ISLAMIC UNIVERSITY IN UGANDA

ADDITIONAL NOTES ON INTERNATIONAL TRATE AND BUSINESS FOR LLB 3

Lecturer: F. Lubega

INTRODUCTION:

International sale of goods is governed by international commercial terms (INCOTERMS)

which were established by the International Chamber of Commerce (ICC) whose head office
is situate in Paris France. The ICC was found in 1919 after WW1 whose sole purpose was to
facilitate international trade1. Over time many commercial terms were developed right from
1919, to 2010 the latest version of INCOTERMS which are in use. It is important to note the
2020 INCOTERMS will be soon published.

The INCOTERMS version of 2000 were arranged into four groups that is to say,

E Group – (Ex Works)

F Group – (Free Carrier (FCA), Free Alongside Ship (FAS) and Free On Board (FOB)

C Group – (Cost and Freight (CFR) Carriage Paid to (CPT) and cost Insurance Freight (CIF)

D Group - - (Delivered at Frointier (DAF), Delivered Ex Ship (DES) Delivered Ex Quay

(DEQ)
Delivered Duty Unpaid (DDU), Delivered Duty Paid (DDP)

The 2010 Version of Incoterms divided the classes based on the mode of transport and these
included Ex W, FCA, CPT, CIP, DAT, DAT,
DAP and DDU. Those that can be only for inland waterway transport and sea are FAS, FOB,
CFR, and CFR, and CIF INVOYRTMD 2010 further introduce two terms that is DAT
(Delivered at Terminal) and DEP (Delivered at Place.2.

International Sale Contracts are essentially guided by the INCOTERMS contained in

abbreviations which majorly help in defining the obligations of the Seller and the Buyer as
regards the point of delivery, Procurement of transport documents, contract of insurance
among other obligations. The various INCOTERMS are thus discussed in the foregoing
analysis:

1. FREE ON BOARD (FOB)

Free On Board (FOB) contract has been used in international trade in Great Britain for
around two centuries and the term is not confined to sea borne commerce but it applies to the
carriage of goods by air, land or air 3.

N the case of Brown vs Hare4 Pollock C.B, while delivering the judgment of the majority held
that the meaning of the term @free on board” was that property was to pass to the
defendants when the goods were delivered on board. In that case the defendants refused to
pay the plaintiff’s because the goods had not reached them since they got lost on the ship, the
defendants argued that they were not liable for payment because the goods had not been
made delivered free on board as the contract stipulated.
If goods dealt with by the contract are specific goods it is not denied but the words ‘free on
board’ according to the understanding of merchants would mean more than merely that the
shipper was to put them on board at his expense; they would mean that he was to put them on
board at his expense on account of the person for whom they were shipped; and in that case
the goods so put on board under such a contract would be at risk of the buyer; whether they
were lost or not on the voyage. Now that is the meaning of those words ‘free on board’ in a
contact with regard to specific goods and in that case the goods are at the purchaser’s risk.5

BASIC PRINCIPLES OF FOB AS ESTASB LISHED BY JUDICIAL AUTHORITIES

ARE6.

1. The seller’s duty is to deliver the goods over the rails, the issue of bill of lading or
mate’s receipt is irrelevant to the issue of property and risk.
2. The buyer’s duty is to ensure that the seller is property notified as to the vessel to ship
the goods.
3. The buyer remains legal shipper of the goods; he is the main contracting party in the
contract of carriage.
4. Property and risk when the goods are taken over the rails of the ship.
5. When the risk passes, the means that the buyer has an insurance interest in the goods
and is entitled to insure them.

CATEGORISATION (VARIETIES) OF FREE ON BOARD (FOB) CONTRACTS.

The classification of the FOB contracts was approved and discussed in the numerous
cases PYRENE & CO v SCINDIA NAGIVATION CO. Ltd. Where in it as stated as
follows8.

A CLASSIC FOB;
The buyer nominated the ship and the seller put the goods on board for the account of the
buyer, procured a bill of lading. The sell was a party to the contract of carriage and if he
had taken the bill of lading to his order, the only contract of carriage to which the buyer
could become a party was that contained in or evidenced by the bill of lading which was
endorsed to him by the seller.

B. FOBWITHADDITIONALSERVICES.
Under this category, there is a variation form the ~Classic FOB in that the seller arranges
for the ship to come berth but the legal incidents are similar.
The FOB contract is a flexible instrument which allows the parties to agree to different
terms as they see fit9 meaning that the seller might offer to arrange the insurance for the
buyer or the buyer might agree to assist with the task of delivering the goods over the
ship’s rail.

Duties of the seller in FOB contracts 10

 To make available at the port of loading and to ship free on board goods answering in all
respects the description in the contract of sale.

Description of the goods does not only refer to statements made about the physical
condition of the goods, international trade it may also apply to the statement about where
the goods are to be delivered to. In the case of FOB contract this is synonymous with the
place of shipment.
Hence, where the seller defaults in sending the goods to the agreed, name port of
shipment, such seller commits a breach of a condition.
A port of delivery in FOB contract is a condition of the contract and in the case of
PETROGRADE INC VS STINNES GMBH 11, the defendants were entitled to refuse
delivery at a port other than the one specified in the contract.

The description attached to FOB term as to where the goods are to be delivered may
either refer to a specific port or several ports. Whatever the form of the description may
take, it must be certain and ascertainable.

Nomination or description is binding on both the sellers and the buyers and in the case of
MODERN TRANSPORT CO LTD V TERNSTORM & ROOS12.
it was held that the buyer had no right to demand that the seller delivers the goods to
another place other than the agreed port even though under FOB contract he has the right
to nominate the port of shipment generally.

The seller is duty bound to ensure that the buyer gets the goods to alongside the ship with
sufficient time to complete loading within the shipment period. While the court noted that
the buyers should co-operate within reasonable bounds with the loading to ensure that
shipment was within the contracted time, under the circumstances the seller was in breach
for the failing to ensure sufficient time for loading.

1. The seller to pay all handling & transport charges in connection with delivering the
goods to the port of loading to be taken over the ship’s rails.

The seller is generally responsible for the payment of handling and transport charges incurred
by the delivery of the goods to the ship. Furthermore, where he has undertaken to obtain the
relevant documentation for export on behalf of the buyer, he may be accountable for any
charge/fee incurred from obtaining relevant documentation and such documentation may
include certificates of origin, movement certificates etc. There are no general rules as to who
is directly responsible for the payment of these charges or the securing of the documentation
and in BRANDT & CO VS MORRIS & CO LTD 14., the court held the sellers had applied
for the export license but failed, the primary duty of obtaining the license rests with the
buyers who were the shippers.

2. To complete all declarations as required by customs.

Where the goods are from bond or under drawback, there are declarations that must be
completed. The seller under FOB contract is responsible in ensuring that these declarations
are properly made.

THE BUYER’S DUTY AS SHIPPER.

1. To fix the dates within the agreed shipment period when the goods are to be loaded.
Once the notice of readiness to load is properly given by the buyer, the seller must
comply with that date, failure to do so constitute a failure to deliver and in SK
SHIPPING VERSUS BP ENERGY (ASIA) PTE LTD) 15, It seems that where the
buyer was entitled under his FOB contract with the seller to serve a notice of
readiness to load, the notice must be compiled with.
2. To procure space on the vessel fit to carry the goods.
3. To allow the seller enough time to get the goods to port by issuing a valid nomination.
4. To make a second nomination substituting an earlier but unsuitable vessel proceeded
there is sufficient time left for loading and the seller is given good and reasonable.

3. FREE ALONGSIDE SHIP (FAS)

The seller’s task is naturally dependent nowhere the ship is barthed. Where it is berthed
by the quay or wharf, then all the seller has to do is to deliver the goods up to the ship’s
anchorage or so near thereto so that goods could be effectively loaded. On the other hand,
where the ship could not berth by the guay but is stationed at some point outside the quay
side, the seller’s duty is to ensure that the goods are placed on lighters and carried by
these lighters to the ship’s side at sea.

