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CIF contracts in transportation law

Introduction

The CIF contract is one which confers a number of rights and duties on the buyer and seller involved in such a contract. Perhaps the best illustration is one that is derived from English common law, in which Lord Wright states:

The initials [CIF] indicate that the price is to include cost, insurance and freight. It is a type of contract which is more widely and more frequently in use than any other contract used for the purposes of sea-borne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under CIF contracts. The essential characteristics of this contract have often been described. The seller has to ship or acquire after that shipment the contract goods, as to which, if unascertained, he is generally required to give a notice of appropriation. On or after shipment, he has to obtain proper bills of lading and proper policies of insurance. He fulfils his contract by transferring the bills of lading and the policies to the buyer. As a general rule, he does so only against payment of the price, less the freight which the buyer has to pay.[1]

He went on to say:

In the invoice which accompanies the tender of the documents on the ‘prompt’ – that is, the fixed date for payment – the freight is deducted, for this reason. In the course of business, the general property remains in the seller until he transfers the bill of lading… By mercantile law, the bills of lading are the symbols of the goods. The general property in the goods must be in the seller if he is able to pledge them. The whole system of commercial credits depends upon the seller’s ability to give a charge on the goods and policies of insurance.[2]

Thus, as this passage from the case signifies, a CIF contract is quite obviously split into two separate categories: the goods and the documents. Essentially, the documents are used to represent the goods to the buyer, and also allows for them to exchange or present valid shipping documents to the carrier in order for the goods to be released to the buyer. Another key aspect of the CIF contract is the rights and obligations of both parties in respect of both the goods and the documents. For example, it is normally accepted that in a CIF contract the seller of the goods is usually under an obligation:

  1. to ship goods meeting the contract description at the port of shipment as agreed or to procure goods already afloat to meet the contractual requirements;
  2. to enter into a contract of carriage with a carrier who is able to deliver the goods to the port of discharge as agreed and secure a bill of lading in relation to the goods;
  3. to make sure that the goods are properly insured under a contract of insurance to which the buyer may avail;
  4. to append a commercial invoice which conforms to the contractual description of the goods; and
  5. to tender the bill of lading, the insurance policy, the invoice and other documents as provided for in the contract such as the certificate of origin, a certificate of quality etc.[3]

Similarly, a buyer is required to:

  1. accept the documents as tendered if they conform to the contract;
  2. take delivery of the goods when they arrive at the agreed port of discharge;
  3. settle all customs dues at port of entry; and
  4. obtain any import licenses, if required.[4]

When considered vis-à-vis, the seller’s obligations create certain rights for the buyer and vice versa. The legislative authority for these rights and obligations will be explored in more detail in due course; however it is important to have an understanding of at least the basic obligations at this point.

The main scope of this brief is to assess the rights of the buyer in relation to a CIF contract in English law. In order to illustrate how rights in English law may differentiate from international standards, this brief will also offer an analysis of the rights provided to a buyer in the UN Convention on the International Sale of Goods. Additionally, this brief will offer a comparison between these two laws, in order to determine if one is more deficient than the other.

English Law

Introduction

As international trade law is a relatively modern concept, the law of England has often been ill-equipped to deal with such cases, and thus has had to rely upon the common law interpretations for any authority. Shipping documents were, at one stage, regulated by the Bills of Lading Act 1855, which is quite obviously an outdated piece of legislation in the current context. Given the recent expansion of the global market due to international trading and commerce, the English system has had to adapt to reflect these changes, and as such the Carriage of Goods by Sea Act 1992 was duly enacted. The scope of this Act is:

This Act applies to the following documents, that is to say—

(a) any bill of lading;

(b) any sea waybill; and

(c) any ship’s delivery order.[5]

Essentially, the 1992 Act applies to any document which is capable of being transferred to another party by endorsement or similar.[6] In the modern context, this is generally referred to as the ‘bill of lading’. The bill of lading is an important document under English maritime law in regards to contracts of carriage especially. It has three key representations, and they are:

  1. The bill of lading as a receipt for the goods shipped;
  2. The bill of lading as evidence of a contract of carriage; and
  3. The bill of lading as a document of title with respect to the goods shipped.

Firstly, in regards to acting as a receipt for the goods shipped, the bill of lading can be used to provide prima facie evidence of the quantity, weight, condition or description of the goods shipped, which can be used to solve any issues or discrepancies arising through a dispute.[7] Secondly, in regards to acting as evidence of a contract of carriage, the bill of lading can certainly provide evidence of the existence of a contract of carriage, but does not automatically constitute the existence and operation of one.[8] This is important in the event that a buyer may need to take an action against the carrier for loss or damage, which will be discussed in more detail in the following chapter. Finally, in relation to the bill of lading acting as a document of title, the bill of lading can act as a ‘symbolical delivery of cargo’, indicating a transfer of ownership between the buyer and seller.[9]

In summary, the few examples above illustrate the way that rights to the documents and rights to the goods can interact with one another. In other words, the documents need to be accurate, complete and legitimate in order for a buyer to be able to exercise any of his or her abovementioned rights in relation to the goods, and any non-conforming documents will generally be rejected. This brief will now seek to consider the rights to the documents and goods which arise under English law in more detail, with a further discussion to follow on the interaction of these two rights with one another.

