
5. s15A Sale and Supply of Goods Act 1994: where breach is so slight that it would be unreasonable for B to reject goods + B is not acting as a consumer, not breach of condition but rather breach of warranty => might affect packaging condition but probs not time condition
6. PJ van der Zijden Wildhandel NV v Tucker and Cross Ltd: S may buy goods whilst afloat and allocate them to the contract
7. Common for B to ask S for notice of appropriation; appropriation attaches goods to contract
8. B is entitled to reject when there is a breach of notice of appropriation
  1. Société Italo-Belge pour le Commerce et l'industrie v Palm and Vegetable Oils Sdn Bhd (The Post Chaser): notice of appropriation was passed up the string of contract to NOGA who rejected it; held: normal that traders attach great importance to the necessity of passing on all such notices without delay
9. Grain Union SA Antwerp v Hans Larsen A/S Aalborg: buyer is entitled to reject cargo where notice of appropriation declares a different ship than in reality shipping the goods
10. S has responsibility to check that goods have actually been shipped, not enough to just leave them with shipowner
11. Duty to procure and prepare documents
  1. Invoice
  2. Bill of lading
  3. Insurance polcy
12. Invoice
  1. Ireland v Livingstone: S must tender to B an invoice 'debiting the consignee with the agreed price (or the actual cost and commissions with the premiums of insurance, freight) and giving him credit for the amount of the freight which he will have to pay the shipowner on actual delivery'
13. Bill of Lading
  1. Diamond Alkali v Bourgeois: 'received for shipment' BoL not sufficient for CIF contract because it's a receipt
  2. BoL must be 'clean': must not contain any reservations entered into by carrier as to the apparent condition or packing of goods
  3. Landauer and Co v Craven and Speeding Bros: BoL not proper because did not cover the entirety of the voyage + the fact that insurance policy covered entire journey irrelevant
  4. James Finlay and Co v Kiwk Hoo Tong: B may rejected goods were BoL shows incorrect date
  5. Delivery order - a good substitution?
    1. Only where delivery order allows B to exercise control over the goods
    2. Warren Import Gesellschaft, Krohn and Co v Internationale Graanhandel Thegra NV: held that delivery orders were insufficient substitutions because 1) they were addressed to persons who were not yet in possession of the goods and 2) there was no understanding on part of anyone that the goods would be delivered to B => no indication that B were to be placed in position of control over the goods
14. Insurance
  1. Lindon Tricotagefabrik v White and Meacham: S did not obtain insurance cover for entire transit and so was unsuccessful in obtaining price of goods when they were stolen while awaiting delivery to B's address
  2. Kind of cover and amount of cover
    1. Policy covering 'all risks' => all risks cover
    2. Free of capture, seizure and detention cover
    3. Choice depends on facts determined by taking into account kind of cargo, route of voyage, practices accepted as usual in the trade
    4. Borthwick v Bank of New Zealand: if it is usual to obtain 'all risks' cover in the trade, S could be in breach for not getting that cover and B would be able to reject docs (right of rejection)
    5. Tonvaco v Lucas; Harland and Wolff v Burstall: amount of cover must include freight charges and a percentage of the expected profits + amount should be reasonable in light of value of cargo
  3. Insurance to cover subject-matter of sale and entire transit
    1. Hickox v Adams: where insurance covers not only B's good but also goods belonging to others, S is in breach of his obligations under CIF contract
    2. Landauer and Co v Craven and Speeding Bros: where insurance covers only part of voyage, B can reject docs; insurance must cover entire journey
  4. Policy
    1. Substitution of insurance policy by docs containing written statement of the existence of the policy will not be regarded as good substitution
    2. Mambre Saccharine Co Ltd v Corn Products Co Ltd: S informed B by letter that cargo was covered by insurance in accordance with terms of policy of insurance; policy covered cargo other than cargo subject to sale. Held: vast difference between letter and insurance policy that was transferrable under s50(3) of Marine Insurance Act 1906. Letter was not acceptable subsitution
    3. Diamond Alkali Export Corp v FI Bourgeois: certificate of insurance is not a good substitution either
    4. Burstall v Grinsdal: may be possible to substitute insurance policy with certificate of insurance where contract of sale expressly provides for the tender of the certificate of insurance
    5. Malmberg v HJ Evans ad Co: S tendered a policy of Swedish company in which B rejected on grounds that it was foreign; held: a foreign policy valid in every respect is a good tender
15. Licences
  1. Export licences: responsibility of S
  2. Mitchell Cotts and Co (Middle East Ltd) v Hairco ltd: import licenses are responsibility of B
16. Tender of documents
  1. S must tender BoL, insurance policy, docs required by custom and an invoice
  2. Borrowman, Phillips and Co v Free and Hollis: shipping docs had not been tendered so B rejected goods; S subsequently offered maize on board other ship, B rejected this. CoA => doctrine of election does not apply because B's contentions was that cargo was not in accordance with contract. Subsequent tender was good (but this case did not deal with tender of docs although difficult to see why it could not be applied)
