STD trade terms and INCOTERMS

Question 1

What contract of carriage is needed for intl sales

Answer 1

Therefore, for international sales, there will normally be a contract of carriage of goods by – Sea, Air or Land. It is also normal that the contract of carriage may require combining two or more transport modes (see; The Rotterdam Rules – Not yet in force). However, more than 90% of the carriage of goods arising from international trade – is carriage by sea.

Question 2

What are INCOTERMS

Answer 2

The Incoterms rules are terms of trade (with respect to risks, cost and transport) between a seller and buyer. The rules allocates risks (and cost) between the players at different stages of the transport journey. They have become a codified international contractual standard.
Disparities in trading practices and legal interpretations between traders of different countries triggered a need for a common set of rules to offer clarity and reduce misunderstandings, disputes and litigation.
Incoterms was first published by the International Chambers of Commerce (ICC) in 1936 and have had periodic updates to reflect changes in international trade. Since that first edition, it has been revised several times in; 1953, 1967, 1976, 1980, 2000, 2010 and 2020 – being the 8th and most current edition.

Question 3

When did INCOTERMS become applicable from

Answer 3

Incoterms 2020 became applicable from 1st January 2020. But traders around the world can still use incoterms 2010 and indeed earlier editions.
If parties insist that they wish to trade on Incoterms 2020 rules – they must ensure that this is stated expressly in the relevant contractual document (export documentation and sales contract). A useful way of doing that is shown below.
[Incoterms rule – (e.g., CIF)], [named port (e.g., Bueno Aires), place (e.g., BU), or point], Incoterms 2020.

Question 4

What is INCOTERMS 2020

Answer 4

Like its predecessor (Incoterms 2010), Incoterms 2020 defines 11 rules. There is one obvious change from the 2010 version - (Delivered at Terminal; DAT) is removed and replaced by (Delivered at Place Unloaded; DPU).
With previous versions, the rules were divided into four categories. In Incoterms 2020 the rules are split into two categories of 7 and 4 respectively based on method of delivery. The group of 7 rules may be used irrespective of method of transport. However, the group of 4 should be used only for sales involving sea transport where the condition of the goods can be verified at the point of loading on board a ship. Thus, not suitable for containerized freight, transport by road, air or rail or combined transport methods. However, there are cost and regulatory (jurisdictional) reasons why for e.g., a CIF may still be used for containerized freight

There is a significant change for traders contracting on Free Carrier (FCA) terms. Under Incoterm 2020, the buyer can instruct its carrier to issue a bill of lading with an on-board notation to the seller to satisfy the terms of a letter of credit.
Also, the insurance to be provided under the Cost and Insurance Paid To (CIP) term has changed higher from Institute Cargo Clauses(C) to Institute Cargo Clauses(A). The seller must now purchase a higher level of insurance coverage - at least 110% of the goods value as stipulated in Clause A of the Institute Cargo Clauses. However, the insurance requirement remains unchanged for CIF - Institute Cargo Clauses(C).
Incoterms 2020 defines delivery as the point in the transaction where ‘the risk of loss or damage to the goods passes from the seller to the buyer. There was no formal definition of ‘delivery’ in previous editions.

Question 5

What are the two groups incoterms 2020

Answer 5

Group A: Incoterms for Any Mode of Transport

1. EXW – Ex Works (named place of delivery)
2. FCA – Free Carrier (named place of delivery)
3. CPT – Carriage Paid To (named place of destination)
4. CIP – Carriage and Insurance Paid to (named place of destination)
5. DPU – Delivered At Place Unloaded (named place of destination)
6. DAP – Delivered At Place (named place of destination)
7. DDP – Delivered Duty Paid (named place of destination)

Group B: Incoterms for sea and inland waterway transport

1. FAS – Free Alongside Ship (named port of shipment)
2. FOB – Free on Board (named port of shipment)
3. CFR – Cost and Freight (named port of destination)
4. CIF – Cost, Insurance & Freight (named port of destination)