The buyer bears all costs and risks of loss or damage to the goods from the moment they
are delivered by the seller. Buyer clears all goods for export. The seller is responsible for
the loss or damage until the goods are delivered to the port as agreed. The buyer being
responsible from that point.

4. EX-WORKS
An ex works contract requires the seller to deliver the goods to the buyer at the place of
manufacture or storage of the goods, namely the seller’s factory or store.16

Under an ex works contract, the seller is duty bound to supply the goods in conformity with
the contract of sale and trade usage suggests that where documentation is used for the sale,
there must be proper documentation declaring that the goods are in conformity with the
contract.

Title and risk pass to the buyer including payment of all transportation and insurance costs
from the seller’s premises and as such assumes minimum risk. The seller is said to have
fulfilled obligation when the goods are placed at the disposal of the buyer.
DUTIES OF THE SELLER
 The seller places the goods at the disposal of the over at named place of delivery at
the agreed period.
 Provide suitable packing
 Help the buyer to procure documents obtainable in the country and which may be
required by the buyer.
 Must give the buyer sufficient notice and advise the buyer on the availability of
goods.

DUTIES OF THE BUYER

 Take delivery of goods as soon as they are placed at the disposal at the agreed time
and location.
 Clear the goods for export
 Bear the risks and costs of goods from the moment they are placed at the buyer’s
disposal

5. FREE ON RAIL

In free on railway contract, the seller is required to deliver the goods on board the rail. Thus
the seller has to bear all expenses up to and including shipment of goods on behalf of the
buyer. Once goods are put on board on rail, the property in goods passes to the buyer, who is
responsible for their freight, insurance and subsequent expenses and in the Indian case of
responsible for their freight, insurance and subsequent expenses and in the Indian case of
INDIAN STANDARD WAGON CO LTD VERSUS COMMERCISL TAX OFFICER &
ANOR, 17 the Indian High Court held that the property in the goods passed and the sale was
completed at Burnpore as soon as the delivery was effected. Under the t3erms the payments
were made in state of west Bengal so the tax assessment would have taken place there.

(a) Free On Board – FOB

FOB contract has been used in international trade in Great Britain for around two
centuries and the term is not confined to sea borne commerce but it applies to the carriage
of goods by air, land or air2.

In the case of Brown versus Hare3 Pollock C.B while delivering the judgement of the
majority held that; the meaning of the term “free on board” was that property was to
pass to the defendants when the goods were delivered on board”. In that case the
defendants refused to pay the plaintiff’s because the goods had not reached them since
they got lost on the ship, the defendants argued that they were not liable for payment
because the goods had not been made delivered free on board as the contract stipulated.
If goods dealt with by the contract are specific goods it is not denied but that the words
‘free on board’ according to the understanding of merchants would mean more than
merely that he was to put them on board at his expense on account of the person for
whom they were shipped; and in that case the goods so put on board under such a
contract would be at risk of the buyer; whether they were lost or not on the voyage. Now
that is the meaning of those words ‘free on board’ in a contract with regard to specific
goods and in that case the goods are at the purchaser’s risk.4

Basic principle of FOB as established by judicial authorities are5.

1. The seller’s duty is to deliver the goods over the rails, the issue of bill of lading or
mate’s receipt is irrelevant to the issue of property and risk.
2. The buyer’s duty is to ensure that the seller is properly notified as to the vessel to ship
the goods.
3. The buyer remains the legal shipper of the goods, he is the main contracting party in
the contract of carriage.
4. Property and risk pass when the goods are taken over the rails of the ship.
5. When the risk passes, this means the buyer has an insurance interest in the goods and
is entitled to ensure them.

The FOB contract is a flexible instrument which allows the parties to agree to different
terms as they see fit 6 meaning that the seller might offer to arrange the insurance for the
buyer or the buyer might agree to9 assist with the task of delivering the goods over the
ship’s rail.

Duties of the seller in FOB contracts

1. To make available at the port of loading and to ship free on board goods answering in
all respects the description in the contract of sale.

Description of the goods does not only refer to statements made about the physical
condition of the goods, international trade it may also apply to the statement about where
the goods are to be delivered to. In the case of FOB contract this is synonymous with the
place of shipment. Hence, where the seller defaults in sending the goods to the agreed,
named port of shipment, such seller commits a breach of a condition.

A port of delivery in FOB contract is a condition of the contract and in the case of
Petrogrde Inc v Stinnes GmbH, the defendants were entitled to refuse delivery at a port
other than the one specified in the contract.

The description attached to FOB term as to where the goods are to be delivered may
either refer to a specific port or several ports. Whatever the form of the description may
take, it must be certain and ascertainable.

Nomination or description is binding on both the sellers and the buyers and in the case of
Modern Transport Co Ltd v Ternstorm & Roos, it was held that the buyer had no right to
demand that the seller delivers the goods to another place other than the agreed port even
though under FOB contract he has the right to nominate the port of shipment generally.

The seller is duty bound to ensure that the buyer gets the goods to alongside the ship with
sufficient time to complete loading within the shipment period and in the case of Russian
Co-operative Society Ltd versus Benjamin Smith & Sons 10, the seller was only able to
get the goods to the ship 15 minutes before expiry of the shipment period. While the court
noted that the buyers should co-operate within reasonable bounds with the loading to
ensure that shipment was within the contract time, under the circumstances the seller was
in breach for the failing to ensure sufficient time for loading.

2. The seller to pay all handling and transport charges in connection with delivering the
goods to the port of loading to be taken over the ship’s rails.

The seller is generally responsible for the payment of handling and transport charges
incurred by the delivery of the goods to the ship. Furthermore, where he has undertaken
to obtain the relevant documentation for export on behalf of the buyer, he may be
accountable for any charge / fee incurred from obtaining relevant documentation and such
documentation may include certificates of origin, movement certificates etc. There are no
general rules as to who is directly responsible for the payment of these charges or the
securing of the documentation and in Brandt & Co versus Morris & Co Ltd.11, the court
held the sellers had applied for the export license but failed, the primary duty of obtaining
the licence rests with the buyers who were the shippers.

3. To complete all declarations as required by customs.

Where the goods are from bond or under drawback, there are declarations that must be
completed. The seller under FOB contract is responsible in ensuring that these
declarations are properly made.

4. The seller must ship the goods in time. As in fob sale, the buyer is supposed to make
arrangements for shipping the goods to their destination. The seller is therefore not
under duty to ship the goods not until after he has received d instructions from the
buyer. Once instructed the seller is bound to ship the goods within the shipping period
stated. In this contract the buyer is given time to fix the time for shipment.

Where such option exists the buyer has to inform the seller early enough on the arrival of
the shipment so that the seller meets his contractual obligation.

5. The seller also has the duty to inform the buyer to insure the goods or shipment during
the sea transit. If the seller fails to do so then goods are at his risk during transit.

The buyer’s duty as shipper under FOB

 1. To fix the dates with in the agreed shipment period when the goods are to be loaded.
Once the notice of readiness to load is properly given by the buyer, the seller must
comply with that date, failure to do so constitute a failure to deliver and in SK
shipping versus BP Energy (Sia) pte ltd 12 it seems that where the buyer was entitled
under his FOB contract with the seller to serve a notice of readiness to load, the notice
must be complied with.

2. To procure space on the vessel fit to carry the goods.

3. To allow the seller enough time to get the goods to port by issuing a valid nomination
of the vessel and the date the vessel will be ready to collect.

4. To make a second nomination substituting from an earlier booked vessel but

unsuitable vessel provided there is sufficient time left for loading to the seller who is
to be given good and reasonable time that the buyer intends to exercise his right of
extension. Although

5. Payment of the price. The buyer is under duty to pay the price for the goods in accordance
with the contract ‘generally. The contract makes express provision as to how and when
payment is to be effected for example payment of cash against documents or payment by
banker’s documentary credit.