  3. When must the documents be tendered?
    1. If the seller holds onto documents for a length of time after receipt, then his behaviour will be deemed unreasonabel
    2. Sanders v Maclean: S must take all reasonable measures to tender docs to buyer as soon as possible; Shipping documents must be tendered within a reasonable time and paid for on endorsement by the buyer
    3. Toepfer v Verheijdens Veervoeder Commissieurhandel: if delay in tendering docs, B is entitled to reject them
    4. Horst V Biddell: docs must arrive at least in time to discharge the goods on arrival
  4. Place of tender
    1. The Albazero: docs must be tendered, in absence of express provision, to B's place of business or residence
Seller's remedies
1. Action for price
  1. s49(1) SGA: S can sue B for price where property in goods has passed to B and he wrongfully neglects or refuses to pay for the goods
2. Damages for non-acceptance
  1. s50(1) SGA: S can sue buyer for damages for non-acceptance where he wrongfully neglects or refuses to pay for the goods. For CIF contracts, time for acceptance would be time when the docs should have been accepted by buyer.
Passing of property
1. s2(1): S agrees to transfer the property in the goods to the buyer for a money consideration called price
2. Rowland v Divall: a B who acquires goods from S who is not an owner of property can recover moneys paid on grounds of a total failure of consideration
3. Passing of property not related to delivery or possession
4. Insolvency: where property remains with the seller, the goods will not become part of pool to be distributed to buyer's creditors were B to become insolvent; S will be able to repossess goods
5. Loss or damage of goods: risk generally passes with property; risk of loss or damage will be borne by person who has property in goods BUT for CIF contracts, risk and property are not linked
6. Claim for payment of price: if prop has passed to B who refuses to take delivery of goods, S can sue for price (s49(1))
7. Number of possibilities for passing prop
  1. 1) property could pass when goods are placed on board the ship (on shipment, although unusual for CIF contracts)
    1. The Kronprinsessan Margareta: retention on BoL by S is likely to suggest that S intended to reserve right of disposal
  2. 2) prop could pass upon transfer of docs and payment of B to S
    1. The Glenroy: for most CIF contracts, prop passes this way
    2. Kwei Tek Chao v British Traders and Shippers Ltd: if goods are not in conformity with contract, prop would revest in S
  3. 3) prop could pass on tender of BoL even though B has not paid for goods if S has agreed to give credit to B
  4. 4) where goods form part of a bulk, prop can pass only when goods are ascertained
    1. Re Wait: B bought goods out of bulk, B paid paid S for goods but before they could be ascertained, S went bankrupt. Held: question of passage of property had to be determined on basis of the statute, according to which prop had not passed to B (s16 very unjust)
Passing of risk
1. s20 SGA: risk passes with property but not true for CIF contracts
2. Risk passes on shipment and property passes much later (when docs are tendered by B)
3. Mambre Saccharine Co Ltd v Corn Products Co Ltd: B in case of loss will get docs he bargained for and if policy is that required by contract and the loss is covered thereby, he will secure insurance money
4. C Groom Ltd v Barber: goods were lost before appropriation to the contract due to war. Insurance policy did not cover this. No right of action against carrier, B had to pay for goods against tender of docs
5. The seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
Duties of B
1. Payment against docs
  1. B cannot postpone payment until arrival of goods
  2. Mambre Saccharine Co ltd v Corn Products: docs were tendered to B 2 days after submarine sank ship carrying cargo; S knew but still tendered docs. Held: because all docs were in order, S could tender them to B. B will look to insurers to recoup their losses.
  3. Payment must be in currency agreed on and any fluctuation in currency is a S's risk
  4. Alan (WJ) and Co Ltd v El Nasr Export and Import Co: S can protect himself against currency fluctuations through express and unambiguous clauses in the contract
  5. Gill & Dufus v Berger: On production of all the relevant documents, providing they are all in order, that is to say they are conforming documents, the buyer must accept the documents and pay the seller
2. B to name port of destination
  1. B to inform S of port of destination before shipment is due
3. B to take delivery
  1. B must take delivery at port of destination + is responsible for unloading charges
4. Import licences
  1. B is responsible for obtaining any licences required for importing the cargo, unless parties have agreed otherwise in the contract
5. B is to pay customs and other duties at the port of arrival
Buyer's remedies
1. Right of rejection
  1. 1) Rejection of documents
    1. B can reject docs upon tender where S does not tender right docs or where docs are incorrect
    2. Kwei Tek Chao v British Traders and Shippers: S sold good to B, date of shipment was to be October 31, goods were not loaded until November 3. Goods accepted by Bs and passed on to sub-Bs who requested cancellation when discovering mistake. B brought action against S. Held: two rights of rejection; failure to reject goods on arrival did not extinguish right to claim damages for loss of right to reject docs.
  2. 2) Rejection of goods
    1. s13: B can reject goods if they do not match description
    2. s14: B can reject goods if they are not of satisfactory quality
    3. s15A: where breach is slight, may be treated as breach of warranty rather than breach of condition and so B cannot reject
    4. B must exercise his right to reject within a reasonable time, to be determined by taking into account existing circumstances

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	Created by Emilie Schou over 9 years ago