International Commercial Sales: The Sale of Goods on Shipment Terms
Well-written explanatory, extensive commercial law exam notes; achieved a First (73) in the exam using these notes. Used at Exeter Uni year 3, term 2. Please ask if you have any questions
Sources of international commercial sales: English law and SOGA 1979, Incoterms, CIF and FOB contracts,
1980 Vienna Convention on International sale of goods
Creation of the contract: incorporation of standard terms and transport obligations
Transfer of risk and property
Seller’s duty re the goods and documents
Bills of Lading
Letters of Credit
Rejection and remedies for breach of contract
Template for PQ –
1. Identify the area
2. Identify the problem
3. Explain case law/ statutory provisions
4. Apply them to the scenario
5. Legal Advice – most important – answers question.
Sources of English Law (English law, Incoterms, Fosfa, Gafta etc.)
Incorporation of standard terms (contracts CIF, FOB)
Transfer obligations of the seller
Transfer of risk
Bill of lading
Seller’s physical duties
Seller’s documentary duties
Letters of Credit
Rejection and remedies for breach of contract – e.g. reject Bill of Lading
Write a lot; major challenge – explain case law even if it is not relevant – show off your knowledge. E.g. you need to
explain exceptions to transfer of risk even though there Is no exception available in PQ – then discern what is relevant
SOURCES OF INTERNATIONAL COMMERCIAL SALES – 1
How do we solve the issue of which domestic law will govern the specific-sale contract? – Primordial need for the
identification of a lex mecatoria – a body of laws governing international commercial sales as a consolidated system
of common practice.
Crucially, United Nations International Convention on Contract for the Sale of Goods 1980 (Vienna Convention) was
unsuccessful.
, - English Law is the lex mercatoria via Case law and Sale of Goods Act (SOGA) 1979) - it is necessary that one
domestic law should prevail – that of English Law – English law was able to somehow prevail over other bodies
of law in the manner of ‘survival of the fittest’ – English law is praised for its successful, albeit unique judicial
commercial awareness (organically developed via case law in order to fit the needs of the international trading
community - Lord’s Mansfield’s genius – ‘harmonisation of commercial custom and the common law has been
carried out with an almost complete understanding of the requirements of the commercial community’ as opposed
to German and French law mainly enacted by Parliament) - it is a not a replication of English domestic contract
law, instead relevant English Case law.
- Incoterms 2010 – (drafted every 10 years or so by International Chamber of Commerce) - widely used in the
international commercial transaction processes. The purpose of the Incoterms is to provide a set of international
rules for the interpretation of the most commonly used trade terms in foreign trade, so as to avoid uncertainties
which may arise on the basis of different interpretations of such terms in different countries. Each Incoterms rule
specifies: the obligations of each party (e.g. who is responsible for services such as transport; import and export
clearance etc.
- Important to emphasise that the Incoterms – do not have force of law; rather, they represent a self-regulatory
framework devised in order to aid international commercial sales transactions. This means that the mere use of the
letters CIF or FOB do not suffice to ignite the incorporation of the Incoterms (which will need to be explicitly
referred to by the sale contract). – Incoterms do not possess the force of law; but will be legally binding if invoked
by a sale contract, regulating the legal obligations and rights of the parties involved in the transaction. Incoterms
enjoys simplicity – very successful in delineating the basic obligations and rights of seller and buyer within the
context of contracts concluded on shipment terms.
The most commonly used Incoterms in contracts concluded on shipment terms:
- C.I.F - Cost, Insurance, and freight (goods transported in bulk) –Obligation that the seller must pay the costs and
freight to bring the goods to the port of destination; in addition, the seller must in addition procure and pray for
insurance The seller is required to arrange the carriage of goods and their insurance in transit, and all cost of such
arrangements are included in the contract price. The essential duties of CIF seller are to obtain a bill of lading, a
policy of insurance and any other document required by the contract, and to forward them to the buyer who pays
on the invoice when he receives the shipping documents.
- FOB – free on board – If a contract is concluded under FOB terms, the seller must load the goods on board a
vessel designated by the buyer. It means that the seller pays for transportation of goods to the port of shipment,
and the loading costs. The buyer pays the cost of marine freight transportation, insurance, unloading and
transportation costs from the arrival port to the destination. The buyer arranges for the vessel and the shipper has
to load the goods onto the named vessel at the named port of shipment with the dates stipulated in the contract of
sale as informed by the buyer. The seller fulfils his obligations when he delivers goods conforming to the contract
on board the ship. The primary duty of the FOB buyer is to nominate an effective ship to carry the goods. Unless,
and until he does so the seller is not obliged to deliver to goods.
FOB – transportation rests on shoulders of buyer.
CIF– transportation rests on shoulders of seller.
Legal perspective and commercial perspective; CIF is preferable, obviously for buyer – everything rest on seller. FOB
– reversed situation, seller wants everything to rest on buyer. CIF – one sum of money is received which covers
everything, the value of goods and everything else. In what sense is that risky from the perspective of a seller? –
Insurance fluctuates; not fixed. There could, for example, be a war between the two countries, or episode of pirates –
insurance goes up. The same applies to the cost of freight – it fluctuates a lot. Seller selling on CIF terms – you will
try to negotiate a price which you are comfortable which will enable you to prevent any type of fluctuation. Though
things can occur and you can only obtain the stipulated (negotiated) price under the contract under the payment clause,
irrespective of change. CIF contracts for sellers expose themselves to a certain amount of risk. Ultimately who takes
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