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Published: Fri, 02 Feb 2018

A dispute may arise in different situations

In relation with a CIF contract, a dispute may arise at kind of situation, even in the middle of the contract or transaction, which actually reveals the urge of the documentary obligations in respect of the sellers. [1] 

To be an effective CIF contract, a seller needs to enter into a contract of carriage, which must be reasonable, realistic and appropriate in the according circumstances. S. 32(2) of the Sale of Goods Act 1979 sets out the prerequisites of the reasonable contract, which indicates the contract by the seller, has been made on behalf of the buyer. [2] 

Michael Bridge in the book named ‘The International Sale of Goods, Law and Practice’ [3] opined that the physical delivery may be substituted by three of the arrangements which include first of all, the shipment of the goods under the contact of the carriage; secondly, the preparation of the insurance documents and of course the delivery of the documents to the buyer, performed by the seller. However, Bridge raised the question that whether the shipment of the goods will the dealt as the physical performance by the seller or not. In this regard the cases for instance Johnson v Taylor Bros [4] and Biddell Bros v Clemens Horst (E) Co [5] affirm that the delivery of documents means the physical performance, [6] therefore, no actual physical delivery is required. [7] 

According to the view of Kennedy LJ in the case of Biddell Bros v Clemens Horst (E) Co [8] in respect of CIF contract, sellers do not have any accountability regarding the delivery of the goods at the agreed port to discharge the same, however, the seller may be treated under the breach of contract. The reasoning here is that the risk of loss will be transferred to the buyer as soon as the shipment takes place. [9] The situation, of course, depends on situation like, where the seller deals with perishable goods the consequences will be different. [10] 

A CIF seller only can demand the payment from the buyer after fulfilling all the documentary obligations. Therefore, the question whether the CIF contract is a sale of documents or not, often arises. In this context Michael Bridge quoted that “…consensus now is that a CIF contract is a genuine sale of goods contract in which performance by the seller occurs through the medium of documents”. [11] Nevertheless, the bill of lading, tendered by the seller, which illustrates the shipment of the goods although, in reality, it does not seem to be evident, may render the contractual liability of the seller in this regard. [12] 

The answer requires the comprehensive discussion of the duties of the seller to procure and prepare documents for the shipment. [13] English legal system purports the seller to carry out the documentary obligations by tendering a bill of lading, an insurance policy and an invoice. [14] Moreover, according to the requirement the seller is obliged to show further documents for example pre-shipment inspection certificates, quality analysis certificates and certificates of origin. [15] 

Normally, in a sale of contract buyer can examine the products before paying for them; on the contrary, in the CIF contract buyer cannot do so and shipping documents play a vital role in this regard. In this context, Bridge described the view as ‘…buyer pays against shipping documents…and cannot get access to the goods without the shipping documents…may not insist on waiting until the goods arrive…’. [16] In the case named Biddell Bros v Clements Horst [17] exposed that the terms ‘net cash’ and ‘net cash against documents’ are of similar meaning. However, Farwell LJ has different view from Kennedy LJ relating to the fact of CIF contract. According to Kennedy LJ, CIF contract itself means that the payment will be made only after accessing the documents rather for paying it needs a separate obligation containing any express term to show documents along with that the payment by the buyer will be made only after the tender of the bill of lading successfully completed. Therefore, Kennedy LJ’s observation counters Farwell LJ’s view as Kennedy LJ’s expression illustrates that “cost freight and insurance, net cash” has the same meaning of “cost freight and insurance, net cash against documents” corresponding to the CIF contract. [18] In addition, it should be kept in mind that the buyer should not get the opportunity of examining the goods before paying for that because that opportunity neglects the bill of lading in one side and in other side seller will be responsible for additional payment. [19] Nevertheless, there is a chance that the permission to the buyers for checking the products may render the sellers in an unsecured position, as seller will face difficulties in the event of refusal by the buyer to pay. [20] However, if the buyer pays just against the documents and later finds any trouble related to the goods it places the buyer in a troublesome position to recover the money he paid to the seller staying in a remote country. In this case, sometimes the right to sue the seller to get the damage may protect the buyers but the risks involves where the seller is in a position of insolvent. [21] Therefore, in this regard, it may be argued that English court might require more stringent protection for the buyers.

