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BTW3201 International Trade Law

International sale of goods: Standard
trade terms

Accredited by: Advanced Signatory:

International sale of goods
What is an ‘international’ sale of goods?
• Contrast between ‘domestic’ and ‘international’ sale of goods.
• Domestic:
Seller and buyer within same jurisdiction. Contact for sale is
governed by the same law.
• International:
Seller and buyer in different jurisdictions. This complicates a sale
transaction in two ways:
- delivery of the goods
- which law governs the sale contract

How is a contract for the international sale of goods entered into?

• Essentially, the formalities of contract still apply, namely, offer, MONASH
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acceptance, consideration and intention to create legal relations.
International sale of goods

• Issues:
- time of the delivery of the goods/passing of risk;
- applicable law in the event of disputes.

• Standard Trade Terms:

- trade terms that evolved over time from mercantile practice.
Since businessmen have come to know what these trade terms
mean, it is logical to describe the parties’ obligations using
these trade terms.

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Standard trade terms
What are standard trade terms?
• Terms that parties commonly use in international sale contracts.
• They “define the obligations of the sellers and buyers as regards the
point of delivery, procurement of transport documents, contract of
insurance, and other documents necessary for the export and import
of cargo” (Carr & Stone, 2018, p. 6).

Why is an understanding of standard trade terms important?

• Defining the obligations of the seller and buyer respectively is
important in ascertaining at which point title to the goods pass to the
buyer. Where a dispute arises between the parties, determining the
passing of goods often influence the outcome of a litigation.

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Incoterms
What are Incoterms?
• The Incoterms were first drafted by the International Chamber of
Commerce (ICC) in 1936. Latest Incoterms - Incoterms 2020.
• The Incoterms lay down a set of standard delivery terms for international
sale of goods. The parties’ obligations vary in accordance with the
Incoterms adopted.
When do Incoterms apply?
• Only applicable if they are specifically incorporated into a sale contract.
Where this is the case, the parties’ obligations as regards the delivery of
goods are ascertained with reference to the Incoterms.
• For the Incoterms to apply, parties must expressly make their intentions
clear in the contract.
• Two important points in each term:
- the point of delivery.
- who bears the risk? MONASH
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 Incoterms
Term Description
EXW (Ex works) Seller is only responsible for making the goods available on
the seller’s premises and buyer bears the full risk from factory
to the destination.

FCA (Free carrier) Seller is responsible for the delivery of goods to the
nominated carrier by the buyer, risk is transferred as soon as
loading has taken place. FCA now allows for Bill of Lading to
be issued after loading.

FAS (Free alongside Seller is responsible for the delivery of the goods at the quay
ship) alongside the ship, from this point onwards risk lies with the
buyer.

FOB (Free on board) Seller is responsible for the delivery of the goods loaded on
board of the ship, risk is transferred as soon as the goods have MONASH
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been set down inside the ship.
 Incoterms
Term Description

CFR Seller covers cost, freight and duty paid to the main port of
(Cost and freight) destination. Risk is transferred as soon as the goods have
been set down inside the ship.
CIF Seller covers cost, insurance, freight and duty paid to the main
(Cost, insurance and port of destination. Risk is transferred as soon as the goods
freight) have been set down inside the ship.

CPT Seller delivers the goods to the carrier at agreed place of

(Carriage paid to) delivery and pays for transport to the main destination. Risk is
transferred at the place of delivery, where seller pays the
transport to the final destination.

CIP Seller delivers the goods to the carrier at agreed place of

(Carriage and delivery and pays for transport and insurance to the main MONASH
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insurance paid to) destination. Risk is transferred at the place of delivery.
Incoterms
Term Description
Delivered at Place Seller delivers the goods unloaded at the specified place in
Unloaded (DPU) the agreed terminal, risk is transferred as soon as the goods
(previously called DAT have been unloaded.
- Delivered at
terminal)
DAP Seller delivers the goods to the agreed place and risk is
(Delivered at place) transferred as soon as the goods have been unloaded.

DDP Seller is responsible for bringing the goods to the destination,

(Delivered duty paid) paying any duty and making the goods available to the buyer.
Risk is transferred as soon as the buyer has access to the
goods.