Rights in Relation to the Documents

There is a classical legal statement that exists in English common law which outlines the three documents that must be tendered in a CIF contract in order to be valid: the bill of lading, an insurance policy and an invoice showing a price breakdown of the goods (and also a description of those goods).[10] Thus, on this basis, it is clear that the buyer has the right to require that these documents be presented in the transaction before it can proceed any further. Consequently, it is the duty of the seller to ensure that they are provided. This brief will now seek to examine the rights to these documents in light of CIF contracts.

As mentioned, the buyer has the right to request that all documents be present in a transaction (in fact, it is the seller’s duty under the aforementioned common law). Before these are discussed, it is important to consider the broad contract of sale that may exist between the two parties. As a general rule, it is the buyer that it allowed to specify a port of shipment by a certain time; however the court maintains the discretion to amend the contract if the buyer specifies a somewhat inconvenient port of shipment.[11] This is an important limitation, as it signifies that the buyer, while granted certain rights, must not abuse those rights, thus keeping the contract balance of power between the buyer and seller in check.

The right to an itemised account or invoice for the goods can be beneficial for a buyer in a CIF contract. It allows for the buyer to ensure that he or she is received the amount and type of goods that were promised in the contract of sale. Essentially, the documents to the transaction are the sole representation of the goods to the buyer until the goods have actually arrived in port, and are ready to be released, and therefore it is important that they are as clear as possible to ensure that the buyer has some idea of the goods that are due to arrive, and can take corrective action as soon as possible on any discrepancies.[12]

Another good indicator of rights in relation to the documents of the transaction is presented by the Carriage of Goods by Sea Act 1992. Under this Act, the CIF buyer (upon transfer of the shipping documents) acquires ‘all rights of suit under the contract of carriage as if he had been a party to that contract’.[13] Therefore, not only does the buyer have rights against the seller in a CIF contract, but he or she also has rights which are exercisable against the carrier of the goods in the event of any breach by that third party. This brief has little scope at this time to assess the merits of a dispute which may arise between a buyer and a carrier, however it is important at this point to understand that the buyer has the same rights as the seller against the carrier in the event that some sort of dispute arises.

In summary, it is clear that a buyer does have some rights in relation to the documents in a CIF trade contract; however these may differ dramatically from those available under international standards and legislation, such as the CISG. This brief will now seek to explore the ways that a buyer may have rights in relation to the goods under English law, followed by an interaction between the two rights.

Rights in Relation to the Goods

This brief will now explore the other right conferred upon the buyer in a CIF contract: a right to conforming goods. Essentially, the buyer has a right to receive goods which are not only in conformity to the documents, but also in conformity to general standards of quality. As previously mentioned, the quality is generally made clear on the bill of lading, which means that should the goods arrive into port in the same condition that they left the port of shipment according to the bill of lading, then a buyer will have no right to remedy either against the seller or the carrier. A CIF contract must make specific reference to include the right to conforming goods and the right to conforming documents; otherwise the courts will generally reject the contract as being CIF in nature.[14] This shows the importance of the presence of these rights in a CIF contract as, if they are not present, then it will be deemed that a CIF contract is not apparent.

In order to exercise the buyer’s right to conforming goods, he or she is entitled to make an inspection of the goods before taking possession of them at the port, within a reasonable time frame.[15] If the buyer finds that the goods do not conform to the standards of the bill of lading before taking delivery, they are entitled to reject the consignment even where they have been paid for and shipped.[16] Therefore, the main premise is that the goods need to comply with the standards set by the bill of lading, as this is a reflection of their condition, quantity and/or weight at the time of shipment. It indicates whether or not the seller has acted in good faith, and thus whether the buyer has any methods of recourse available to him or her. The right of the buyer to examine the goods in English law is given by the Sale of Goods Act 1979, which states:

(1) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.[17]

This indicates as mentioned, that the buyer has an unassailable right in English law to inspect the goods in order to ensure that they conform to the contract and/or the bill of lading. Thus, this piece of legislation effectively incorporates this as an implied term in all contracts which fall under the jurisdiction of English law. Thus, acceptance of the goods is defined as:

… when he intimates to the seller that he has accepted them, or (except where section 34 above otherwise provides) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.[18]

Therefore, the rule of acceptance does not apply where section 34 operates, and thus the seller cannot compel the buyer (through operation of contractual terms) to accept goods where he requests the buyer to do so (under the subsequent section 37). Therefore, the buyer has a rigid right to ensure that the goods are in conformity to the contract before he accepts them and, if they do not conform, then he has a right to reject them and to not necessarily return them to the seller if that it his prerogative.[19]