Sometimes, even though the contract was described as the CIF contract but later on, it is not that much uncommon to be emerged as something different which includes some other provisions. [22] In the case named Comptoir d’Achat et du Boerenbond Belge S/A V Luis de Ridder (The Julia) [23] , the contract was concluded as ‘a contract for the delivery of the goods on shore in the country of destination’. The consequence of this kind of contract is that, risks do not pass to the buyers as well as the seller can not bound the buyer to make payment. [24] In this regard, the other case examples like Gardano and Giampieri v Greek Petroleum George Mamidakis and Co [25] and The Gabbiano [26] further illustrates the implication of the determination. In Gardano and Giampieri v Greek Petroleum George Mamidakis and Co [27] case, the court concluded the case, not as a C&F contract, for the reason of delivering the oil (the contract goods) out of the seller’s installation (Piraeus), which was the port of destination. Moreover, the contract imposed a wide range of risks of evaporation upon the seller, which is not evident in the regular CIF contracts. [28] On the contrary, The Gabbiano [29] revealed that even though the contract was requiring a clause ‘written off the contract quantity’, which is not considered as the contracting part of CIF contract, the court regarded it as a CIF contract. Roche J in Karinjee Jivanjee v Malcolm [30] exemplified that being a contract containing any extra clause that is uncommon for CIF contract, may be revealed as a CIF contract or as an ‘on shore delivery contract’ determining the hybrid nature of the contracts. [31] Considering the discussion above, it may be ascertained that this kind of ambiguity and uncertainties may sometimes render the seller an unrealistic burden or duties, as well as an unsafe contractual circumstances might arise as a result of that.


Moreover, the problem is also linked with tendering [32] the documents and concerning this the buyer may deny the appropriation [33] of property if the seller lacks proper documentations. [34] Nevertheless, the earlier appropriation was stated as the offer to tender, however, not the irrevocable one affirmed by the Court of Appeal. Therefore, English Court endeavoured to resolve the matter by stating that in the case of defective tender the seller can get second chance to tender within the time period of delivery [35] . Regarding the matte of any mistake in notice of appropriation, Gertreide Import Gesellschaft mbH v Itoh [36] is considered as the modern authority which affirmed that the initial invalid notice may be withdrawn, though there is doubt beyond the reasoning of this decision. [37] However, common law does not recognise the right of withdrawal. [38] The Post Chaser [39] case signifies the consequences related to the delay of transmission of notice. In this case seller did not transfer the notices within the required period of time to the buyers even though the buyer repeatedly requested the seller to do so. Bridge pointed out it as the inevitable failure to comply with the requirement of the provision of declaring the shipment ‘as soon as possible after vessel’s sailing’ [40] . The problem arises in this case because the buyer did not know ‘the number of intermediate traders in the string between the shippers and their sellers but it was apparent on the face of the notice that over a month had elapsed since the date of the bill of lading’ [41] . In the Appeal it was demonstrated that ‘…traders attached great importance to the passing on the notices without delay’. [42] According to Robert Goff J sellers were not in breach of contract but the buyer was able to reject the notice from the seller. [43] Regarding the passing of notice from all previous sellers, the guarantee may be issued from the string seller. However, for the protection of the buyer, if any inconsistency arises between the date of bill of lading and the date the buyer receives notice, buyer may be advised to make a request to get a proof of string which contains the lists of the previous parties. Later on, the rights may be reversed with the purpose of waiting for the proper clarification. [44] 

The duties of the seller are envisaged with fulfilling documentary obligations properly, and among them, one the utmost important parts is tendering the actual policy of insurance to cover the loss suffered if occurred anyhow. [45] According to Diamond Alkali Export Corp. v Fl. Bourgeouis [46] it is prima facie mandatory for the seller to tender the policy of insurance. Moreover, by the virtue of section 50(3) of the Marine Insurance Act 1906, the policy needs to be assignable after being endorsed as this section is only applicable to the actual marine policy. [47] The contract of sale usually specifies the amount of insurance, [48] and the buyer is entitled to get the notice of the shipment from the seller. [49] 

The reasons behind the strictness [50] of this obligation are protecting both the sellers and the buyers as, if the seller fails to tender the insurance policy, the seller will be in the position to assume all the risks of the contract goods, along with that buyer may refuse to accept the goods even after delivery [51] and later on, seller will never be able to recover the money by suing anyone. [52] On the other hand, in the absence of that, the buyer will be in lack of sufficient protection because sometimes he will be obliged to pay or in a position to resell the goods even though the goods are not examined or in the way of transaction. So, in that kind of circumstances he must need the insurance copy to handle the goods somewhere else. [53] Therefore, in this point of view, it may be argued that the harshness of this requirement in fact protects the parties along with this argument it can be added that if this requirement is not imposed on the seller this may create lots of ambiguity and disputes among the parties.