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Adapted from Di Lieto & Treisman, 2018, pp. 110-111
Incoterms
What is the difference between FCA, FAS and FOB?
FCA (Free Carrier)
FAS (Free Alongside Ship)
FOB (Free on Board)

• In terms of the seller’s duty, FCA is less stringent than FAS and FOB.
Usually, it means delivering the goods to the contractually agreed
location. The buyer bears the cost of additional transport and the
cost of loading the goods to the carrier. For instance, where
transportation is multi-modal, a seller might bear the cost of
delivering to the train station closest to the port. The buyer pays for
the cost of transporting the goods to the ship.
• FAS – delivery up to quay where the carrier is.
• FOB – means loading the goods onboard the ship. MONASH
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Incoterms
What is the difference between FCA, FAS and FOB?

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Incoterms: Who bears the risk?

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Incoterms: Who bears the risk?

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Incoterms: Who bears the risk?

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Incoterms: Who bears the risk?

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Incoterms: Who bears the risk?

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Incoterms: Who bears the risk?

Source: DHL – Basic Overview of the Incoterms 2020 Rules

https://www.dhl.com/content/dam/dhl/global/dhl-global-
forwarding/documents/pdf/glo-dgf-incoterms-2020-brochure.pdf

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 Incoterms: Interpretation
• The diagrams above show when the risk of loss transfers from the
seller to the buyer.
• Example: Seller (S) sold goods to Buyer (B) with a contract of sale
that specified FOB (free on board). Pursuant to this Incoterm, risk is
transferred once the goods have been set down inside the ship.
During the voyage, the crews’ negligence caused the goods to be
damaged. Unfortunately, B bears the risk even though the damage
occurred through no fault of B. Of course, B may have an action
against the carrier. But B cannot pursue an action against S in
respect of the damaged goods.

Note:
• Apart from the point of delivery and the transfer of risk, each
Incoterm also deals with the seller’s and the buyer’s obligations
more broadly. MONASH
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 Incoterms: EXW (Ex works)
Seller’s obligations:
• The seller is (at its own expense) required to package the goods in
the manner appropriate for their transport, unless the buyer has
notified the seller of the specific packaging requirements before the
contract of sale is concluded.
• At the buyer’s request and expense, the seller is required to assist in
procuring the export licence (at the buyer’s expense).
• The seller does not deliver the goods. It merely has to place the
goods at the disposal of the buyer at the named place of delivery on
the date or within the period stipulated. If no such place or time is
stipulated, at the usual place and time for delivery of such goods.
• The transfer of risk occurs when the seller has ensured that the
goods are ‘duly appropriated to the contract’ i.e. clearly set aside or
otherwise identified as the contract goods; and these goods are
placed at the disposal of the buyer. MONASH
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Incoterms: EXW (Ex works)
Buyer’s obligations:
• Obtain at his own expense the licences, authorizations and custom
formalities necessary for the transport of the goods.
• Where the buyer is entitled to determine the time and/or place of
taking delivery – to give the seller sufficient notice.
• Take delivery of the goods as soon as they have been placed at his
disposal in accordance with the agreed time.
• Bear all risks of loss of or damage to the goods from the time they
have been placed at his disposal.

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 Incoterms: FOB (Free on board)
Seller’s obligations:
• The seller must provide goods that conform to the description in the
contract of sale.
• The seller is responsible for preparing the invoice and other documents.
These include any export licence or other official authorization and
compliance with customs formalities.
• The seller is also responsible for checking, packing and marking the goods
for delivery. Note that there is also the requirement that the goods be
clearly set aside or otherwise identified.
• The seller must deliver the goods on board the vessel named by the buyer
at the named port of shipment on the date or within the period stipulated
and in the manner customary at the port.
• The seller is responsible for all loading charges until the moment the goods
have been delivered.
• The seller must give the buyer sufficient notice that the goods have been
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delivered on board. If the vessel has failed to take the goods within the BUSINESS
agreed time, he must notify the buyer.
Incoterms: FOB (Free on board)
• The seller must provide the buyer with proof of delivery. Such
document could be in the form of a negotiable bill of lading, a non-
negotiable sea waybill, an inland waterway document, or a
multimodal transport document. Where the seller and the buyer have
agreed to communicate electronically, the document referred to in
the preceding paragraph may be replaced by an equivalent
electronic data interchange (EDI) message.
• The seller is not under an obligation to insure the goods. But the
seller must provide the buyer with the necessary information so that
the buyer can insure the goods.
• Transfer of risks occur once the goods have passed the ship’s rail at
the named port of shipment.