(b) Free Alongside Ship – FAS

The seller’s task is naturally dependent nowhere the ship is berthed. Where it is berthed
by the quay or wharf, then all the seller has to do is to deliver the goods up to the ship’s
anchorage or so near thereto so that goods could be effectively loaded. On the other hand,
where the ship could not berth by the quay but is stationed at some point outside the quay
side, the seller’s duty is to ensure that the goods are placed on lighters and carried by
these lighters to the ship’s side at sea.

The buyer bears all costs and risks of loss or damage to the goods from the moment they
are delivered by the seller. Buyer clears all goods for export. The seller is responsible for
the loss or damage until the goods are delivered to the port as agreed, the buyer being
responsible from that point.

(c) EX- WORKS

An ex works contract requires the seller to deliver the goods to the buyer at the place of
manufacture or storage of the goods, namely the seller’s factory or store.13
 Under an ex works contract, the seller is duty bound to supply the goods in conformity
with the contract of sale and trade usage suggests that where documentation is used for
the sale, there must be proper documentation declaring that the goods are in conformity
with the contract.

Title and risk pass to the buyer including payment of all transportation and insurance
costs from the seller’s premises and as such assumes minimum risk.

The seller is said to have fulfilled obligation when the goods are placed at the disposal of
buyer.

Duties of the Seller under Ex-works

1. The seller places the goods at the disposal of the buyer at a named place of delivery
could be warehouse or factory and it is to be done at the agreed period.
2. Provide suitable packing
3. Help the buyer to procure documents obtainable in the country and which may be
required by the buyer
4. Must give the buyer sufficient notice and advise the buyer on the availability of
goods.

Duties of the buyer under ~Ex-Works

1. Take delivery of goods as soon as they are placed at the disposal at the agreed time
and location.
2. Clear the goods for export
3. Bear the risks and costs of goods from the moment they are placed at the buyer’s
disposal.

OR EX – WORKS
Ex – works sale: is the most favourable arrangement which can be obtained by a seller
desirous of conducting an export transaction as closely as possible on the lines of an ordinary
sale of goods in the home market.
The contract should specify; where appropriate, which party is responsible for loading the
goods onto any vehicle sent by the buyer. The goods will, where applicable, need to be
identified to the contract before they can be so delivered, i.e. where the contract is, at
formation, one for the sale of unascertained goods. Provides that the seller bears all risks of
loss of or damages to the goods until such time as they have been placed at the buyer’s
disposal. The provision follows the standard Inco terms scheme, i.e. that risk normally passes
from seller to buyer when the seller has performed his required act of delivery – replicating
the approach of the Vienna Convention on Contracts for the International trade.

It follows that, prima facie, the seller has no liability for damage to or loss of the goods post-
delivery. The seller will only be liable in the case where, independently of this provision in or
parallel provisions in the contract or the applicable law, the seller can be made legally liable
for loss or damage. Such might be the case, for instance, where any required packaging is
inadequate and such a deficiency in performance amounts to breach of contract, and this
breach of contract, and this breach causes damage or loss Also, the fact that the risk passes
cannot excuse the seller from liability for a non-conformity as between goods and contract
would be a breach.

B5) The buyer, that is, cannot delay performing his obligations by refusing to give the
required notice. If he does so delay, he is liable for t he risks and costs pertaining to the
goods.

The seller must assist the buyer to obtain export or import clearance (but at the buyer’s
expense (but consistently with Ex W. Scheme, the buyer must obtain at his own risk and
expense any export licence. The arrangement of carriage from the seller’s premises is of
course a burden on the buyer. The buyer must take delivery. The seller bears the costs, up
until the time they are placed at the buyer’s disposal, after which time the buyer has this
burden. As in the case of the risks, delivery is the pivotal point for dividing costs. The buyer
must pay additional costs generated by his failure to take delivery when it is duly made, or his
failure to give any notice required. An obvious instance of additional costs would be storage
costs.

The buyer is to give the seller a receipt upon taking delivery. The buyer is responsible for any
pre-shipment inspection of the goods including inspection mandated by the authorities of the
country of exportation. On the other hand, the seller is responsible for the routine checking
operating (e.g. checking quality and weighing) which are necessary for the purpose of
delivering the goods to the buyer.

(d) Free On Rail –FOR

Free on Rail contract term is no longer used in International trade though still use when the
seller is required to deliver the goods on board the rail or to the railway station at the rail
wagon.

Thus, the seller has to bear all expenses up to and including shipment of goods on behalf of
the buyer where the goods are to be placed on rail. Delivery of the goods to the rail would be
by truck or vehicle. Once goods are put on board on rail, the property in goods passes to the
buyer, who is responsible for their freight, insurance and subsequent expenses.

In the Indian case of Indian standard wagon Co Ltd versus Commercial Tax Officer &
Anor 14 the Indian High Court held that, the property in the goods passed and the sale was
completed at Burn pore as soon as the delivery was affected. Under the terms, the payments
were made in state of west Bengal so the tax assessment would have taken place there.

In general, it implies that that consideration is towards free movement, charge, board,
passing, insurance, packaging, damage, in case of loss of the goods, period for delivery as
well as transportation of the good to the rail are paid by the seller, the buyer pays no costs
until when the goods are loaded on rail wagon.

This mode is especially used for goods which are heavy and not perishable, like steel product,
construction materials like tile, crude oil amongst others.

In conclusion, all these incoterms have different roles that they play in International Trade
contracts/ transactions though they mostly vary from the nature of goods in the contract as it
dictates on the nature of transport to be used.

CARRIAGE BY SEA
Carriage by sea refers to the transportation of goods using 1. The exporter is obliged by the
contract of sale with th4e overseas buyer, to arrange for the carriage of goods by sea to the
place of destination. The exporter has to conclude a contract of carriage with a ship owner
where by the latter undertakes to carry the goods in his ship from the exporters port if
dispatch to the overseas port of destination. This contract is known as the contract of carriage
by sea or contract of affreignment2)

The remuneration to be paid to the ship owner is the freight, the ship owner is the carrier, and
the exporter as a party to the contract of carriage by sea is referred to as a shipper.

The exporter has to decide whether the quantity of goods to be exported warrants the charter
if a complete ship; in this case the terms of the contract of carriage are embodied in a
document called the charter party 3 which is a special contract between the ship owner and
charter for carriage of goods by sea.

In most cases however the goods form only part of the intended cargo of the ship: they are
carried in the ship together with goods belonging to the shippers here the terms of the
contract of carriage are evidenced by a document called bill of lading which in effect is the
re3ceipt by the ship [owner acknowledging the goods have been delivered to him for the
purpose of carriage4. The bill of lading is a contract of carriage between the carrier 5 (an
individual or organization such as a ship owner that contracts to transport goods for a fee and
the consignee6 (one to whom goods are consigned negotiable instrument is transferred by
endorsement) the actual contracts of carriage are as a rule made by the ship owner and the
master when he issues the bill of lading.

CARRIERS LIABILITY

The carrier will be responsible in contract to whoever engages his services. Every consignee
of goods named in the bill of lading and every to endorsee of the bill of lading to lading to
whom the property in the goods therein mentioned shall pass upon or by reason of such
consignee or endorsement, shall have transformed to and vested him all rights of suit, and be
subject to the same liabilities in respect of such goods as if the contract contained in the bill
of lading had been made with himself.

The carrier also contracts contractual liability under the Rule in Brandt v Liverpool Steam
Navigation Co8 consignees of goods delivery of which had been delayed by the carrier’s
breach, sought damages. Court of Appeal held that a contract could be implied from the fact
that the plaintiff had presented the bill of lading to the carriers and paid the freight. The terms
of this implied contract were those of the bill itself.
The endorsee of the bill of lading substantially in the same position as though he came under
the Bill of Lading Act.