In this context, case laws in English courts exemplified that the seller may come out from the strict nature of this requirement of CIF contract where, it is not possible to get the opportunity to acquire the insurance policy, and the seller may fulfil his obligation by tendering any policy which is usual to get at that moment. [54] C. Groom v Barber [55] sets out a good example, where the policy apart from the war risks was regarded as a good one since it was not very usual to include the war risks at that period of time. [56] However, Atkin J. in this case stated that “…at all times, even in times of peace, a war risk policy must be taken out at the expense of buyer…”. [57] This point can be considered as it was highlighted in the book of Sassoon. [58] Benjamin’s Sale of Goods noted ‘…the seller may, where it is usual to do so, be obliged to provide cover extending beyond the period between shipment and arrival at the c.i.f destination…it is not altogether clear at exactly what point of time the criterion of what is a “usual” policy is applied…’. [59] However, disputes may arise concerning the view that foreign policy will not be considered as a valid and usual policy of insurance since that policy is enforceable only in that foreign region rather in English law. [60] In contrast, from Sassoon [61] , it may be pointed out that English buyer can not reject the foreign policy merely for the reason that the policy was not carried out in England. [62] 

It should bear in mind that the insurance policy must be effective, which means that the contract is required to be valid [63] , along with that the insurance may be required before the shipment [64] , even after discharge or at anytime. [65] If the nature and extent of the documentary obligations are considered, Yuill v Scott- Robson [66] further illustrated that seller is obliged to cover damages as ‘his obligation to insure “against all risks” was not performed by taking out an “all risks” policy’. [67] The contrasting view was found in the case of Vincentelli v Rowlett [68] , where the buyer was not entitled to get damages from seller. [69] The insurance policy does not need to be able to recover the actual loss. [70] However, in some cases it is demonstrated that to perform the documentary obligations by the sellers, always it is not sufficient to provide the insurance policy against the loss. [71] Now, it is necessary to discuss at which points the policies can be referred to as effective. It has been mentioned that the ‘honour’ policy can not be considered as effective because of lack of legal enforceability. [72] Moreover, it has been demonstrated that without the affirmation of underwriter, the policy, voidable for the reason of misrepresentation or non-disclosure, can not get the effectiveness. [73] However, it is necessary to mention that, the documentary obligation of seller is not performed properly if he tenders certificate of insurance or a broker’s cover note or a written statement instead of the actual policy of insurance. [74] Conversely, documents other than the policies may be sufficient only when that “provide as near as possible to the buyer the same protection and rights as he would get by a policy”, but, this view is hardly referred. [75] 

It is crucial to discuss, why the certificate of insurance is not granted as an alternative of the actual policy of insurance. The rationale behind this argument is that ‘the form of such certificate is variable’ [76] and most significant point is that ‘the person to whom such a tender is made will be unable to determine from the certificate what the terms of the insurance are…’. Moreover, such kind of documents can not be endorsed by the virtue of section 50(3) of Marine Insurance Act 1906 and out of the prerequisites of section 22 of Marine Insurance Act 1906. [77] Sassoon [78] and Benjamin’s Sale of Goods [79] quoted that according to banker’s commercial credit American certificates do not have the standard to be tendered instead of a policy; this view is manifested in Donald H. Scott Ltd v Barclays Bank Ltd. [80] However, regarding the context of c. and f. terms insurance certificate will satisfy the requirement and here, the classic example is Muller, MacLean & Co. v Leslie & Anderson [81] . Therefore, by procuring and tendering the certificate of insurance, the seller in CIF contract can not be regarded that he has performed his documentary obligation. [82] Hence, if a CIF seller tenders the certificate of insurance that will render the buyer in a vulnerable position as the buyer will not get the adequate protection from the certificates.

To examine whether the English courts have imposed the realistic burden on the sellers, the nature and extend of the seller’s documentary obligations need to be discussed extensively. Therefore, it is essential to determine the actual ambit and nature of the duties imposed on the seller. As the risk passes to the buyer on shipment, [83] it is essential that the effective and valid documents are tendered to the buyer. After tendering the right documents the buyer is obliged to pay for that even though the goods are lost or damaged [84] . Therefore, to maintain the right balance it is always extensively important to inflict the right duties on right persons. Consequently, it may be argued that the duties on the seller to confirm that the documents must comply with requirements of proper CIF contract to impose realistic burden on them.

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