Interaction

This brief has already outlined the importance of the two rights in order for a CIF contract to exist, however it has not yet outlined the ways in which these two rights interact and rely upon one another. Thus, this brief will now seek to offer an insight into how these two rights relate with one another, as well as the importance of both to the exercising of such rights. As this brief has previously mentioned, the documents of the transaction (particularly the bill of lading) can serve a number of key purposes, such as acting as a receipt for the goods shipped, acting as evidence of the contract of carriage, or even acting as a certificate of title for the goods. This highlights the aforementioned dependence on one another. For example, if one was to claim for non-conforming goods that arrived into port, one would need to rely on their right to having conforming documents, and thus those documents also need to be accurate if they are to be relied upon for such a claim. Another example would be if a buyer was to claim the goods from the carrier once they have arrived into port, again the right to conforming documents would need to be satisfied, given that a carrier would generally not release the goods on the basis of defective documents.

The rights of the buyer are not simply limited to those which are exercisable solely by the buyer under the Sale of Goods Act 1979. In fact, in relation to a contract of carriage, a buyer acquires all rights as though he was a party to that contract against the carrier of the goods.[20] This means that, for example, any breaches of contract that may not be covered by the insurance policy may be able to be claimed in damages against the shipping company, and the mere fact that the buyer was not a party to the contract does not diminish this right in any way. This relies heavily on the notion that the bill of lading is one that is capable of being transferred to the buying party (and hence valid, for the purposes of the Act). Thus, the documents are important for the buyer to be able to exercise his rights in this regard as well. If the bill of lading is one that cannot be transferred to the buying party, it not only is invalid according to the principles of a CIF contract, but it also prevents the buying party from exercising the same rights in relation to the contract of carriage as what the seller could.

Under English law, the interaction between the rights in relation to goods and the rights in relation to the documents can become problematic at times. Jason Chuah, a respected author in the field of international trade law, writes:

The CIF contract gives rise to two distinct rights: the right to call for conforming documents and the right to conforming goods. This binomial nature of the CIF contract is a source of major legal difficulties. First, the two rights must be distinct in the contract; a general reference in a trade term calling for the use of documents does not necessarily mean that it is a CIF contract. Secondly, there is the problem of working out how one right affects the other. For example, how does the parties’ conduct vis-à-vis one right affect their entitlement to the other in the same contract?[21]

This is a key issue in English law. If one right is affected, is the party still entitled to exercise the other, or are both now considered invalid? There is case law to suggest that where a buyer accepts defective documents, this would not affect his right to exercise rights in relation to the goods, as most likely those defects would not have been apparent on the face of the document at the time it was accepted, hence the buyer was not to know of the defective documents.[22] However, this issue still tends to vary and become grey in some respects, such as where goods were shipped late according to the bill of lading, and if a buyer was able to reject them and repudiate the contract based on other evidence.[23] Thus, while English law is equipped to deal with these rights in some instances, some areas still remain unclear, particularly in relation to estoppel and waiver of rights.

Conclusion

The chapter has looked at ways in which English law serves to protect the rights of the buyer in CIF contracts, particularly in relation to both the documents and the goods. It has also looked at ways in which these two rights seek to interact with and rely on one another. It appears that, generally, these rights are quite well protected in English law, particular by statute in the Sale of Goods Act 1979 and, to a lesser extent, the Carriage of Goods by Sea Act 1992. The main issue that appears to be prevalent in English law is the fact that the statutory law does not seem to directly deal with CIF contracts, which are becoming considerably more popular in the modern context. The statutory law only deals in the general sense, which is in some ways is concerning, but in others tends to provide the piece of mind that these protections appear to apply to all trade contracts that fall under the English jurisdiction. We can, however, turn to the common law for an elaboration upon the statutory framework, as has been discussed throughout this brief. For example, it is the common law that dictates the requirements for a CIF contract to exist, and that is that the contract must make specific reference to containing the right to conforming documents and the right to conforming goods.[24]

UN Convention for the International Sale of Goods

Introduction

The United Nations Convention on the International Sale of Goods is a legislative framework that has been approved on an international scale for its incorporation into international transactions. According to some authors, this attempt to standardise international trade regulations among the UN Member States is one that has succeeded in ways that nobody could have comprehended; since its entry into force in 1988, the number of Contracting States to this Convention had risen to 64 as at 2004,[25] and currently stands at 70 as at 1 January 2007.[26] The UN Convention followed many other failed attempts at an international standard of trade law, such as the Hague Conventions which were only actually implemented by nine states.[27] The UN CISG is overseen by the United Nations Commission for International Trade Law (UNCITRAL), which was established in 1966 as a permanent committee of the UN, and has thus been working on a unification of trade law since 1968.[28]