In an attempt to unify or harmonize the law relating to the carriage of goods by sea, The
Hague Convention of 1922 – 24 establish a body of rules to be incorporated into domestic
law by the various signatories to the convention. The amended provisions are known as The
Hague-Visby ~Rules 1968.

Application of The Hague –Visby Rules

There are two basic situations in which the Rules will apply:

a) The use of certain kinds of documentation can be decisive that is to say bill of lading
if the contained in or evidenced by it is a contract for the carriage of goods by sea
which expressly provides that the rules are to govern the contract, it is sufficient that
the contract provided for it.

b) The second type of document is any receipt which is a non-negotiable document

marked as such if the contract contained in or evidenced by it is a contract for the
carriage of goods by sea which expressed provides that the rules are to govern the
contract, it is sufficient that the contract provides that the rules are to govern the
contract it is sufficient that the contract provides for it,

In Pyrene v Scindia Navigation9 no bill of lading was in the event issued since the
goods were damaged during loading and never shipped, Nevertheless the Rules
applied.

If a different type of document of title is issued, it must be similar to a bill of lading. In Hugh
Mack & Co Ltd v Laird Livies Ltd 10 a carrier issued a non-negotiable receipt. The Court of
Appeal held that even if this were a document of title it was not similar to a bill of lading.

Article X of the Hague – Visby Rules 1968 provides :- The provision of these Rules shall
apply to every bill of lading relating to the carriage if goods between ports in two different
states, if;

a) The bill of lading is issued in a contracting state or

 b) The carriage is from a port in a contracting state or
c) The contract contained in or evidenced by the bill of lading provides that these Rules
or legislative of any state giving effect to them are to govern the contract. On the
other hand, it will not apply if the contract expressly incorporates the Rules unless the
carriage is between two different states.

Scope of Hague – Visby Rules 1968

The Rules apply to contract for the carriage of goods by Sea from the time when the goods
are loaded on the time they are discharged from the ship 11,

Carrier’s liability under The Hague – Visby Rules.

Article 1(a) 12 defines a carrier term include the owner or charterer who enters into a contract
of carriage with the shipper. The identity of the carrier is normally established on the basis of
the bill of lading or other documents 13. Where there is a voyage charter party or time charter
party, the bills of lading are signed by the master on behalf of the ship owner. In this
circumstance the ship owner would be deemed the carrier who enters into the contract of
carriage with the shipper14, there may be situations where the charter issues the bill of lading
in his own name here the charter will be regarded as the principal and hence liable on the
contract if carriage.

Duty provide a seaworthy ship

The carrier under the Rules15 is under an obligation before and at the beginning of the voyage
to:

a) Make the hip seaworthy;

b) Property man, equi and supply the ship; and

Make the holds, refrigerating and cool chambers and all other parts of the ship which the
goods are carried fit and safe for their reception, carriage and preservation.

In Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd 16 shortly before
the vessel was due to sail, an officer of the ship ordered and supervised the thawing of a
frozen drain pipe with an oxyacetylene torch. This started fire in the cork insulation of the
ship, and the master had to scuttle the ship. During the scuttling operation, the appellant’s
cargo was lost. The respondent relied on the exception relating to fire in Article IV (2) (b)
and argued that they were not liable for the lost goods since the fire didn’t result from their
actual fault, further on the construction of Article 111(1) the obligation to exercise due
diligence to make the ship sea worthy arose at commencement of loading and at
commencement of the voyage. The privy Council dismissed this contention Lord Somervell’s
held that the seaworthiness requirement is an overriding obligation if it is not fulfilled and the
non-fulfilment causes the damage the immunities of Article IV cannot be relied on. The court
further indicated that the obligation of seaworthiness is a continuous one covering the period
from the beginning of the loading until thge vessel starts on her voyage

Due diligence

Due diligence was considered in River Stone Meat Co v Lancashire Shipping Co 17.
The defendants put their ship into dry dock for repair and overhaul prior to sailing. They
employed a reputable firm repairer and also engaged the services of an experienced and
competent marine superintendent. This gentleman caused the ships storm valves to be opened
for inspection. Owing to the carelessness of one of the repairer’s filters, one valve was
improperly closed and water entered the hold during the voyage and the plaintiff’s goods
were damaged. Lord Radcliffe held that the defendants having apparently competent agents
had exercises the amount of care required at common law. Nevertheless he decided that the
common law standard was inappropriate when considering liability under Article 111(1) . In
his opinion the key question was whether the unreasonableness is due to lack of diligence in
those who have been implicated by the carriers in the work of keeping or making the vessel
seaworthy. The obligation is to use due diligence to make the ship seaworthy, not to use due
diligence in the selection of others who appear competent to fulfil this test. The carrier is only
liable for the acts of those who be acting on his behalf and when the ship is under his control.

Seaworthiness is not defined in the Rules However Lord Wright in Smith Hogg & Co. V
Black Sea and Baltic General Insurance Co18 said that in order to be seaworthy, ship must be
reasonably fit to carry the particular cargo on the particular voyage contemplated in the
contract of carriage. Thus not only must the vessel be sufficiently robust to withstand the
exigencies which that voyage might entail. The crew must also be adequate to the task both in
umbers and competence and the ship must be reasonably fitted to receive and carry cargo.

Cargo management

The carrier is under an obligation to properly and carefully load, handle, stow, carry, keep,
care for discharge the goods carried 19. In Albacora SRL v Westcott & Laurance Line 20
the cargo consisted of wet salted fillets of fish for carriage from Glasgow to Genoa. The fish
deteriorated because of bacterial action. The fish has been stored away from the boilers on
instructions from the shipper. The cargo was not stored in refrigerated compartments. The
courts had to consider whether the carrier had carried the goods properly in accordance with
Article 111(2). The House of Lord came to the conclusion that the carrier had fulfilled the
obligations required of him under Article 111(20). Lord Reid stated that properly means in
accordance with a sound system or in an appropriate manner in the light of all the knowledge
that the carrier has or should have about the nature of the goods. It is tantamount to providing
an efficient system and did not require the carrier to provide a system suited to all the
weaknesses and idiosyncrasies of a particular cargo.
Article 111(2) is generally taken to impose a continuous obligation to take care from tackle
on the presumption that the carrier has undertaken to load and discharge the goods. Where the
duties of loading and discharge have been valued expressly by contract the period if
responsibility from the time the goods have come under the charge of carrier21

Documentary responsibilities

Article 111(3) provides that the carrier is under an obligation on demand by the shipper to
issue a bill of lading that contains among other things the leading marks necessary for the
identification of the goods, the number of packages or pieces, the quantity or weight of the
goods and the apparent order and condition of goods. The right to demand the issue of this
document exist in favour if the shipper and does not extend to the consignee or the endorsee.

The statements made on the bill of lading are regarded as primafacie evidence of the goods
as described according to Article 111(4), proof to the contrary may be provided by the carrier
while the bill of lading is in the hands of the shipper however where the bill has been
transferred to a third party acting in good faith the carrier cannot submit proof to the contrary.

Carriers’ immunities

Unseaworthiness.

The carrier is not liable for loss of or damage that is a consequence of unseaworthiness as
long as he has exercised due diligence to make the ship seaworthy (Art IV (1) , however the
exercise of due diligence has been construed to be personal to the carrier whereby he is liable
for the negligent acts of his servant, agent or independent contractor he have employed to
put the ship into a seaworthy state, in these circumstances this provision seems to give
protection only against latent defects in the ship not discoverable on a reasonable
inspection.22
Negligence in navigation or management of the ship.

The carrier is not liable for loss of damage to the goods as a result of the master, Mariner or
the servants of the carrier in the navigation or management of the ship (Article IV(1((a). Fault
in the navigation of the ship has been construed as applying to situations where because of
the negligent act on the part of the master or crew to vessel has been ground o has collided
with another vessel23.