Question 6

What is CIP groupA

Answer 6

Group A: Incoterms for Any Mode of Transport
• CIP – Carriage and Insurance Paid to (named place of destination)
Seller clears the goods for export and delivers to the carrier at a named place of shipment, where risk transfers to the buyer. Seller is responsible for the transportation costs associated with delivering goods and procuring insurance coverage to the named place of destination in buyer’s country. Note: as per Incoterms 2020 rules for CIP, the seller must purchase a higher level of insurance coverage—at least 110% of the value of the goods as detailed in Clause A of the Institute Cargo Clauses.

Question 7

What is group B FOB and CIF

Answer 7

• FOB – Free on Board (named port of shipment)
Seller clears the goods for export and delivers them when they are on board the vessel at the named port of shipment. Buyer assumes all risks and cost for goods from this moment forward.
• CIF – Cost, Insurance & Freight (named port of destination)
Seller clears the goods for export and delivers on board the vessel at the port of shipment where risk passes to buyer. Seller bears cost of freight and insurance to port of destination. The seller is required to purchase the minimum level of insurance under Clause C of the Institute Cargo Clauses. Buyer is responsible for cost of unloading the goods at destination port.

Question 8

Duties of a FOB seller

Answer 8

• Supply goods conforming to contract
• Place goods on board vessel nominated by buyer – at which point risk is transferred to buyer. See: Pyrene Co Ltd v Scindia Navigation Co Ltd [1954]
• Obtain and tender to buyer all relevant documentation such as export licence
• Ensure goods are shipped within shipment period agreed in the contract
• Unless otherwise agreed, provide buyer with relevant information to arrange insurance

Question 9

Duties of a FOB buyer

Answer 9

• Procure a vessel or space on a vessel if not on full charter
• Instruct seller with respect to vessel location and time of loading
• Pay the contract price

Question 10

What is the buyers right of rejection

Answer 10

Under an FOB contract, the buyer’s right to reject are similar to those of the CIF buyer

Question 11

Key things to know about FOB contract

Answer 11

The FOB seller’s obligation will normally terminate upon placing the goods onboard the nominated vessel in exchange for a bill of lading (mostly in the buyer’s name) on terms that are usual in the trade and/or a mate’s receipt. There are no further obligations with the onward carriage of the goods like duty to pay for insurance and freight of the goods. See: Green v. Sichel (1860)
This is not to say that parties cannot vary standard FOB contract by reassigning certain obligations and risks. See: NV Handel Ny J. Smits Import-Export v English Exporters (London) Ltd [1957]
An important characteristic of an FOB contract is that the named port is the port of shipment. In contrast with a CIF contract, where the named port is the destination. See: Ian Stach Ltd v Baker Bosley Ltd [1958]
Hence, unlike in a CIF contract, an FOB seller cannot buy afloat. Also, risk and property pass from seller to buyer at shipment in FOB contracts.

See: Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] – for the different types of FOB contract.
A contract may be on FOB terms even if parties described it as something else. See: Scottish & Newcastle International Ltd v. Othon Ghalanos Ltd [2008] HL
Where the seller has delivered the good to the carrier, the goods are deemed to have been delivered to the buyer. See: Wimble, Sons & Co v. Rosenberg [1913].
In Maine Spinning Co. v. Sutcliffe & Co. (1918): UK government refused to grant export licence to seller, without which, he could not legally load goods on vessel. Buyer requested delivery to their warehouse, but seller refused – and Buyer claimed breach of contract.
Held: Seller not liable because delivery on board vessel is a provision for the benefit of both parties – hence, consent of both required for any waiver.