Generally, the CISG is divided into four key parts. Part I deals with the scope of its application, such as what contracts it can apply to and those to which it does not apply. Part II has provisions relating more to the formation of a contract, and thus addresses the concept of when a contract is deemed to be formed under these provisions, and what possible arguments one might have to argue that a contract has not been properly formed. Part III tends to address the more substantive issues of a contract, such as the obligations and rights of parties (as well as the remedies), and similar concepts. Part IV has the final public international law provisions. While the CISG is made up of four parts, it should also be noted that Article 92(1) of the CISG permits a Contracting State to implement the Convention with or without Parts II and III. This highlights perhaps a key issue with the effectiveness of the CISG as a whole: it is possible for a member state to modify the degree of applicability of the CISG on contracts that fall within both their own jurisdiction, and the jurisdiction of the Convention. For example, Denmark, Finland, Norway and Sweden have indicated that they will not be bound by Part II of the Convention, and thus formulate their own domestic rules which relate to the formation of a contract.[29]

So what does the CISG mean from the perspective of England and the United Kingdom? Does the Convention apply to English contracts of trade between other Member States? These questions are difficult to answer, but regard must be had for the public and private international law on this issue. According to UNCITRAL, the UK has yet to ratify the CISG into force, and thus is not a Contracting State.[30] This does not, itself, preclude the CISG from operating in contracts where there is an English party; it simply means that in order for it to apply, the rules of private international law have to lead to the application of the law of a Contracting State.[31] For example, if a contract involving an English party and a German party was subject to the governing law of Australia, then it would lead ultimately to the application of the CISG given Australia’s succession to the Convention. However, if the governing law was that of England, then it of course would not apply where there was an English party, as both of the parties are not members of a Contracting State, and the rules of private international law do not lead to the application of the laws of a Contracting State.

This brief will seek to explore the rights which are bestowed upon a buyer by the CISG, particularly in relation to their rights to the documents and their rights to the goods. After doing this, this brief will then seek to explore in interdependence and interaction with one another, which is the main scope of this brief as a whole. The main purpose of analysing the CISG is to offer a comparison with English law, in order to determine if English law has any significant deficiencies according to international standards of trade law. Any of these deficiencies may create problems when parties from Contracting States choose to transact with an English party, and that contract is subject to the jurisdiction of English law.

Rights in Relation to the Documents

The CISG is not silent when it comes to the requirement for the seller to hand over documents relating to the contract. In fact, it prescribes the fact that the documents must ‘conform’ to the contract, by saying:

If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.[32]

This presents a two-pronged right for the buyer against the seller: not only is the seller required to hand over documents relating to the transaction at the place and time required by the terms of the contract, but he is also required to make sure that those documents conform to the requirements of the contract. This means that the buyer may be able to exercise a remedy listed in Article 45 et seq. For example, if the documents did not conform, then it may be possible for the buyer to have the contract declared void, however it would appear that such an action would be limited to only if it could be proven that a such a failure of the seller to hand over the documents amounted to a ‘fundamental breach of contract’.[33] However, it is also important to consider the circumstances under which a waiver of this right may be valid under the CISG. According to the Convention, it appears that a waiver of this right to conforming documents can be obtained provided the parties to the contract have agreed otherwise.[34] This differs considerably from the English law we have seen thus far, in the sense that the agreement between the two parties tends to take precedence over the legislative provisions, and not vice versa. Parties are therefore able to make their own agreements which vary rights and responsibilities, and the CISG can be relied upon by those parties where gaps or ambiguities may arise.

This same article of the CISG also addresses the issue of damages in its third sentence. Essentially, Article 34 suggests that if the buyer has suffered a loss that cannot be cured through the tendering of corrected documents, then the buyer maintains the right to claim damages.[35] Additionally, the article also makes clear that the buyer does not waive this right but subsequently accepting documents that conform. It is said that reasonable costs that could be claimed in these circumstances could include, for example, the cost associated with inspecting and returning non-conforming documents.[36] Thus, it is clear that the CISG contains some protections for the buyer in relation to documents that do not conform to the contract. As previously mentioned, a CIF contract contains to unassailable rights: one to conforming documents and one to conforming goods (which will be considered next). The CISG allow for the rigidity of buyer protection against loss arising from non-conforming documents, but also for the flexibility of ‘contracting around’ the operation of this provision if the parties deem it unnecessary for whatever reason. Thus, the CISG clearly upholds a buyer’s CIF contract rights.

Rights in Relation to the Goods

The CISG is probably more adamant about the conformity of the goods than it is with conformity of documents, due to the number of articles that tend to address the issue of conformity of goods, and the remedies available in the event of a breach of this standard. The most clear-cut of these provisions is contained within Article 35, which reads:

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;

(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.[37]

This provision highlights the key responsibilities of the seller, and thus the right of the buyer, in relation to the goods. This provision essentially states that the goods are required to conform to the terms of the contract and, unless the contract states otherwise, conformity does not occur unless the specifics of this provision are satisfied. However, it also illustrates that this right can be overcome if the seller can prove that the buyer had knowledge that conformity was impossible at the time the contract was formed.

