V AN OVERVIEW OF THE INTERNATIONAL SALE OF
V.1 Delivery of the goods and the documentsdocuments
Article 30 of the United Nations Sales Convention lays down the principal rule of the obligations of the seller under a contract of sale. The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and the Convention.
The ´fall-back´ rule for the delivery of the goods is contained in Article 31. If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists in handing the goods over to the first carrier for transmission to the buyer.2 In practical terms, this means that the buyer would have to contract for carriage, and to bear the costs for such carriage. Moreover, the goods would be at his risk in relation to the seller after the goods are handed over in accordance with the above provision. The term ´delivery´ is to be
construed narrowly.3
In addition to the goods, the seller has to hand over the documents relating to the goods. Article 34 provides that if the seller is bound to hand over the documents relating to the goods, he must hand them over at the time and place and in the form required by the contract.4 Should the contract provide for the use of a documentary credit as a method of payment and, at the same time, as the means of handing over the documents, the seller has to deliver documents that are in conformity with the description in the contract of sale and the identical terms of the credit.
In international trade, a practice is said to exist, which links payment, whether on open account, on the basis of a documentary collection or by means of a documentary credit with the ´constructive´ delivery rather than with the
´actual´ delivery.5 The seller may link the payment and delivery of either the
2 This rule applies when the contract of sale involves carriage of the goods, which is the situation this study is intended to look at more closely. If the contract does not involve carriage of the goods, and the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place, the seller´s obligation to deliver consists in placing the goods at the buyer´s disposal at that place. Finally, in other cases, the seller has to place the goods at the buyer´s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.
3 It means simply the handing over of the goods. In comparison, Article 19(1) of the Uniform Law of International Sales used the French concept ´délivrance´ that “consists in the handing over of goods which conform with the contract” (Honnold, no 210. p. 241).
4 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 expense. However, the buyer retains any right to claim damages as provided for in the CISG. The provisions of Article 37 apply generally to the cure of defects in documents although it only mentions the goods (Honnold, no 220, p. 250).
5 UN/CEFACT Recommendation No. 12 ´Measures to facilitate maritime transport documents procedures´, second edition, Geneva October 2001, ECE/TRADE/240, 14.-15. pp.3-4. The term ´constructive delivery´ apparently has its roots in English common law. English common law even considers a CIF contract as “not a sale of the goods themselves but a sale of the documents relating to the goods” (Schmitthoff, Export Trade 1986, p. 30).
goods or documents to the other. Article 58 (2) of the CISG provides namely that if the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition6, will not be handed over to the buyer except against payment of price. ´Constructive delivery´ is deemed to be effected by the seller handing to the buyer a ´transport document´ issued by an independent third party, the carrier of the goods.7 This document may, as shall be explained later, enable the transfer of title between the parties, or it may simply enable the transfer of a right of control over the goods.8 The seller can in principle require payment at the seller´s place of business. If the payment is to be made against the handing over of the goods or of documents, the buyer must pay where the handing over takes place.
The payment against handing over the documents usually takes place in accordance with preset rules such as the Uniform Customs and Practice for Documentary Credits UCP500 or the Uniform Rules for Collections URC 522. In the case of collections and in three-partite documentary credits, payment takes place normally in the buyer´s country, whereas in the case of a traditional four-partite documentary credit arrangement, in which a local confirming bank is involved, the payment takes place in the seller´s country. Nothing prevents the parties from agreeing on a third country, of course.
The contractual provision is in respect of the delivery of the goods, and to some extent of the handing over the documents, is normally in the form of a trade term. Trade terms such as CIF and FOB have probably existed since the 17th century, and English common law has a great deal of jurisprudence on CIF and FOB contracts, which have been conceptually crystallised over hundreds of years.9 This jurisprudence takes a stand on, amongst others, what is to be regarded as a valid tender in respect to trade documentation. For instance, a
6 The CISG was drafted before the discussion on electronic alternatives to trade
documentation became active. As Ramberg notes (Konossement och köpavtal, 1991, note 13), the issue of paperless trade has not been observed in some relevant commentaries on the CISG. Honnold (no 217, note 1, p. 249) refers to the Incoterms 1990 A8 which covered electronic documentation. Bianca-Bonell, p. 428, suggests that the words
“documents controlling disposition of the goods” should not be interpreted “narrowly or in the strict legal sense of any particular national law”.
As has been stated already, the provisions of the CISG were recently analysed by the Secretariat of UNCITRAL with a view to assessing their amenability to electronic
commerce. The Note by the Secretariat (A/CN.9/WG.IV/WP.91) does not raise the issue of the contractual delivery of electronic trade documents. The same goes for the first Opinion of the CISG Advisory Council.
One way to interpret the fact that the Convention does not allow adhering states to stick to national form requirements would be to refer to the obligation to interpret the Convention in its international context. When electronic commerce gains ground in international trade, national interpretations imposing form requirements would be against a universal interpretation. Another possibility would be to amend the Convention, but that would presumably draw the process out to some length.