Fire

The carrier under Article IV (2) (b) is excluded from responsibility for loss or damage arising
or resulting from fire, unless caused fault or privity on the carrier 24.
The courts have defined fire to mean a false and not merely heat. So, mere heating, which has
not arrived at the of incandescence or ignition, is not regarded a fire, according to Tempus
Shipping Co v Louis Dreyfus ([1930 1 KB 699 in the event of loss or damage due to fire, if
the operative cause is a failure to exercise due diligence it makes the ship seaworthy in the
part of the carrier, this exception will not be available to a carrier. In Maxine Footwear Co
Ltd v Canadian Merchant Marine 25 the carrier could not invoke Article IV (2) (b) when we
Argo was last because of a fire caused by oxyacetylene torches used for thawing frozen pipes.

If fire is caused by the actual fault or privity of the carrier, he is not protected from liability
under this exception. According to Lennards Carrying v Asiatic Petroleum 26 the negligent
act of the individual will be ascribed to the company only where he stands in an extremely
special relationship to be company-a relationship where it would be natural to say the person
acts an speaks as the company in other words to make the company liable the negligent act
must be the act of the individual who is the directing mind or the brain of the company where
the carrier doesn’t supervise the work if his employees adequately then it seems accordingly
to The Marion 27 that it would be regarded as actual fault or privity of the carrier.

Perils of the sea

The carrier is not liable for loss or damage to the goods where it has occurred due to the
perils, dangers and accidents of the sea or other navigable waters Article IV (2) (c) common
law has interpreted the phrase perils of the sea to refer to any damage that has been caused by
storms, seawater, collision, stranding and other perils that are peculiar to the sea or to a ship
at sea that could not have been avoided by the exercise of reasonable care. This exception
only refers to perils encountered at sea 28. Article IV (2) (c) however extends the perils
exception to it her navigable waters, which would include rivers and other inland waters,29.

Act of God

The carrier is not liable for loss or damage to the goods that has resulted from an act of God
Article IV (3) (d). At common law this has been prevented by the exercise if foresight and
reasonable precaution in Nugent v Smith 30 the death of horse through injuries received in a
storm was held to be an act of God which the carrier was unable to prevent by taking
reasonable measures.

The carrier is not liable for loss or damage that is a consequence of the following under
Article IV (2) of Hague Visby Rules 1968 as follows.

(e) Act of war.

(f) Act of public enemies
(g) Arrest or restraint of prices, rulers or people, or seizure under legal process.
(h) Quarantine restrictions.
(i) Act or omission of the shipper or owner of the goods, his agent or representative.
(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial
or general.
(k) Riots and civil commotions.
(l) Saving or attempting to save life or property at sea.
(m) Wastage in bulk of weight or any other loss or damage arising from inherent defect,
quality or vice of the goods.
(n) insufficiency for inadequacy of marks.
(o) insufficiency or inadequacy of marks

Shipper’s duties

Delivery for loading

According to Article 1(e) the carrier’s responsibilities for the goods stet from the time when
the goods are laded which suggests that the shipper ha to bring the goods alongside the ship
however according to the judgment in Pyrene v Scindia Navigation Ltd 31 the parties are free
to determine the role each is going to play in the contract of carriage. Where such
arrangements are made the extent of the rights and obligations between the parties will be
considered under the general principles of contract law.
Shippers guarantee

The shipper is deemed to have guaranteed to the carrier at the time of shipment the accuracy
of the marks, numbers, quantity, quality and weight provided by him. Where the carrier
incurs loss, damage and expenses as a consequence of the inaccuracies of the particulars, the
carrier has a right of indemnity against the shipper Article III (5)

Dangerous goods

Article IV (6) provides that where goods of an inflammable explosive or dangerous nature are
shipped without the consent of the carrier the carrier is at liberty any time before discharge to
land then at any place or destroy or render the goods innocuous in the event to such action on
the part of the carrier, he is not liable to pay any compensation to the shipper. The shipper
will be liable for all damage arising directly or indirectly as a result of such shipment. Brass v
Maitland (1856).

No fault

The shipper will not be held responsible for the loss or damage that is sustained by
The carrier or the ship arising or resulting from any cause without the act, fault or neglect of
the shipper, his agents or the servants this is under Article (IV)(3) of the Rules.

THE HAMBURG RULES

The Hamburg Rules are also known as the United Nations Convention on the Carriage of
Goods by sea of 1978 which came into force in 1992 and Uganda is also signatory. This
convention exists alongside two other conventions; The Hague Rules and The Hague – Visby
Rules.

During the 1969s the existing conventions came under increasing criticisms from the under
development countries, who believed that the stated objective of protecting the cargo owner
from the consequences of unequal bargaining power had not been achieved this resulted in
the United Nations Convention on the Carriage of, Goods by Sea of 1978, based in the
ground work done by UNCTAD(United Nations Conference on Trade and Development
established in 1964) and UNCITRAL (United Nations Commission on International Trade
Law) established in 1996.

The regime of the carrier liability under the Hamburg Rules is far more stringent than that if
The Hague Rules or Hague- Visby Rules and appears to be tipped in favour of the cargo
owner. The rules are more of a self-contained code than the other two conventions since
among others they include specific provision on jurisdiction, arbitration and the carriers right
to freight and demurrage.

Scope of application

The Hamburg Rules is gathered from Article 2 dealing with the range of voyages and the
kinds of contract or carriage, Article 4 dealing with the period of coverage but an Article 9
dealing with the types of cargo. Unlike The Hague – Visby Rules the operation of the
Hamburg Rules is not dependent on the issue of bill of lading or similar document of title.
According to Article 2(1) the provisions are applicable to all contracts of carriage therefore
the Hamburg Rules apply to the bill of lading waybill, short sea notes and other contracts of
carriage.

The Hamburg Rules do not apply to charter parties unless the no; of lading are issued
pursuant to a charter party Article 2(3) accordingly the rules are applicable only where

(a) The bill of lading is issued to the shipper who is not the charterer it
(b) Where the bill of lading issued under a charter party to the charterer is subsequently
endorsed by him to a third party in other words the question or whether the Hamburg
Rules apply to a bill of lading issued under a charter party is to be determined in terms
of the identity of the holder.

Kinds of cargo
 The Hamburg Rules govern all kinds of cargo unlike The Hague – Visby Rules which
exclude live animals and deck cargo.
Deck cargo: under Article 9 of the Hamburg Rules the carrier is entitled to carry the
goods on deck only if such carriage is in accordance with an agreement with the shipper
or with usage of the particular trade or is required by statutory rules and regulations.
Where tell carrier and the shipper have agreed the goods shall or may be carried on deck,
the carrier must insert in the bill of lading or other document evidencing the contract of
carriage by sea, a statement to that effect.

Live animals
As to live animals the Hamburg Rules under Article 1(5) have gone further taun Hague –
Visby Rules in making their carriage subject to them.

The Carrier

The Hamburg Rules make a distinction between the carrier and the actual carrier which were
introduced to simplify the process of identifying the arty against whom proceedings are to be
brought to tat the difficulties encountered by the claimant under The Hague – Visby Rules
could be avoided.

a) Carrier: a carrier under Article 1 of the Rules is any person by whom or in whose
name a contract is a carriage of goods by sea is concluded with he shipper, this would
include the ship owner, the charterer, the freight forwarder, or any transport operator
who has entered into the contract is carriage.
b) Actual carrier: According to Article 1 of the Hamburg Rules is any person by whom
the performance of the carriage if the goods or part of the carriage has been entrusted
by the carrier and includes any other person to who9m such performance has been
entrusted.
Though Rules draw a distinction between the carrier and actual carrier for purposes of
liability the contracting carrier remains liable for the omissions of the voyage under
Article 10 of the Rules. The carrier is therefore liable for acts and omissions of the
actual carrier and of his servants and agents acting within the scope if their
employment in relation to the carriage.