In terms of liability, it is common sense that the seller would become liable for any lack of conformity of the goods; however this notion is reinforced in a codified format in the CISG:

(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.

(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.[38]

This demonstrates that the seller becomes liable if the goods to not conform to the standards set by the contract. It shows that even if the seller was not aware of a lack of conformity at the time of shipment, he is still liable for any loss or damage caused by this lack of conformity, thus reinforcing the right of the buyer to conforming goods.

Finally, the buyer also has the right to inspect the goods to ensure that they conform to the contract. In fact, this is more of an obligation that the buyer must perform, rather than a right he is able to exercise:

(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.

(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.

(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.[39]

This demonstrates that the buyer has a right to inspect the goods at the earliest possible convenience, which may well not be until the goods arrive into the destination port. On the basis of the aforementioned provisions of the CISG, it is clear that the buyer has a number of rights in relation to the goods; however they all generally revolve around the need to have conforming goods, which is an essential element for a CIF contract to exist.

Interaction

As was the case with English law, it is obvious that there is a need for both rights to be present in the contract in order for a CIF contract to exist, and thus it is not enough to make simple reference to the fact that the contract is intended to be a CIF contract. As with English law, the CISG attempts to entrench these rights in law, although the Convention seems to go one step further and expressly outline these rights in the legislation, and not rely on case law for elaborations. The CISG does split these rights across a number of the articles, but it appears that the common theme is the need for conformity of documents and goods to the contract. Perhaps the main difference is that these rights tend to operate more independently from one another than the English law principles. The CISG tends to outline the rights and their remedies in the same Article, such as that of Article 34 relating to conformity of documents. As such, there is no major need for the two rights to cross paths and rely upon one another, as much of the provisions in the CISG relating to buyer’s rights tend to be self-sufficient and operate of their own accord. Perhaps the only real interaction is when either the documents or goods are required to conform to the contract of sale; however this does not mean that documents and goods interact with one another.

Thus, the CISG tends to spruik more independent rights, rather than following the English system of having the rights rely and relate to one another. The introduction of the express text of the CISG has made it unnecessary for there to be common law elaborations, and thus it the rights available to a buyer should be a lot clearer under this system. However, the ability for Contracting States to modify certain provisions of the Convention and replace them with their own domestic rules is of great concern, as it appears that such an action goes against the goals of UNCITRAL in standardising international trade law around the world.

Conclusion

In summary, it appears that the CISG provides a much more rigid expression of the rights of a buyer which can be relied upon in a CIF contract. The reason for this could be that the CISG has had the benefit of learning from the deficiencies of its member jurisdictions, and thus make provisions to address these issues accordingly. The rights of the buyer (along with those of the seller) are outlined in Part II of the Convention, and address both the buyer’s right to conforming documents, as well as those relating to conforming goods. Accordingly, perhaps with it being administered by an international institution, it also has the benefit of adapting to reflect trade demands in the international jurisdiction, thus dealing more with the global nature of international trade, without having to subject itself to the politics and social trends that may came with enacting relevant domestic legislation. The Convention also goes a long way in standardising international trade law between those countries that are signatories to it.

The expression of buyer’s rights is significantly clear in the Convention. In relation to the conformity of documents, Article 34 contains three sentences which outlines not only the requirement for the documents to conform to the contract, but also the fact that the seller should be given a chance to tender conforming documents, and also highlights the remedies available for non-conformity. This demonstrates the self-sufficient nature of the Convention, rather than having to concern itself with any common law interpretations that domestic law is often subject to in the court system. However, perhaps one of the major concerns of the Convention is the fact that its applicability can be modified by the Contracting States, and thus they can substitute certain provisions of the Convention for their own domestic rules. This means that, while the basic rationale of the Convention is to standardise international trade law, it can also contribute perhaps to its own demise, in the sense that it is not standardising trade law at all, rather encourages parity. On the other hand, the competing argument could be that it allows for Contracting States to tailor the Convention to suit their individual social and cultural norms, which prevents the Convention from imposing Western ideals on an Eastern state, for example. The Convention, thus, could be construed as being an effective tool for standardising international trade law, while also maintaining the flexibility to allow for the imposition of individual jurisdictional values, as it is highly unlikely that each Contracting State would have the same values in international trade.

On its face value, it appears that the Convention deals more so with the buyer’s rights to conforming goods rather than his right to conforming documents. This is primarily due to the fact that there is simply more text in the Convention that deals with goods and thus such a conclusion can be drawn. However, the important fact is that the Convention does deal with both of these rights, and thus has the capacity to support CIF contracts according to general principles. As with English law, the general consensus on CIF contracts is that they must contain both the right to conforming goods, and the right to conforming documents.[40] The CISG leaves much of the enforcement of these rights up to the discretion of the parties of the contract, as it is possible for the contract to exclude the operation of these rights. However, there is little doubt that these rights are available for enforcement if the parties so choose to incorporate them into their contract by either being parties of Contracting States, or by incorporating the governing law as that of a Contracting State. It is just the variability of the application of these rights is of some significant concern, as it is possible for the buyer to have his rights affected by either his or the seller’s conduct in entering into the contract.