Question 12

3 types of FOB contract

Answer 12

Classic FOB
Buyer nominates vessel and seller delivers the goods on board. Seller remains direct party to the contract of carriage until bill of lading is taken out in the buyer’s name. Seller may take the bill of lading in their name and transfer to buyer.
Type 2 FOB
see: The El Amria and The El Minia [1982] CA. Seller makes shipping arrangements and delivers the goods on board the vessel. Seller then takes bill of lading - The bill of lading in seller’s name.
Type 3 FOB
Buyer makes the shipping arrangements, and seller deliver goods on board. Seller takes a mate’s receipt and tenders to buyer or their agent who takes the bill of lading in the buyer’s name. See: Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954]

Question 13

Contrast in fob contract

Answer 13

Contrast the ruling in Maine Spinning Co. v Sutcliffe & Co. (1918) with the approach adopted in Australia in: Cohen & Co. v Ockerby & Co Ltd (1917)
Where FOB buyer may elect to take delivery at another landed place unless the seller can show commercial reasons why delivery can only occur on board the vessel.
Contrast these further with the approach taken in: Meyer v Sullivan (1919)
Where FOB seller was held to be in breach for refusing to allow buyer take delivery in seller’s warehouse.

Question 14

What is classisms fob

Answer 14

Buyer has duty to make shipping arrangements according to terms of the contract.
The buyer’s nomination must be effective. Hence - nomination not effective if impossible or illegal to deliver goods to nominated vessel.
Effective nomination comprise; shipment period, manner of nomination, specific port of shipment. See:
• Bunge & Co v. Tradax England [1975]
• JJ Cunningham Ltd v Robert A Munro & Co Ltd [1922]
• Soufflet Negoce v Bunge SA [2010] EWCA
Buyer in breach for ineffective nomination leading to impossibility to load. Thus, seller entitled not to ship cargo.
See: Bunge SA v Nidera BV [2015] UKSC. Read GAFTA 49 - Clause 13 and the changes made following this ruling.

Question 15

What is right to reject

Answer 15

Similar to CIF contracts, an FOB buyer has two rights of rejection. Right to reject documents and goods.
See: Ramburs Inc v Agrifert SA [2015]
However, unlike in CIF contracts, an FOB buyer can reject the goods even if the documents are contractually compliant.
See: Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015]

Sellers obligation to quality, exclusion and modified

Question 16

COA decision in Mercini Lady 2010

Answer 16

• The Appeal found it impossible to see how a cargo of gas oil which was admitted as within specification on loading and delivery could nevertheless be delivered in breach of contract in a matter going to its specification.
• The implied statutory condition of satisfactory quality in Section 14 of SGA Act applied only at time of delivery and not thereafter although it may well be that whether or not the goods have a reasonable “durability” is part and parcel of determining whether or not they are of satisfactory quality.
• Thus, it rejected that a further term should be applied into the contract at common law to the effect that the goods should “remain on specification for a reasonable time after delivery”. For to find otherwise would effectively remove any certainty enjoyed by a seller who has agreed a final and binding inspection clause with his buyer.
• This is however, subject to the caveat that where a cargo has a latent inherent vice which could not have been picked up by the quality inspection, the load port inspection would not, in any event, be conclusive.
• With respect to the contractual exclusion clause 18, the Court of Appeal held that since the exclusion clause did not specifically exclude “conditions” and since the implied terms of the Sale of Goods Act are conditions, the clause did not operate so as to exclude the Act. Equally, there was nothing in the specification clause and the inspection clause which was inconsistent with implication of the statutory conditions.

Question 17

sellers duty in CIF

Answer 17

• Arrange contract of carriage by sea by procuring a vessel (charter or contract of affreightment) for shipment of the contracted goods from a port in his/her home country (or an agreed port of shipment) to the agreed destination port – normally stipulated by the buyer. Note: the seller does not undertake the safe and timely arrival of the goods.
• Place the contracted goods across the ship’s rail – and on board the vessel – at the port of shipment [at which point the risk of loss or damage to the goods passes from seller to buyer] for onward transportation to the agreed port of destination. Note: by contracted goods – we mean goods that correspond to the description (S.13 SGA 1979 – but note the possible impact of S.15A) – as contained in the contract.