Carriers duty

Issue of a bill of lading under Article 14(1) of the Rules once the Carrier or the actual carrier
or the actual carrier takes charge of the goods, he must on demand by the shipper issue a bill
of lading to the shipper the right however doesn’t extend to the consignee or the endorsee of
the bill of lading. The bill may be signed by the master and where the master signs the
documents he is deemed to have signed it on behalf of the carrier.
Where the shipper demands a shipped bill of lading the carrier is under an obligation to issue
such a document under Article 15(2) if the carrier has previously issued a bill of lading to the
shipper, the shipper must surrender the document in return for the shipped bill of lading.

Carriers liabilities

The Hamburg Rules adopted a different formula from that of The Hague Visby Rules for
determining carrier liability. The rules introduce a uniform test of liability based on presumed
fault.

a) The carrier is liable for loss, damage or delay in delivery while goods are in his
charge unless he/ his servants and agents took all reasonable measures that they could
reasonably be required to in order to avoid the occurrence and its consequences
Article 5(1) of the Rules.

b) The carrier is liable for a maximum of 835 Special Drawing Rights per package or
other shipping unit or 25 SDRs per kilogramme gross weight of goods loss or
damaged Article 6(1)(a). This amount is for above that set by The Hague – Visby
Rules. This amount payable by the carrier must not be greater that the total freight
payable under the contract of carriage by sea Article 6(1) (b)

c) The carrier loses the right to limit liability if it’s proved that the loss, damage or delay
in delivery was a consequence of any act or omission of the carrier done with the
intent to cause loss, damage or delay or recklessly and with knowledge that such loss,
damage or delay would probably result Article 8(1) this applies equally to servants or
agents of the carrier Article 8(2).

d) The carrier is to compensate if the claimant suffers losses due to the inclusion of
stipulations that are null and void.

e) The carrier is to compensate if the claimant incurs losses as a result of a failure to

include a statement that the contract is subject to the Hamburg Rules Article 16(2)

Carriers immunities

a) The carrier is not liable for loss, damage or delay in delivery due to special risks
inherent in the carriage of live animals as long as all instructions have been complied
with Article 5(5)
 b) The carrier is not liable for loss, damage or delay in delivery due to fire, unless the
claimant can show that the fire arose from the fault or neglect of the carrier, his
servants or agents Article 5(4)

c) The carrier is not liable for loss, damage or delay in delivery cue to measures taken to
save life, or from reasonable measures to save property at sea Article 5(6)

d) The carrier is not liable for loss, damage or delay in delivery which takes place when
the goods are in charge of a carrier, provided this is explicitly stated in the document
of carriage. The burden is on the carrier into establish that the event occurred while in
the actual carrier’s charge Article 11(1)

Shipper duties / responsibilities

The Hamburg Rules impose a number of responsibilities concerning the nature and details of
the cargo on the shipper. These include:

a) Accuracy of particulars; under Article 17(1) the shipper is deemed to have guaranteed
to be carrier the accuracy of particulars provided by him regarding the general nature
of goods that is (a) details about marks, (ii) number (iii) weight and quantity that are
inserted in the bill of loading where the details provided are in accurate and as a result
of which the carrier suffers losses, the shipper must indemnify him for the losses
suffered the shippers duty to indemnify subsists even where the bill of lading is
transferred to a consignee or endorsee.

b) Dangerous goods; where the shipment consists of dangerous goods, the shipper is
under an obligation to inform the carrier or actual carrier on the dangerous nature of
the goods and the precautions that need to be taken in relation to the goods. Under
Article 13(1) the shipper is required to mark or label these goods in a suitable manner,
and where the bill of lading is issued the particulars about the dangerous nature of the
goods must be included in the document. Under Article 13(2) the shipper is to
indemnify caused by the failure to inform of the dangerous nature of any goods.

c) Undertaking to indemnify the carrier: in practice shippers generally require clean bill
of lading from the carrier even though he may have had no reasonable means of
checking the accuracy of the information entered by the shipper in the bill of lading.
A carrier may however agree to issue a bill of lading with no reservations on an
understanding from the shipper that he will indemnified should be suffer any loss as a
result of issuing such a bill. Such agreements are valid between the carrier and the
shipper provided that carrier has no intention to defraud a third party under Article
(17)(2) of the Rules.
DISCUSSION CIF CONTRACTS

It must be noted that CIF is perhaps one of the most popular terms used in international sale
contracts where sea carriage is envisaged.1 it is a Lord Wright observed in the case of Ross
T. Smyth & Co. Ltd vs TD Bailey, Son and Co.2 as;

“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
transactio9ns, in value amounting to untold sums, are carried out under CIF
contracts”.

What is a CIF Contract?

CIF stands for Cost, Insurance and Freight. The price of goods in CIF contracts is inclusive
of Freight (Consideration, reward payable in respect of carriage of cargo from loading point
to Point of discharge). And insurance costs to the destination specified by the contract.

A CIF contract as stated by Scrutton J. In the case of Arnold Kaberg Vs. Blythe, Green,
Jourdain and Co.3.

“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 (pg.
388)”

CIF contracts are generally attractive to both the seller and the buyer. As far as the seller is
concerned, he can charge a higher price taking into account the extra services – that is,
obtaining shipping space and insurance – he 9seller) provides.
The seller margin of profit in a CIF contract could be substantially higher than in an FOB
(Free on Board Contract) since he may be able to obtain reasonable rates for Freight and
Insurance depending on the prevailing economic conditions. The seller usually gets paid for
the goods before their arrival at destination, since payment for goods i n CIF Contracts often
takes place when the documents (i.e. invoice, insurance policy and Bill of Lading) are
tendered to the buyer, or to the bank in the event of a deo9cumentary credit arrangement like
issuing and receiving bank, between the Seller /Exporter/Consigner, Shipper and the Buyer /
importer, Consignee, Receiver.

However, it must be noted that, payment does not always take place against tender of
documents. The parties may have agreed to defer payment credit- e.g. providing for payment
for 90 days from the date of Bill of Lading. The attractiveness of a CIF contract as far as the
buyer is concerned, it that he does not have to undertake the task of finding shipping space or
insurance, which may be all the more difficult i n a foreign country due to an unfamiliarity
with local business practices.
The CIF Contracts have also been judicially defined in a number of cases
(See Ireland. Vs Livingstone 4) Biddell Bros. Vs Clemens Host Co. 5. Ross T. Smyth & Co.
Ltd. Vs TD Bailey, Son & Co.6 The best definition provided in modern times is perhaps that
of Lord Alkinson in the case of Johnson, vs Taylo Bross. 7 who described and a CIF contract
as follows: -

“when a vendor and a purchaser of goods.... enter into CIF contract...... the vendor in
the absence of any special provision to the contrary is bound by his contract to do (the
following) First, to make out an invoice of the goods sold.

Secondly, to ship at the port of shipment goods of the description contained in the
contract.

Thirdly, to procure a contract of affreightment under which the goods will be

delivered at the destination contemplated by the contract.

Fourthly, to arrange for an insurance upon the terms current in the trade which will be
available for the benefit of the buyer,

Fifthly, with all reasonable dispatch to send forward and tender to the buyer these
shipping documents, namely, the invoice, bill of lading and policy of assurance,
delivery of which to the buyer is symbolic delivery of the goods purchased, placing
the same at the buyer’s risk and entitling the seller to payment of their price.....if no
place be named in the CIF contact for the tender of the shipping documents they must
prima facie be tendered at the residence or the place of business of the buyer.”