A Comparison Between the Two Laws

Based upon the above analysis of both laws, it is quite clear that some significant differences arise between English law (i.e. the Sale of Goods Act 1979) and the provisions of the CISG. In general terms, the CISG is a lot more express in determining the rights of the buyer and, while both contain express text relating to the rights of the buyer, it is the CISG that is significantly more self-sufficient in this area, not requiring the elaboration of the courts. But, one has to consider this within context, and the fact remains that it is still up to the domestic courts in the chosen forum to enforce the CISG if that is chosen as the governing law, thus meaning that a court could still impose its own national values on such an international piece of law. The main problem with English law, it would appear, is that it relies heavily on the goodwill of the courts to constantly update it and keep it in check with international standards, especially given that the United Kingdom has not ratified the CISG. What this means is that England effectively has its own standards of international trade law and, accordingly, their enforcement of rights of the parties differs from that of the CISG. Additionally, the CISG appears to be less receptive to having the rights interact with one another, which differs considerably from the English system. The English system promotes the interaction of the bill of lading with the conformity of goods, whereas the CISG specifies certain criteria which dictate whether or not these goods conform. This is a significant difference for the purposes of this brief, as the CISG appears to deal only with the contract itself, and not necessarily with the documents of the contract in significant detail.[41] This brief will now explore the key differences between the substantive aspects of rights of the CIF buyer between English law and the CISG.

Firstly, this brief will explore the differences in standards of conformity of goods. As previously mentioned, Article 35 of the CISG deals specifically with the need for this conformity, and also highlights the requirements for this, including fitness for purpose. In English law at one stage, the requirements to comply with the fitness for purpose test were that they had to be fit for only one of their ordinary purposes.[42] However, changes were brought in by the Sale and Supply of Goods Act 1994 (which consequently amended the Sale of Goods Act 1979). Now, the Sale of Goods Act 1979 implies a term in all contracts as to the requirements of this fitness for purpose test, attesting as to their quality, durability and similar.[43] However, the amended Act qualifies itself by restricting itself to applying in ‘appropriate cases’,[44] whereas Article 35 of the CISG has no such qualification. In an example where a buyer has goods which are unfit for a particular purpose, and declares that he has no intention of using them for that purpose at the time the contract was formed, an English court should therefore conclude that liability is not appropriate, whereas a court interpreting the CISG would have no choice but to apply the doctrine of good faith in order to absolve the buyer of any liability.[45] This shows that, while the English law is perhaps less express on the issue of conformity of goods, it also allows the courts to have substantial discretion in this field, and thus apply the right to conformity of goods in a way that is fair and just to both parties, allowing for the application of the relevant facts of the case. The CISG on the other hand does not qualify itself in relation to the conformity of goods, and thus expects this right to apply in all circumstances, even the aforementioned example in which it may not be appropriate for it to apply. There is no reference in the CISG, therefore, to a variable standard of conformity relating to the individual facts of the case when compared to that present in section 14(2) of the Sale of Goods Act 1979.

The buyer’s right to reject these non-conforming goods is also the subject of much discrepancy between the two laws. In England, one would look to section 35 of the Sale of Goods Act 1979 in order to decide as to whether this right had been lost by acceptance. The CISG differs in its approach. It essentially makes the issues of rejection of goods and termination of the same substantive basis, in the sense that it states the buyer loses his right to avoid the contract where he cannot make restitution of the goods in substantially the same condition in which he received them.[46] Therefore, it casts a very broad light on the avoidance of a contract as a whole, rather than making specialised situations which may rely on different rules of avoidance than others. The CISG does recognise an exception to the rule of losing avoidance rights where the buyer cannot have reasonably been expected to examine the goods,[47] or where the goods have been disposed of by the buyer before he could have discovered non-conformity,[48] however it is not as clear as what the English system appears to be in relation to conformity of goods.

In summary, it appears that while the English system is significantly vaguer on the rights aspects of a CIF contract, it allows for more relationship by the court to the facts of the case, rather than having to decide the case by applying hard and fast rules. It recognises that the buyer should be able to exercise his rights in any number of situations, and should no be limited by certain express exceptions to the rules that are present to the CISG. This is especially so in relation to the conformity of the goods, as has been highlighted throughout this chapter.