7 Similarly UCC § 2-310(b): “if the seller is authorized to send the goods he may ship them under reservation and may tender the documents of title”. Referring to the possibility of delivery effected by documents of title was considered during the preparations of the CISG. This was, however, found to be too complicated for the drafting of other articles (Honnold no 219, p. 250).
8 The sea waybill under the Nordic Maritime Codes has been stripped of that function as well. Still, it remains presumably under the seller´s delivery obligations.
9 For English common law, see in particular Sassoon, CIF & FOB Contracts, 3rd edition, London 1984.
buyer under a CIF contract at English common law has been entitled to require the tender of a shipped bill of lading.10
In the international context, in any case, the English common law CIF contract should be seen as a national phenomenon. It is possible that national law in other countries, based either on custom or statute11, may introduce similar presumptions. Outside the administrative and fiscal contexts, however, national law seldom prescribes requirements as to the delivery of goods and documents on a mandatory basis, but leaves the matter to be decided by the parties. Trade terms used in international trade have been harmonised, and the sooner uniform interpretations of standard trade terms are adopted, the better. Since 1936, the International Chamber of Commerce has published standard interpretations for trade terms.12 It should be noted that the use of the INCOTERMS has received a formal recognition from UNCITRAL, which recommended their use in 1992.
Thus, as the INCOTERMS are a recognised and established part of international trade law, it is my intention to assume that they are followed and base my presentation on that fact. Harmony in international trade can only be achieved by sticking to harmonised practices. In my view, it would therefore be useless to trace existing discrepant local practices in a legal essay on a field where harmony is attainable.
The role of trade terms is to determine the obligations and costs of the seller and the buyer in respect of the delivery of the goods, usually involving carriage of the goods by an independent carrier, and including, where necessary, the insuring of the goods as well as compliance with customs formalities including the payment of relevant duties. As regards the seller´s delivery obligation, which may have implications under national law on the transfer of property and the law applicable, it is not always uncontested that the INCOTERMS really designate the place of delivery according to the contract of sale.13
10 Diamond Alkali Export Corporation v. Fl. Bourgeouis, [1921] 3. K.B. 443. This requirement was based on the fact that common law conferred the status of a document of title to a shipped bill of lading.
11 The commercial law of the United States has its own conceptions of FOB terms. Whereas INCOTERMS 2000 envisage the use of the FOB term only in traditional sea carriage, the goods being loaded “over the ship´s rail”, the US law knows six different FOB terms relating to various modes of transport. Section 2-319(1) of the Uniform Commercial Code contains fallback terms for the FOB term. FOB as an acronym used to have political connotations during the Clinton administration.
12 Later revisions have taken place in 1953, partially in 1976, in 1980, in 1990, and the latest version is INCOTERMS 2000 (ICC Publication No 560) For INCOTERMS 2000, see also Ramberg, ICC Guide to Incoterms 2000 (ICC Publication No 620) as well as Railas, Incoterms for the New Millennium, ETL, 2000, pp. 9-22.
The ICC gave useful instructions on the proper use of INCOTERMS by publishing a set of guidelines called the´Golden Rules of Incoterms´ in the 1990s.
In the United States, there is a collection entitled ´Revised American Foreign Trade Definitions´, which was adopted in 1941 by a Joint Committee representing, inter alia, the Chamber of Commerce of the US and the National Council of American Importers.
Those terms eventually found their way to the Uniform Commercial Code, Sections 230 to 2-235 (Chandler, III in Transfer of Ownership, p. 421). The US business community is not, however, opposed to the use of the INCOTERMS, see Frank Reynolds, INCOTERMS for Americans, New York, 2002.
13 For instance, the Italian courts have been reluctant to give the INCOTERMS that task (Zunarelli in Transfer of Ownership, pp. 206-207). See also Kronke in Internet..., pp. 76-77, and Lando, The 1986 Hague Convention on the Law Applicable to Sales.
If nothing is agreed and by virtue of the relevant conflict of laws rules, Article 31 of the CISG is to be applied, the situation is practically the same as if Ex Works (´EXW´) or, where the sale involves carriage of the goods, Free Carrier (´FCA´) of the INCOTERMS 2000 were applied. Under EXW, the buyer contracts and pays for the carriage and, if needed, for the insurance and, also, takes care of both export and import formalities, which results in that the seller´s duty to hand over documents is very limited. That duty covers only the invoice, the packing list and similar documents. Under FCA, the seller has more documentary duties.
Under the so called ´D-terms´ (Delivered at Frontier or ´DAF´, Delivered Ex Ship ´DES´, Delivered Ex Quay ´DEQ´, Delivered Duty Unpaid ´DDU´, Delivered Duty Paid ´DDP´), as well as under the ´C-terms´ (Carriage Paid to a destination
´CPT´, Carriage and Insurance Paid to a destination ´CIP´, Cost and Freight ´CFR´
and Cost, Insurance and Freight ´CIF´), the seller has to contract for the carriage, and in CIP and CIF the letter ´I´ indicates that the seller has to insure the goods as well.