see manure 1919
arrange insurance policy for contracted goods (Hickox 1876)
Prepare commercial invoice stating costs
Tender all relevant documents

Question 18

What are CIF buyers duty

Answer 18

• Accept (conforming) documents tendered by seller – even if he has knowledge that goods are lost or damaged.
• Pay against conforming documents
• Pay the contract price against relevant documents – regardless of not having inspected the goods and even where goods have been damaged or lost. See: Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919]. In other words, the buyer must pay now and argue later
• Take delivery of goods at destination
• Pay duties and procure import licence etc.

Question 19

CIF Buyers right to reject

Answer 19

The buyer has two ‘separate and successive’ opportunities to reject without breaching the contractual agreement.
• First, buyer can reject if seller fails to tender relevant documents that conform with the contract. The buyer forgoes this right if he/she misses an obvious error on the face of the document – should that error materialize at delivery.
• Second, after accepting and paying for documents – the buyer can reject if at delivery – the goods do not conform to the description in the contract (s.13 SGA 1979) and/or the goods are not of satisfactory quality (s.14 SGA 1979)
• See: Kwei Tek Tek Chao v British Traders & Shippers Ltd. [1954]

Question 20

Is Cif a sale of docs or sale of goods

Answer 20

lost prior to the documents being tendered. Secondly, that the seller does not undertake the safe and timely arrival of the goods – and if goods are lost or damaged – the buyer’s remedy is not against the seller but rather against the carrier or insurer - this means that the obligation of the seller ends with the tendering of conforming documents and not the goods - then perhaps you may be forgiven if you express sympathy for the school of thought that a CIF contract is a contract for the sale of documents and not for the sale of goods.

CIF – Cost, Insurance & Freight (named port of destination)
And you harbor such thoughts – you are not alone – for: Scrutton LJ in Arnhold Karberg v Blythe, Green, Jourdain & Co [1915] – argued at first instance that a CIF contract was a contract for the sale of documents relating to goods and not a contract for the sale of goods. However, on appeal to the CA, Bankes LJ and Warrington LJ took the view that a CIF contract is a contract for the sale of goods to be performed by the delivery of conforming documents.
CIF contract or something else? – See: The Julia [1949]: cargo sold on purported CIF Antwerp terms but indeed this was a sale on Delivered at Place (DAP) terms. Buyer paid against document – but cargo delivered in Lisbon instead of Antwerp. Buyer sues for return of payment on the basis of total failure of consideration. Seller argues payment against document suggests seller’s obligation performed. Held – this was not a CIF contract-and buyer entitled to recover payment for total failure of consideration.

Question 21

What does sec 14 and seller obligation say about quality

Answer 21

The question that we must now answer is; if as we must accept; it is the seller’s duty to supply goods that are of satisfactory quality and fit for purpose. Is this a continued duty? If not, when does that duty terminate? Is it upon the passing of property or passing of risk?
Mash & Murrell Ltd v Joseph I Emanuel Ltd [1962] CA : Cyprus based sellers sold potatoes C&F to Liverpool, the potatoes were sound when loaded but rotten on arrival in Liverpool. The Court of Appeal reversed the decision at First Instance on the facts that the goods were fit on loading but voyage was not normal but agreed with the lower court that the legal principle is that in such a contract the goods should be capable of enduring a normal journey and to remain in a merchantable condition upon arrival.

The seller’s duty under S.14 is not one of applying best endeavours or using reasonable care. It is a strict and non delegable obligation to supply goods that are of satisfactory quality and fit for purpose.
Where then does the law strike where a buyer has occasioned and contributed to a loss albeit that the goods were ab initio defective? We should assess this bearing in mind that The Law Reform (Contributory Negligence) Act applies to tortious negligence BUT not to strict contractual duties between parties.
It appears that the law will strike wherever it can find the last cause or fault occasioning the loss or damage.