Conclusions

Based upon the analysis that this brief has offered of both English law and the CISG in relation to a buyer’s rights in a CIF contract, it appears that English law probably provides a more effective mechanism for their enforcement, and promotes their interaction. The CISG, while addressing key issues in international trade, is lacking in certain areas which probably does not promote an overly reliable source of governing law for a contract. The main advantage of the CISG is that both parties will be aware of their rights and responsibilities at the time the contract is formed, without the need to explore complex case law in order to ascertain certain factors which may influence the contract. In any event, when a contract involves an English party, it would be highly unlikely that the CISG would come into operation unless that party agreed to the contract being subject, say, to the laws of Australia. This is primarily due to the fact that the United Kingdom is not a Contracting State to the CISG, and thus it does not come into automatic force in international trade contracts.

English law relating to international trade appears to protect the rights of the buyer, by making express provisions for them in legislation. These provisions are further strengthened by the courts further adapting and relating the law to the facts of the case, as well as keeping it in check with current trends. English law contains all the main rights protections for a CIF contract that are present in the CISG, and probably represents them in a more effective manner overall. A number of discrepancies exist between the CISG and English law; however they do not seem to be a sufficient degree to render the English governing law as ineffective in any way. The main problem with the CISG is it tends to immerse itself in the substantive issues of the contract, whereas English law has many other options available to it such as where a bill of lading is in issue. This means that there is significantly more interactivity between a CIF buyer’s right to conforming documents, and his right to conforming goods, as they essentially rely upon each other in the English system. Overall then, it would appear that English law is effective in protecting a CIF buyer’s rights, and is flexible enough to allow for them to interrelate making each case distinct and different. This is not so under the CISG, and thus it should be seen that, given the option, one should choose to have English law govern the contract, and not resort to the CISG in its current form, as English law appears to be more than adequate to handle these types of contracts.

Bibliography

Books

  • Bridge, M., The International Sale of Goods: Law and Practice (1999), London: Oxford University Press
  • Carr, I., International Trade Law (2005, 3rd ed), London: Cavendish
  • Chuah, J., Law of International Trade (2006, 2nd ed), London: Thomson Sweet and Maxwell
  • Cottier, T., Pauwelyn, J., and Burgi, E. (eds), Human Rights and International Trade (2005), London: Oxford University Press
  • Girvan, S., Carriage of Goods by Sea (2007), London: Oxford University Press
  • Moens, G., and Gillies, P., International Trade and Business (2006, 2nd ed), Sydney: Cavendish
  • Schlechtriem, P., and Schwenzer, I. (eds), Commentary on the UN Convention on the International Sale of Goods (2005, 2nd ed), London: Oxford University Press
  • Zeller, B., Damages Under the Convention on Contracts for the International Sale of Goods (2005), New York: Oceana Publications Inc

Legislation

  • Sale of Goods Act 1979
  • Carriage of Goods by Sea Act 1992
  • Sale and Supply of Goods Act 1994
  • UN Convention on the International Sale of Goods

Cases

  • Biddell Bros v Clemens Horst (E) Co [1911] 1 KB 214
  • Borealis AB v Stargas Ltd (The Berge Sisar) [2002] 2 AC 205
  • Compania Naviera Vascongada v Churchill & Sim [1906] 1 KB 237
  • Comptoir dAchat et de Vented u Boerenbond Belge SA v Luis de Ridder Ltd [1949] AC 293
  • Crooks v Allen (1879) 5 QBD 38
  • E Hardy & Co v Hillerns & Fowler Ltd [1923] 2 KB 490
  • Gatoil International v Tradax Petroleum [1985] 1 Lloyd’s Rep 351
  • Ireland v Livingstone (1872) LR 5 HL 395
  • Johnson v Taylor Bros & Co Ltd [1920] AC 144
  • Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969] 2 AC 31
  • Kwei Tek Chao v British Traders & Shippers Ltd (No 1) [1954] 2 QB 459
  • Lecky & Co Ltd v Ogilvy Gillanders and Co (1897) 3 Com Cas 29
  • M/S Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1
  • Moss Steamship Co v Whinney [1912] AC 254
  • Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304
  • Proctor & Gamble Philippine Manufacturing Corp v Peter Cremer GmbH and Co (The Manila) [1988] 3 All ER 843
  • Sanders Bros v Maclean & Co (1883) 11 QBD 327
  • Smyth & Co Ltd v Bailey and son & Co Ltd [1940] 3 All ER 60
  • Smyth (Ross T) & Co [1940] 3 All ER 60
  • The Draupner [1910] AC 450
  • Transpetrol Ltd v Transol Olieproukten Nederland BV [1989] 1 Lloyd’s Rep 309

Other Sources

1


Footnotes

[1] Smyth & Co Ltd v Bailey and son & Co Ltd [1940] 3 All ER 60.

[2] Ibid.

[3] Jason Chuah, Law of International Trade (2006, 2nd ed), 126-7.

[4] Ibid, 127.

[5] Carriage of Goods by Sea Act 1992, s 1(1).

[6] Carriage of Goods by Sea Act 1992, s 1(2).

[7] The Draupner [1910] AC 450, 451 (Lord Loreburn LC). See also Compania Naviera Vascongada v Churchill & Sim [1906] 1 KB 237, 245 (Channel J) in relation to statements of condition of the goods made on the bill of lading.