On the contrary, in the case of Ex Works ´EXW´ and the ´F-terms´ (Free Carrier ´FCA´, Free Alongside Ship ´FAS´ as well as Free On Board ´FOB´) the buyer has to contract at least for the main carriage. Under the F-terms however, the seller has obligations in respect of transport documentation.
The ´C-terms´ are particularly useful in connection with documentary credits, since the seller is able to fulfil his obligations at his own end before the main carriage takes place. Thus the seller delivers the goods to the carrier, either
“over the ship´s rail” (the terms CFR and CIF) or simply “to the carrier” in his terminal (the terms CPT and CIP)14. The seller is responsible for export formalities, but not for import formalities and duties.
To illustrate the contractual obligations to deliver trade documentation imposed by a trade terms agreed on by the parties, one may have a look at the traditional CIF terms. According to Point A1 of CIF INCOTERMS 2000, the seller must provide, in addition to the goods, the–commercial invoice or its equivalent electronic message, in conformity with the contract of sale, as well as any other evidence of conformity15 which may be required by the contract of sale. In addition, Point A3(b) provides that the seller must obtain, at his own expense, cargo insurance as agreed in the contract, such that the buyer or any other person having insurable interest in the goods shall be entitled to claim directly from the insurer and provide the buyer with the insurance policy or other evidence16 of insurance cover.
Finally, according to Point A8, the seller must, at his own own expense, provide the buyer without delay with the usual transport document for the agreed port of destination. This document, which can be, for instance, a
14 The terms ´CPT´ and ´CIP´ are suitable to all carriages whereas ´CFR´ and ´CIF´ are recommended for traditional sea carriages, where loading and unloading take place “over the ship´s rail”.
15 On such evidence, see Chapter VIII.6.7., post.
16 Interestingly, INCOTERMS2000 does not mention the possibility that an insurance policy or other evidence of an insurance contract could be in electronic form. For this issue, see infra.
negotiable bill of lading, a non-negotiable sea waybill or an inland waterway document, must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim the goods from the carrier at the port of destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer in the case of a negotiable bill of lading, or by notification to the carrier e.g. in the case of a sea waybill. When such a transport document is issued in several originals, as is the case with negotiable bills of lading, a full set of originals must be presented to the buyer. Although any of these originals, as will be seen later, will give its holder independent rights as against the carrier, the seller is not entitled to indorse different originals separately. In a situation in which the surrender of one original to the carrier makes other originals void, the holders of such other originals have a recourse against the seller.17
Point A8 of CIF INCOTERMS 2000 adds, as every Incoterm ever since the publication of the INCOTERMS 1990 as a rule does, that where the seller and the buyer have agreed to communicate electronically, the transport document
referred to may be replaced by an equivalent electronic data interchange (EDI) message. This applies naturally only between the seller and the buyer since the Incoterms only govern this relationship and constitute a part of the contract of sale and are incorporated by reference. The availability and use of electronic transport documentation calls for a separate agreement between the carrier and the shipper. Since a valid tender of electronic records as commercial documents requires the assent of the buyer as the primary consignee of the goods, there is no need to require his approval for the issue of an electronic transport document in the first place. The same applies to every new buyer who enters into the position of a consignee or indorsee of a transport document. However, as the buyer as
consignee or indorsee is not, as a rule, obliged to accept an electronic transport document, there is not much use for an electronically issued transport document, unless the new buyer being the next in the chain accepts such an issue.
The documents to be delivered by the seller to the buyer are defined in the contract of sale. The definition can be a simple reference to a trade term, which imposes standard requirements. Parties may modify these requirements. When documentary credits are used, documentary requirements are especially elaborate.18
INCOTERMS 2000 contains provisions relating to most documentary obligations that arise in connection with an international sale of goods transaction. However, the drafters of the next revision might wish to consider amending the text to be more all-embracing.19
17 Under the relevant rules applicable to documentary credits (see Chapter VIII. 6.3., post), the seller has a similar obligation. A counter-argument is that the buyer, when the seller´s obligations are clearly written in INCOTERMS 2000, should insist on his rights to get all the originals and, failing to do so,has waived his rights.
18 The ICC Model International Sale Contract (Manufactured Goods Intended for Resale), ICC Publication No. 556, contains in Part A, General provisions, a checklist of documents regularly used in documentary credits.
19 Point A 1 of each term could, in my view, be a catch-all term and read as follows: “The seller must provide the goods and the commercial invoice, or its equivalent electronic message, in conformity with the contract of sale, (...) any (...) evidence of conformity, or any other documents which (...) are required in these terms or by the contract.”
The goods and documents delivered must be in conformity with the contract of sale. The non-conformity of the goods constitutes, according to the CISG, a breach of the contract, which gives the buyer the remedies provided for in Articles 45 to 52 of the CISG. If the goods do not comply with the terms of the contract, the buyer may reject the goods to the extent this is allowed in the Convention.
Trade law, including the CISG and trade contracts, are comprehensive on the
Trade law, including the CISG and trade contracts, are comprehensive on the