It should be noted that, the above definition is of what may be called a standard CIF
contract. According to Lord Alkinson’s definition, the seller is required to ship goods
at the port of shipment in a CIF contract.
However, this is not always the case, it is possible for the seller to contract on CIF
contract terms for goods that already afloat as was in the case of Hindley & Co. Ltd 8.
the seller would have come to contract for goods that are already afloat in a number of
ways.
For instance: -

a) He may have shipped the goods prior to the sell hoping to find purchasers while
the cargo is on high seas, in other words, the ship is a floating aware house. This is
not uncommon in the oil and grain trade.
Seller prefer this mode of dealing with goods since they can take advantage of
price fluctuations. It’s likely that, the seller in such cases has chartered a ship to
transport his cargo (i.e. hired the use of a vessel for named voyages or for a period
of time) and obtained a number of Bills of Lading from the ship owner with the
intentions of transferring them to the purchasers.
b) He may have purchased the goods from a 3rd party (See the above case

Hindley & Co. Ltd Vs. Indian Produce Co. Ltd. 9)

The parties who have contracted on CIF terms may have varied some of the
obligations under taken by them. There may be a clause in the contract stating that the
seller is to retain the risk in the goods even after payment for the goods.

The General Rule seems to be that, where a contract is express to be on CIF Terms it
should be construed as a CIF contract and clauses that are repugnant to the central
obligations of a CIF contract are to be disregarded 10., is an illustration of this
approach.
The contract of sell in that case was on CIF terms, but is also contained the clause
state that, the risk remains with the sellers until actual delivery to the buyers, the
clause was held to be inapplicable.

Is a CIF Contract simply a sale of documents?

Since the goods can be paid for and sold on the strength of the documents, its
commonly said that, a CIF contract is nothing more than a sale of documents.
Judicial support for this is to be found in the statement of Scrutton. J in the case of
Arnhold Kabera, vs Blythe, Green, Jourdain & Co. 11

“............the key to the many of the difficulties arising in CIF contracts is to

keep firmly in mind the cardinal distinction that a CIF sale is not a sale of goods, but a
sale of documents relating to goods. It is not a contract that goods shall arrive, but a
contract to ship goods complying with a contract of sale to obtain, unless the contract
otherwise provides, the ordinary contract of carriage to the place of destination, and
the ordinary contract of insurance of the goods that voyage and to tender this
documents against payment of the contract price. The buyer then has the right to
claim fulfilment of the contract of carriage, or, if the goods are lost or damaged,
switch indemnity for the loss of the loss as he can claim under the contract of
insurance. He buys the documents, not the goods, and it may be that terms of the
contract of insurance and affreightment, he buys no indemnity for the that has
happened to the goods. This depends on what documents he is entitled to under the
contracts of sale. In my view, therefore, the relevant question will generally be not
what at the time of declaration or tender of documents is the condition of the
goods? .... but what at the time of tender of the documents was the condition of those
documents as to compliance with the contract of sale?”

Duties of the parties to a CIF contract.

 The CIF Contract largely involves the Seller/Exporter/Consigner and the Buyer
/Consignee/Importer and the following are their duties and obligations towards each
other.

The duties of the Seller.

1. The seller has the duty/obligation to ensure that, ship the goods that
correspond the contract description of the Port of Shipment.
Under Sec. 13 of the Sale of Goods Act, 1979, where a sale took place by
description, it was an implied condition that the goods would correspond to that
description. Where the goods did not match the s, the buyer (regardless of whether
he was dealing as s consumer or a non-consumer) could reject the goods and
obtain damages.
It must be noted that a number of aspect form part of the description of goods and
these include: -
1. The terms relating to packaging or the date of shipment are generally
regarded as part of the description of goods.

In the case of Manbre Saccharine Co. Vs Corn Products 12. The contract was
for sale ofr starch in 280 `b bags, and partly in 140 1b bags. The sellers argued
that this packing of the goods was not a material part of the bargain. However, the
court held that, the packaging was a part of the description of the goods, and the
sellers were in breach of shipping goods theat did not correspond to the contract
description. It was stated that,
“it is clear that such words were an essential part of the contract requirement.
They constitute a portion of the description of the goods. The size of the bags may
be important to a purchaser in view of the sub-contracts or otherwise. If the size if
the bags was immaterial, I failo to see why it should have been so clearly specified
in the contract description, and he is not entitled to say that another description
will suffice for the purposes of the purchaser (p.207)”

ii) Time for the Shipment is regarded as part of the description of the goods.

The reason for regarding time of shipment as part of the description of the goods can be
explained in terms of the crucial role that plays in mercantile contracts. Generally speaking,
time, for both the seller and the buyer, is very important for sorting out payment
arrangements, it is also possible that the time may be important for the buyer who may wish
to fulfil his contractual obligations with other parties.
In the case of Bowes. Vs Shand 13 the contract for shipment of rise from Madras, shipment to
take place during March and / or April 1874. Part of the cargo was shipped in February and
the rest in March. The court held that. The parties had contracted to buy rice shipped during
March/April and the buyers were not bound to take rice shipped during February since it was
not the same article for which they had bargained. See statement by Lord Blackburn.
The seller may meet his obligation of shipping goods to the port of shipment in one of a
number of ways: -
 The mist obvious is where he actually loads such goods at the port of shipment.
 Alternatively, he may allocate to the contract goods from a bulk that has already
shipped.
 Or he may buy goods that are already afloat from a third party and allocate them tothe
contract (See P.J.Van der Zijden Wihaandel NV, vs Tucker & Cross Ltd (1975 )2
Lioyds Rep, 257)
Thus, the seller would fulfil his obligation to ship the goods only where they have been
actually placed on board the ship. It is not sufficient if he shows that he has left the goods
with the shop owner to be loaded at a later time,

2. Duty to procure and prepare documents.

The seller has a duty to procure and prepare shipment documents. In the absence
of express provisions regarding documents, the seller must prepare and invoice,
and obtain bills (s) of lading and an insurance policy or policies. Where the
contract requires documents such as pre-shipment inspection certificates,
certificates of quality, or certificates of origin, the seller must obtain them.14

3. Provide/ Issue on Invoice.

The seller in a CIF Contract is obliged to tender to the buyer an invoice ‘debiting
the Consignee/buyer/importer with the agreed price (or actual costs and
commission, the premiums of insurance, and freight, as the case may be) and
giving credit for the amount of the freight which he will have to pay the ship-
owner on actual delivery’ (See the case of Ireland vs Livingston (`872) LR 5 HL
at pg. 406)

4. Bill of Lading
He Bill of Lading is the Buyer’s title to the goods awaiting physical delivery of
the same. Thus, the seller must ensure that, it is transferable so that the buyer can sell
the goods during transit. He must also obtain a shipped Bill of Lading. A received for
shipment Bill of Lading will be insufficient, since the buyer will not know whether
the goods are o9n board ship, or not, in the case of Diamond Alkall, vs Bourgeois
15
the Bill of Lading stated that, the goods had been received for shipment. The court
held that , this was not a proper Bill of lading for purposes of a CIF Contract, it was a
mere receipt.

The Bill of lading should bear the following characteristics / qualities: -

 It must be clean. The Bill of Lading must not contain any reservation entered
into by the carrier as to the apparent condition of the goods, or packing of the
goods. The reason for the insistence on a clean bill of lading is because the
buyer i8n a CIF contract pays for then goods against the strength of the
documents, a clean Bill of lading strongly indicates that the goods have been
received in good order by the ship-owner. The ship owner does not examine
 the contents of the package, and it is possible that the buyer, on arrival,
discover that the goods do not answer the contract description or are not of
satisfactory quality, in this event the buyer can bring on action against the
seller for breach under Sec. 13 or 14 of the Sale of Goods Act, 1979.

Also where the contract is financed by documentary credit, the banks would
insist on a clean Bill of lading.

 It must cover the entire voyage. That is from the port of Shipment to the port
of destination. In the case of landaquer & Co. Vs Craven & Speeding Bros
16
400 bales of hemp were sold CIF . The seller had the option of shipping the
goods from either the Philippines or Hong Kong. The goods were shipped
from Philippines to Hong Kong. Where they were transferred to a new ship
bound for London, the bill of lading was from Hong Kong to London, and the
insurance policy was from the Philippines to London. It was held that an
insurance policy was insufficient, since the damage to the goods could be of a
kind that
was not covered by insurance.