[8] See, for example, Crooks v Allen (1879) 5 QBD 38 (CA), 40; Moss Steamship Co v Whinney [1912] AC 254, 264.

[9] Sanders Bros v Maclean & Co (1883) 11 QBD 327, 341 (Bowen LJ). See also Borealis AB v Stargas Ltd (The Berge Sisar) [2002] 2 AC 205 at [18] (Lord Hobhouse); Carriage of Goods by Sea Act 1992, s 2(1).

[10] For examples of such statements being made, see Smyth (Ross T) & Co [1940] 3 All ER 60 (Lord Wright); Johnson v Taylor Bros & Co Ltd [1920] AC 144 (Lord Atkinson); Ireland v Livingstone (1872) LR 5 HL 395, 406 (Blackburn J); Gatoil International v Tradax Petroleum [1985] 1 Lloyd’s Rep 351, 357-9; Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304. See also Biddell Bros v Clemens Horst (E) Co [1911] 1 KB 214, 220 for a discussion of the fact that the seller’s responsibilities may be expressed as acts he must perform, similar to the aforementioned cases.

[11] A buyer may specify a port, but a court will adjust the contract in the event of a dispute depending upon the distance of the chosen port from the ‘basis’ port (i.e. the most convenient port for the seller): see Transpetrol Ltd v Transol Olieproukten Nederland BV [1989] 1 Lloyd’s Rep 309, 310.

[12] The ability to correct defective documents differs between English law and the CISG, as will be discussed in due course. However, generally, English law does not permit a seller to amend discrepant documents after they have been exchanged. For an illustration of this, see Lecky & Co Ltd v Ogilvy Gillanders and Co (1897) 3 Com Cas 29, which states that a seller may become liable even where a properly formed and legal contract is made which differs from the bill of lading, and hence attempts to modify it.

[13] Carriage of Goods by Sea Act 1992, s 2(1).

[14] Comptoir dAchat et de Vented u Boerenbond Belge SA v Luis de Ridder Ltd [1949] AC 293.

[15] See Treitel [1984] LMCLQ 565.

[16] Chuah, as above n 3, 138.

[17] Sale of Goods Act 1979, s 34.

[18] Sale of Goods Act 1979, s 35(1).

[19] Sale of Goods Act 1979, s 36.

[20] Carriage of Goods by Sea Act 1992, s 2(1).

[21] Chuah, as above n 3, 136.

[22] Kwei Tek Chao v British Traders & Shippers Ltd (No 1) [1954] 2 QB 459.

[23] The case of Proctor & Gamble Philippine Manufacturing Corp v Peter Cremer GmbH and Co (The Manila) [1988] 3 All ER 843 revolved around the bill of lading stating that the goods had been shipped on a certain date, but a subsequent survey found loading did not take place until a few days later. The Court held that the survey report was not part of the required contractual documents, and hence could only consider the bill of lading on its face value. Thus, it was held that the buyer could not repudiate the contract as the bill of lading reflected that the goods had been shipped on time.

[24] Comptoir dAchat et de Vented u Boerenbond Belge SA v Luis de Ridder Ltd [1949] AC 293.

[25] Peter Schlechtreim and Ingeborg Schwenzer (eds), Commentary on the UN Convention for the International Sale of Goods (2005, 2nd ed), 1.

[26] UNCITRAL, ‘Status of UN CISG’ (2007) <http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html> at 30 August 2007.

[27] Schlectreim and Schwenzer, as above n 25.

[28] Ibid, 2.

[29] UNCITRAL, as above n 26.

[30] Ibid.

[31] See UN Convention on the International Sale of Goods, art 1.

[32] UN Convention on the International Sale of Goods, art 34.

[33] See UN Convention on International Sale of Goods, art 49(1)(a) read in conjunction with art 25.

[34] UN Convention on International Sale of Goods, art 6.

[35] UN Convention on International Sale of Goods art 34. See also art 45(1)(b) re: damages.

[36] Schlectreim and Schwenzer, as above n 25, 408.

[37] UN Convention on the International Sale of Goods, art 35.

[38] UN Convention on the International Sale of Goods, art 36.

[39] UN Convention on the International Sale of Goods, art 38.

[40] Chuah, as above n 3, 136.

[41] See UN Convention on the International Sale of Goods, art 34, in relation to documents, and note this is the only major provision on documents. All others appear to deal more so with the goods.

[42] Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969] 2 AC 31; M/S Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1.

[43] Sale of Goods Act 1979, s 14(2).

[44] Sale of Goods Act 1979, s 14(2B).

[45] Michael Bridge, The International Sale of Goods: Law and Practice (1999), 80-1.

[46] UN Convention on the International Sale of Goods, art 82.

[47] UN Convention on the International Sale of Goods, art 35.

[48] Cf E Hardy & Co v Hillerns & Fowler Ltd [1923] 2 KB 490 for an English perspective.


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