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 Incoterms: FOB (Free on board)
Buyer’s obligations:
• The buyer must give the seller sufficient notice of the name of the ship,
loading port and the delivery time selected within the agreed period.
• It is the buyer who has to contract for the carriage of goods from the
named port of shipment to the port of destination.
• The buyer must accept the usual document in proof of delivery provided
by the seller.
• The buyer bear all risks of loss of or damage to the goods from the time
they have passed the ship’s rail at the named port of shipment.
• However, the buyer bears the risk from the agreed date or the expiry
date of the period fixed for delivery where the buyer fails to inform the
seller about the name of the ship, the port of shipment, and the required
delivery date, or if the named vessel fails to arrive on time, or is unable
to take the cargo, or closes for cargo earlier than the stipulated date.
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 Incoterms: FOB (Free on board)
• The buyer is responsible for the costs incurred in pre-shipment
inspection, unless such inspection is mandated by the exporting
country’s authorities.
• The buyer is required to pay the seller all costs and charges incurred
in obtaining the documents (or equivalent electronic messages) for
importation of the cargo or for their transit through third countries.
• Delivery of the goods takes place when they are placed on board the
named ship or at the stipulated time. From this point onwards, the
buyer bears all the costs.
• Where additional costs are incurred due to the buyer’s failure to
nominate a ship, or where the nominated ship arrives late or is
unable to carry the cargo, the buyer bears the cost.

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 Incoterms: CIF (Cost, insurance and freight)
The seller’s obligations:
• The seller must provide goods that conform to the description in the
contract of sale.
• The terms relating to packaging of the goods are considered part of the
description of the goods (Manbre Saccharine Co v Corn Products [1919]
1 KB 189).
• The seller is responsible for procuring and preparing the necessary
documents. These include the invoice and pre-shipment inspection
certificates, the contract for the carriage of the goods (e.g. a bill of lading)
and the contract of insurance.
• Transfer of risk occurs from the time the goods have passed the ship's rail
at the port of shipment.

The buyer’s obligations:

• Where the buyer is entitled to determine the time for shipping the goods MONASH
and/or the port of destination, give the seller sufficient notice thereof. BUSINESS
Incoterms: CIF (Cost, insurance and freight)
• The buyer has to provide the seller with relevant information that
enables the seller to insure the goods.
• The buyer must accept the transport documents if they are in order.
For example, the document (a negotiable bill of lading, a non-
negotiable sea waybill or an inland waterway document) must cover
the contract goods, be dated within the period agreed for shipment,
enable the buyer to claim the goods from the carrier at destination
and, unless otherwise agreed, enable the buyer to sell the goods in
transit by the transfer of the document to a subsequent buyer (the
negotiable bill of lading) or by notification to the carrier.
• The buyer bears all risks of loss of or damage to the goods from the
time they have passed the ship's rail at the port of shipment. Note
that there is also the requirement that the goods must be duly
appropriated to the contract, i.e. clearly set aside or otherwise
identified as the contract goods.
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Incoterms: CIF (Cost, insurance and freight)
• Where there is pre-shipment inspection, the buyer bears the cost –
unless such inspection is mandated by the exporting country.
• The buyer is responsible for any duties, taxes and charges for
carrying out customs formalities during transit and at the port of
destination.
• Where the buyer requests for additional insurance, he bears the
cost.
• The buyer is responsible for obtaining (at his own expense) any
import licence or authorization and complying with custom
formalities.
• Delivery of the goods is complete when they are placed on board the
vessel at the port of shipment on the date or within the period
stipulated. The buyer must receive the goods from the carrier at the
port of destination.
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 Problem question
Extract from Di Lieto & Treisman, 2018, p. 112:
Wei Lin in China and Sally in Australia sign a contract for the sale of
4000 square metres of ceramic tiles. The two parties include EXW
2010 Incoterm in their contract from Factory 1, in Foshan, Guangdong
province in China.

After a couple of months, Wei Lin informs Sally that the goods are
ready for pick up from her factory. That night there is a gas explosion,
which sparks a fire in Wei Lin’s factory. The fire destroys the pallets
containing the ceramic tiles ready to be shipped to Australia. The gas
explosion is caused by the gas company’s poor maintenance of public
gas pipes that run adjacent to the factory.

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 Problem question
• Here, the goods are destroyed after the contract was signed, but
before the goods were shipped.

• The key issues:

- Is Wei Lin still required to supply ceramic tiles?
- Is Sally required to pay for the destroyed goods?

• Approach:
- First, consider whether Wei Lin has fulfilled her delivery obligations.
- Next, consider the transfer of risk issue – has the risk in the goods
passed from Wei Lin to Sally?

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