The shipment date must be correct on the bill of lading. This regarded as a term of major
importance – that is, a condition of the contract. So, where a bill of lading shows a wrong
date through a genuine error, the buyer will be able to reject the documents.

5. Insurance.
The seller under a CIF Contract must obtain insurance cover and tender the
insurance documents to the buyer. In the absence o express contractual provisions,
the seller must obtain a valid policy on terms that are current in the trade for the
benefit of the buyer from reputable insurers for the transit contemplated by the
contract, and the particular cargo/goods.
Where the seller fails to obtain insurance cover, or does not obtain adequate
insurance cover, the goods will be at risk of the seller. For instance, in the case of
Lindon Tricotagefabric, vs White & Meacham 17.the seller who did not obtain
insurance cover for the entire transit was unsuccessful in obtaining the price of the
goods when they were stolen while awaiting delivery to the buyer’s correct
address.
Thus, the insurance to cover subject matter of sale and entire transit.

6. Licenses.
Depending on the law pertaining to export and import in the exporting and
importing countries respectively, it may be necessary to obtain Export and import
Licences. The question of who is responsible for obtaining these licences may be
dealt with in the contract, but in the absence of any agreement, the export licence
must be obtained by the exporting party i.e. the seller.
7. Tender of documents
As noted earlier, the seller under CIF Contracts is under obligation to tender the
documents specified in the contract of sale e.g. Certificate of Origin, Certificate of
Quality etc Where the documents called for in the contract are not tendered by the
seller, the buyer can reject the documents, in the absence of express stipulation,
the seller must tender the following documents; -
i. A Bill of Lading
ii. An insurance Policy
iii. Documents required by the custom; and
iv. An invoice

The seller should take reasonable measures to tender the documents to the buyer,
ender in the documents.
In the case of Sanders, vs. Maclean 18 court held that.
“.....stipulations which are inferred in mercantile contracts are always that the
party will do what is mercantile reasonable”.

What are the Seller’s remedies?

The seller has the following remedies: -

a) Action for price, under sec. 49 (1) of the Sale of Goods Act, 1979, the seller can
sue the buyer for the price where property in the goods had passed to the buyer
and he wrongfully neglects or refuses to pay for the goods.

b) Damages for non-acceptance. Under Sec. 50 (1) of the Sale of Goods Act, 1979,
the seller can sue the buyer for non-acceptance where the buyer for non-
acceptance where the buyer wrongfully neglects or refuses to pay for goods, The
measure if damages is prima facie is the difference between the market price and
the contract price at the time the cargo /goods ought to have been accepted. Where
no time is fixed the contract price at the time of refusal to accept the goods will be
used fo9r purposes of calculating the damages.

At what time is property under CIF contract deemed to have passed?

Under English Law, in a contract for the sale of goods, the seller agrees to transfer
property in the goods to the buyer for a money consideration called the price(S2)
(1) of the sale of goods Act 1979.) What is transferred is ownership or the
absolute legal interest in the goods. Passing of property is the central event in a
sale contract. Such a buyer who acquires goods from a “seller” who is not an
owner can recover the monies paid on grounds of total failure of consideration
(Rowland V Divall (1923)

Passing of property is not related to delivery or possession in English law such

that the goods, for instance, could be on the seller’s premises and property
remains with the buyer, or the goods could be delivered to the buyer even though
the seller retains property in the goods. Due to the fragmentation of property,
delivery and possession, the issue of who has property in the goods is of practical
important in the event of e.g. insolvency, loss or damage to the goods, claim of
payment of payment of price.

When it comes to CIF sales, there are a number of possibilities for passing
property.

(a) Property could pass when goods are placed on board the ship, that is on
shipment (though this is highly unusual in CIF Sales) This is possible only as
long as the seller has not reserved the right of disposal. Where the seller
retains the shipping documents, this may indicate that he reserves the right of
disposal.

(b) Property could pass upon the transfer of documents to the buyer, and payment
of the price by the buyer to the seller. In most CIF Contracts, property
generally passes this way.

(c) Property could pass on tender of Bill of loading even though the buyer has not
paid for the goods since the seller has agreed to give credit to the buyer.

(d) However, where the goods form part of a bulk under Sec. 16 of the Sale of
Goods Act, property can pass only when the goods are ascertained.
Thus, the buyer has paid for the goods against documents, property will not pass
upon payment, but upon ascertainment of the goods.
Passing of risk.
Under Sec. 20 of the Sale of Goods Act, risk passes along with the property. This
However, is not true of CIF Contracts, passing of risk and property are not
simultaneous. In CIF Contracts, risk passes on shipment as was observed in the
case of Law and Bonar Ltd. Vs British American Tobacco Ltd. 19.

Duties of the Buyer

The buyer has the following duties:

1. Duty to pay against the documents for the goods shipped. Once the buyer gets
good tender of documents, he is obliged to pay for the goods.

2. Right of Rejection. The buyer in a CIF Contract has two distinct rights of
rejection i.e.
 a. He can reject the documents upon tender, where the seller does not tender
the right documents or where the documents are incorrect.
b. The buyer can reject the goods on arrival if the goods do not correspond to
the contract description (Sec.13 of the Sale of Goods Act) or are not of a
satisfactory quality (Sec. 14)

3. Damages for failure to tender valid documents or delivery goods. Where the
seller fails or refuses, to tender valid documents or deliver goods, the buyer
has the right to sue for damages for non-delivery under sec. 51 (3) of the Sale
of Goods Act, 1979.

4. Damages upon shipment and late tender. Generally, in CIF Contracts, the
shipment period is specified in the contract. A breach of this term is regarded
as a breach of a condition.

5. Damages for Defective goods. The Buyer may also claim damages for the
defective goods. The measure of damages is calculated in terms of sec. 53 (3)
of the Sale for Goods Act, 1979 i.e. the difference between the value of the
goods at the time of delivery and the value they would have had if they had
answered to the warranty.

CIF Contracts under INCOTERMS 2010

This INCOTERMS came into force in 2011 and contain some modifications on the definition
of CIF found in the English law. CIF under INCOTERMS requires that the seller delivers
the goods on board the vessel or procures goods which have already been delivered.

It is apparent that while the seller’s obligations cover cost of carrying the goods to the
agreed destination, it is only responsible for damages to the goods until they have been
delivered into the custody of the ocean carrier or until they have been delivered on board. On
the other hand, the buyer must:
Buyer’s legal obligation under C&F
(1) Accept the documents when presented;
(2) Receive goods upon arrival, handle and pay for all subsequent movement of the
goods, including taking delivery from vessel in accordance with bill of lading
clauses and terms; pay all costs of landing, including any duties, taxes, and other
expenses at named point of destination;
(3) Provide and pay for insurance;
(4) Be responsible for loss of or damage to goods, or both, from time and place at
which seller’s obligations under (4) or (5) above have ceased;
(5) Pay the costs of certificates of origin, consular invoices, or any other documents
issued in the country of origin, or of shipment, or both, which may be required for
the importation of goods into the co9untry of destination and, where necessary, for
their passage in transit through another country.
(6) Looking at both sets of obligations together, it is clear that the seller, in a C&F
contract, is responsible for getting the goods alongside or on the ship free of
damage, and for paying to carry the goods to the foreign port with a clean bill of
lading. Once the goods have been delivered safely alongside or on the ship, the
buyer is responsible for loss or damage thereafter. Once the goods have arrived at
their destination, the buyer is responsible for loss or damage thereafter. Once the
goods have arrived at their destination, the buyer is responsible for all costs of
furthe3r moment of the goods.”
Conclusion.
From the above it is evident the C&F is a very straight forward contract. It is a contract
that deals with the carriage of merchandise on water bodies. Passing of risk from the
seller to the buyer is once the goods reach the port or rock dock and the relevant
documents handed over to the buyer.